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Land Game (Lot Splitting and Investing)

SteveO

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I don't know if any of you remember this story. I met a guy on one of my softball teams that made a lot of money on land. He had owned, parceled, and in few incidents done some development. His main game was land and division.

I sat down with him for a couple of hours and he went through some information about how he split out small plots of land.

Well, here a few years out, I presented myself with an opportunity.

It started with walking the dogs. I saw an old sign laying on the ground stating that a 5 acre lot was for sale. It was difficult to get anyone to respond but I finally did.

In the meantime, investigation was going on in the area to understand it. I found another parcel of 40 acres in the back of the sparsely developed corner. All of this property sloped up the side of a mountain that is US and state owned on 2 sides. It has jutting rocks and canyons. It runs alongside a mountain range that has bighorn sheep. I have spotted them on the property twice.

Information about the owners was gathered. I was able to see that it was an investment group that had just bought it off a tax lien. A letter was sent inquiring what they were going to do with it. Turns out that they were willing to sell the entire lot for less than I was willing to pay. So a lowball offer was made. We agreed on $120K for the lot.

30 of the acres are zoned as rural farm with 10 acre minimums. But one side consisting of 10 acres is zoned at 2 acre minimums. That is going to be split off and the 30 acres will be kept intact. That is where I'm building my house. The highest buildable spot in my town. The absolute best view and right up against canyons and rock cliffs.

The lots that are being split are over the side of a cliff where I will not be able to see them. I had a builder out already and he said that there are 3-4 buildable areas there. All of them have views and utilities very close to the lot edge.

I am allowed to split the lot into 5 sections without going through the subdivision process. So I can easily sell off 3 lots there for 60-70K each.

Just today, I went under contract on the other 5 acre parcel plus another 5 acres behind it. One of them adjoins the 40 acres. One of them had an easement through it to allow me to get to the 40. The easement is not wide enough for the county though. A four inch municipal water main is already halfway up the length of the back lot. With the easement for access, I can run the water main the rest of the way. The electrical is there at that point also.

Homework helps.

Each of these lots can be split in half after I add my easements. I should be able to make another 100K on these when all sold off.

It is going to cost a lot of money to run driveway and utilities 1500 ft back to the house. But, by the end of this, I will have a house on 30 acres up against rocks and over canyons for less than the house I live in now.

All this is 10 minutes away from the golf course.

I don't know how this has been so overlooked. Most of the area is developed with houses on 1-5 acres. The one acre lots are selling for 80-100K.
 

LeoistheSun

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Not too long ago out in NV above Reno, quite a ways (I dont want to sound like it was super close), the govt. was selling 400 acres for 40k. It sold.

How did I find the listing?

US Marshalls Auctions (I dont think it was that link).

Care to share more how he did it? Or is it as simple as buying land, splitting it up and selling?
 

SteveO

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Not too long ago out in NV above Reno, quite a ways (I dont want to sound like it was super close), the govt. was selling 400 acres for 40k. It sold.

How did I find the listing?

US Marshalls Auctions (I dont think it was that link).

Care to share more how he did it? Or is it as simple as buying land, splitting it up and selling?
He showed me basics about what I could do. Although that was not his plan. He touched on his successes but only as far as I questioned.

Every metro area had a general plan. He would look for areas with malls in the long term plan and purchase large swaths beyond them. He offered to sell me land that was slated for commercial development but I passed.

It was the same success story as most. Build credibility in the game and get investors.

Our conversation focused on what i could do with small residential lot splits. Utilities, path of progress, easements, roads, etc.
 

SteveO

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Not too long ago out in NV above Reno, quite a ways (I dont want to sound like it was super close), the govt. was selling 400 acres for 40k. It sold.

How did I find the listing?

US Marshalls Auctions (I dont think it was that link).

Care to share more how he did it? Or is it as simple as buying land, splitting it up and selling?
Btw... All it cost me was lunch at a place of his choosing. Another guy that was into commercial real estate came with us. He had multiple retail sites that he owned with no debt. He asked a question at one point and was shut down. "Steve invited me and he is paying. If you have questions, that is another meal". :)
 

WJK

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I don't know if any of you remember this story. I met a guy on one of my softball teams that made a lot of money on land. He had owned, parceled, and in few incidents done some development. His main game was land and division.

