Transcription
This is an 11-acre piece of land that I purchased off-market outside of Raleigh, North Carolina, and eventually resold on the MLS. What I'm going to do in this video is show you the actual numbers of this deal, as well as the process that led me to buying it, marketing it, and eventually reselling it for a profit. So, if you like this kind of video and you want to see more of this kind of content, there's a like button located at the bottom of your screen, and I'd like you to take a moment, hit that like button, and subscribe to our channel if you've not done so already. So let's get started.
Buying 11 acres of land below market value is actually relatively straightforward. The real question is: can you sell it? Can you sell it quickly enough to get your money out of the deal and move on to the next one? How much are you actually going to make in that process? And what steps do you have to do in between in order to manage risk and be successful along the way? So this is an 11-acre piece of land located in a Lakeside subdivision outside Raleigh. The property that I bought here came out of a mail campaign where I contacted the owner through direct mail. The owner that sold it to me was actually part of the family that originally developed that subdivision, and he was just done owning this property. He was done paying annual HOA fees; he didn't want to worry about selling it on the market; he didn't want to worry about getting it ready and in marketable condition, getting septic permits, what have you. So he accepted a cash offer from us to buy that land from him at $37,500. And when I really looked at the local market based on our experience and comparable sales history in that area, I was thinking that it would probably sell for at least $80,000, maybe closer to $100,000 on the open market.
See, this is where a lot of people struggle to understand land and this business; it's this question of: why would anyone sell their land for less than what it's truly worth? And it's a reasonable question. Why would anyone actually do a deal like that when they know that they can probably get a higher price on the open market? I do it all the time. I sell land for far below market value all the time. I've gotten letters from investors that made blind offers to purchase my land, and I have sold property to those investors in the past, and I do it for the same reason, which is that you're talking about an illiquid asset. And what I, what I tell sellers is, "Look, property like this on the open market might sell for something like $80,000, but if that were true and we sold it, we would spend a couple thousand bucks on septic permits; we would make sure to get aerial photos; we would hire a real estate agent; we'd pay them 8 to 10% commission. And so you may end up waiting 6 to 12 months, walking away with $65,000 or $70,000." However, what I can tell you is we can take that risk off the table and be very straightforward, because what we can offer you is $37,500, and that'll close in the next 3 to 4 weeks.
And bear in mind, before you start breaking out the champagne about how great of a deal this is, in addition to the purchase price of $37,500, it's not just the purchase price that we have to spend. What we spent on the soil valuation was $1,500. The other thing was we spent $2,300 in closing costs. The total cost at this point just to own this piece of land was $41,300. So what we did is we put it on the market at $99,000 to see if we can find a retail buyer that wants to build on that 11 acres in that subdivision, and nothing happened, really. We waited three months; there was a lot of traction on the listing online; the views and saves on Zillow were pretty significant, but we didn't really get an offer. And this is where reality sets in, and we're out $41,300. So it starts to dawn on you like, okay, what does this deal really look like? And maybe this whole deal isn't going to be as great as it might seem.
The issue on this property from a marketing standpoint was that, in spite of the acreage, it's like a premium building lot in so many ways, and the home values around it were $500,000, $600,000