I sat down with him for a couple of hours and he went through some information about how he split out small plots of land.

Well, here a few years out, I presented myself with an opportunity.

It started with walking the dogs. I saw an old sign laying on the ground stating that a 5 acre lot was for sale. It was difficult to get anyone to respond but I finally did.

In the meantime, investigation was going on in the area to understand it. I found another parcel of 40 acres in the back of the sparsely developed corner. All of this property sloped up the side of a mountain that is US and state owned on 2 sides. It has jutting rocks and canyons. It runs alongside a mountain range that has bighorn sheep. I have spotted them on the property twice.

Information about the owners was gathered. I was able to see that it was an investment group that had just bought it off a tax lien. A letter was sent inquiring what they were going to do with it. Turns out that they were willing to sell the entire lot for less than I was willing to pay. So a lowball offer was made. We agreed on $120K for the lot.

30 of the acres are zoned as rural farm with 10 acre minimums. But one side consisting of 10 acres is zoned at 2 acre minimums. That is going to be split off and the 30 acres will be kept intact. That is where I'm building my house. The highest buildable spot in my town. The absolute best view and right up against canyons and rock cliffs.

The lots that are being split are over the side of a cliff where I will not be able to see them. I had a builder out already and he said that there are 3-4 buildable areas there. All of them have views and utilities very close to the lot edge.

I am allowed to split the lot into 5 sections without going through the subdivision process. So I can easily sell off 3 lots there for 60-70K each.

Just today, I went under contract on the other 5 acre parcel plus another 5 acres behind it. One of them adjoins the 40 acres. One of them had an easement through it to allow me to get to the 40. The easement is not wide enough for the county though. A four inch municipal water main is already halfway up the length of the back lot. With the easement for access, I can run the water main the rest of the way. The electrical is there at that point also.

Homework helps.

Each of these lots can be split in half after I add my easements. I should be able to make another 100K on these when all sold off.

It is going to cost a lot of money to run driveway and utilities 1500 ft back to the house. But, by the end of this, I will have a house on 30 acres up against rocks and over canyons for less than the house I live in now.

All this is 10 minutes away from the golf course.

I don't know how this has been so overlooked. Most of the area is developed with houses on 1-5 acres. The one acre lots are selling for 80-100K.
Splitting lots is a wonderful way to make money. You're absolutely right. It has to be thoughtfully done -- using good sound real estate principals. You've stumbled onto another profit center.

We built a small commercial building on my highway frontage a few years ago. At the end of 2016 I finished a lot split -- splitting it off of my mobile home park property. That building had no economic value as part of the large property. Now I have a free standing, commercial building/property, with highway frontage. It has its own well and commercial septic system. And yes, the lot split has created a commercial property with a respectable market value.

FYI -- we built it from the get-go in a way to make a future lot split possible...

And doing the lot split didn't even really negatively effect the market value of the mobile home park.

There's also a reverse type of deal. I have done "plottage" -- where you put a larger lot together from smaller, substandard lots. It works well where the lots cannot be used due to their size, shape, topography or other irregularities. I have bought some of these lots for next to nothing and made a good profit on the resulting usable lot. The profits in these deals are found in good research and market knowledge.
 

Valor

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Great stuff.

I'm just curious, do you have a backup plan for the land if the land plots don't sell as quickly or for as much as you'd like?

There's a spot a couple miles from me now where I've noticed someone bought a large field, and I've seen he has several listings for this field for sale in 1/2, 1, and 2 acre lots. Identical houses keep getting built side-by-side on these same lots though too; presumably by the investor, to rent out or sell.

Is there anything you could do to further develop the land that would make it more profitable? Build multifamily housing, etc.? I know that involves a lot more work though, and you may not be interested in taking on that much more work on this project either - just curious if that was a possibility.
 

SteveO

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Great stuff.

I'm just curious, do you have a backup plan for the land if the land plots don't sell as quickly or for as much as you'd like?

There's a spot a couple miles from me now where I've noticed someone bought a large field, and I've seen he has several listings for this field for sale in 1/2, 1, and 2 acre lots. Identical houses keep getting built side-by-side on these same lots though too; presumably by the investor, to rent out or sell.

Is there anything you could do to further develop the land that would make it more profitable? Build multifamily housing, etc.? I know that involves a lot more work though, and you may not be interested in taking on that much more work on this project either - just curious if that was a possibility.
The way I see it is that I could list them for different amounts for different results. Each of the seven lots would be about 2.5 acres. There are some differences in them. Some have better views, others are up against rock outcroppings, etc. But they are pretty comparable in value.

Here is my general thought.

100K - May sit a while but not out of line with other land prices
70K - Should all be sold within 1-2 years
50K - Should sell pretty quickly and would be priced below everything else.

At 50K, I will still make decent money. The original goal was to own my lot without having paid money for it. But it certainly appears there will be more.

All of the lots have utilities close by. I could have the utilities stubbed onto the properties but don't feel like it would add enough value to be worth while. The building pads could be leveled but the buyers might have different ideas about where they want them. I could also develop these but feel like that would be riskier and much more work.

I'm happy with getting a couple off the books and then being more patient with the rest.

There will not be any debt on these so holding costs will be taxes and liability insurance.
 

WJK

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Great stuff.

I'm just curious, do you have a backup plan for the land if the land plots don't sell as quickly or for as much as you'd like?

There's a spot a couple miles from me now where I've noticed someone bought a large field, and I've seen he has several listings for this field for sale in 1/2, 1, and 2 acre lots. Identical houses keep getting built side-by-side on these same lots though too; presumably by the investor, to rent out or sell.

Is there anything you could do to further develop the land that would make it more profitable? Build multifamily housing, etc.? I know that involves a lot more work though, and you may not be interested in taking on that much more work on this project either - just curious if that was a possibility.
The way I see it is that I could list them for different amounts for different results. Each of the seven lots would be about 2.5 acres. There are some differences in them. Some have better views, others are up against rock outcroppings, etc. But they are pretty comparable in value.

Here is my general thought.

100K - May sit a while but not out of line with other land prices
70K - Should all be sold within 1-2 years
50K - Should sell pretty quickly and would be priced below everything else.

At 50K, I will still make decent money. The original goal was to own my lot without having paid money for it. But it certainly appears there will be more.

All of the lots have utilities close by. I could have the utilities stubbed onto the properties but don't feel like it would add enough value to be worth while. The building pads could be leveled but the buyers might have different ideas about where they want them. I could also develop these but feel like that would be riskier and much more work.

I'm happy with getting a couple off the books and then being more patient with the rest.

There will not be any debt on these so holding costs will be taxes and liability insurance.
I totally agree with you analysis. I have seen people use several different ways to up their profits over the years. But, the "dirt game" is always about finding an up and coming area, at the edge of a growth trend. The big questions is always -- which way will the existing population grow from its hub? It's back to location, location, location.

The other factor is that land doesn't have the write-off of income property and it tends to be a one-shot deal unless you are a developer. I've done a lot of construction appraising over the years for many developments. That's a lot higher risk than just holding title to the dirt!
 

WJK

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Great stuff.

I'm just curious, do you have a backup plan for the land if the land plots don't sell as quickly or for as much as you'd like?

There's a spot a couple miles from me now where I've noticed someone bought a large field, and I've seen he has several listings for this field for sale in 1/2, 1, and 2 acre lots. Identical houses keep getting built side-by-side on these same lots though too; presumably by the investor, to rent out or sell.

Is there anything you could do to further develop the land that would make it more profitable? Build multifamily housing, etc.? I know that involves a lot more work though, and you may not be interested in taking on that much more work on this project either - just curious if that was a possibility.
You are talking about a developer verses a "dirt guy". This thread is about a guy who deals in the dirt -- not a developer. There are several levels of involvement.

The guy building the houses in the field had to subdivide the land into lots, provide the off-site infrastructure (utilities, streets, sidewalks, curbs, fees for services such as fire and police, etc.) To get a preliminary track map takes usually 18 to 24 months, before he start to take deposits, or contracts to sell any of his lots. It can be hundreds of thousands of dollars up front. BUT, it also can make the developer millions in return. It's not for the faint of heart, or someone with shallow pockets.

And then, if he develops it himself, he had to get the house plans approved, as well as supervise and find the financing for the construction. If he doesn't have a buyer when he builds, then it is called "spec building". Or he could build on demand with a buyer for that specific house -- which is much harder to obtain the construction financing.

Being involved in raw land or development is whole business within itself. And it takes a lot of guts. The people in that business are told no by government officials all the time, and at every step of the process.
 

MJ DeMarco

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He would look for areas with malls in the long term plan and purchase large swaths beyond them.
Wonder how he's adjusted since, certainly that plan no longer works. Malls are dying.
 

SteveO

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Wonder how he's adjusted since, certainly that plan no longer works. Malls are dying.
The new ones aren't. They are still being planned and developed. Look at the Tempe Marketplace for an example. It is much more about the restaurants, shopping experience, ambiance. They may slow down but not stop.
 
G

Guest3722A

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Out of curiosity, how would you approach a situation where you found out after you purchased the property that the county said it wasn't buildable due to something like soil erosion? I ask this because I purchased an acre at a final sale tax auction where prior to buying, the city told me I could build on it and the county didn't show any issues outside of the previous owners eventually defaulting on their taxes. This last fall I contracted an excavation company to clear and set the land up while also coordinating a perc test for a septic. When I went to the county to file the paper work, I got a call an hour later that told me it wasn't buildable because of soil erosion. It has neighbors on both sides with equal lots and all down the street. Doesn't make sense. So, just wondering how you would approach something like this to hopefully get you on the other side and continue with your plan.
 

WJK

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Out of curiosity, how would you approach a situation where you found out after you purchased the property that the county said it wasn't buildable due to something like soil erosion? I ask this because I purchased an acre at a final sale tax auction where prior to buying, the city told me I could build on it and the county didn't show any issues outside of the previous owners eventually defaulting on their taxes. This last fall I contracted an excavation company to clear and set the land up while also coordinating a perc test for a septic. When I went to the county to file the paper work, I got a call an hour later that told me it wasn't buildable because of soil erosion. It has neighbors on both sides with equal lots and all down the street. Doesn't make sense. So, just wondering how you would approach something like this to hopefully get you on the other side and continue with your plan.
You can try to fight or negotiate your position. You're in a tough spot. There is no legal recourse, that I've seen, that usually works on the fighting end. I would find out who has made that decision and present them with evidence that counters their decision. Be very respectful and try to get them to tell you why. And what they need to change their mind. Almost every building and safety department assigns one person to these kinds of problems and it's their "baby".

When I wanted to build my Laundromat, the powers-that-be said NO -- we're on septic tanks rather than public sewers. After negotiating with them for 6 months, I got them to approve 9 low water washers. I couldn't have a public restroom or a sink. I couldn't use one more gallon of water. 9 is NOT much, but it huge in my rural community. We're 13 miles out of the closest city.

Find out what is it that is sticking in their craw (the tipping point). Why did they make this decision? What will it take to change it?
 

Sauce

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Can you get an engineer to do a site plan and stamp it? The stamp and the engineers insurance can go a long way to getting it approved.
Out of curiosity, how would you approach a situation where you found out after you purchased the property that the county said it wasn't buildable due to something like soil erosion? I ask this because I purchased an acre at a final sale tax auction where prior to buying, the city told me I could build on it and the county didn't show any issues outside of the previous owners eventually defaulting on their taxes. This last fall I contracted an excavation company to clear and set the land up while also coordinating a perc test for a septic. When I went to the county to file the paper work, I got a call an hour later that told me it wasn't buildable because of soil erosion. It has neighbors on both sides with equal lots and all down the street. Doesn't make sense. So, just wondering how you would approach something like this to hopefully get you on the other side and continue with your plan.
 

MJ DeMarco

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The new ones aren't. They are still being planned and developed. Look at the Tempe Marketplace for an example. It is much more about the restaurants, shopping experience, ambiance. They may slow down but not stop.
Ah OK. Like Kierland and Tempe Marketplace -- you said "mall" and I immediately thought of stuff like Fiesta Mall and Metro Center -- places that are dying. (Or have died.)

PS: Change the thread title so it is more descriptive for people browsing.
 

SteveO

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Ah OK. Like Kierland and Tempe Marketplace -- you said "mall" and I immediately thought of stuff like Fiesta Mall and Metro Center -- places that are dying. (Or have died.)

PS: Change the thread title so it is more descriptive for people browsing.
The idea was that he would look at the general plan which goes out years in advance. He used the word "mall" in our conversations but it was clear that the context was large retail commercial centers. The discussion was that those would be the centers that builders would build around and out from. That is also where the infrastructure would be designed for.
 

Get Right

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I saw an old sign laying on the ground stating that a 5 acre lot was for sale.
SteveO - be sure to remember that trick. I've bought several lots now that had old trampled signs from years past on them. They almost always want to sell.
 

SteveO

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Out of curiosity, how would you approach a situation where you found out after you purchased the property that the county said it wasn't buildable due to something like soil erosion? I ask this because I purchased an acre at a final sale tax auction where prior to buying, the city told me I could build on it and the county didn't show any issues outside of the previous owners eventually defaulting on their taxes. This last fall I contracted an excavation company to clear and set the land up while also coordinating a perc test for a septic. When I went to the county to file the paper work, I got a call an hour later that told me it wasn't buildable because of soil erosion. It has neighbors on both sides with equal lots and all down the street. Doesn't make sense. So, just wondering how you would approach something like this to hopefully get you on the other side and continue with your plan.
What @Sauce said. I would also do the footwork thing. Go to the county and work your way nicely through different people until you get the answer you want. Don't step on toes and move slowly.
 

SteveO

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Ah OK. Like Kierland and Tempe Marketplace -- you said "mall" and I immediately thought of stuff like Fiesta Mall and Metro Center -- places that are dying. (Or have died.)

PS: Change the thread title so it is more descriptive for people browsing.
Commercial retail is a different breed these days. The smaller and more expensive stores that tend to specialize are struggling. Mall space has historically been very expensive for those types of retailers. Plus the online business has taken a lot away from many types of retail.

This link came through my email today. Just thought sharing it might help.

Metro Phoenix Shopping Center Vacancy Rates Hit 10-year Low |
 

SteveO

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I totally agree with you analysis. I have seen people use several different ways to up their profits over the years. But, the "dirt game" is always about finding an up and coming area, at the edge of a growth trend. The big questions is always -- which way will the existing population grow from its hub? It's back to location, location, location.
This particular property is at the end of the buildable edge of the city. An overlooked parcel for some reason. The last owner has owned hundreds of acres in the area. His businesses seem to be crumbling as he is losing them all over the place. He lost this land to a tax lien. Out of town investors from Phoenix and Tucson picked it up. I doubt they even looked at the potential.

The rural lots in this area are thinning out. Not many left before they hit the "hard" margins of the edge of developable land. I will have more lots available than the rest of the area combined.

Even though it is at the edge of the mountains, it is only 25 minutes from downtown Yuma. There is a lot of commercial development going on just 10 minutes away. I have a Fry's grocery store just 10 minutes from the house.

There are more lots around for subdivisions. Those are different though.
 

SteveO

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So the two five acre lots are in a lawsuit contesting an improper foreclosure. I am getting an aerial survey done next week to map out the topography. Hopefully, I can take my road up the north side without purchasing the other lots.

Weird stuff happening. Turns out that the 40 acres and the two five acre lots were foreclosed on. The person that is losing all of this is the owner of my biggest competitor. He owns a nearby golf course. He also owns the water company that I am trying to get municipal water from. That will be a weird conversation... "Hey, I need you to run a water line through an easement on a property that you just lost to foreclosure to a property that you just lost to foreclosure. Good luck on your golf course!!!"
 
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SteveO

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My real estate agent informed me that I should list the lots being split off at $125K each. She said that the properties are very nice and unique. They have views, privacy, and are up against a mountain backdrop. That listing price is for 2-2.5 acre parcels. The entire 40 acres was only 120K.
 

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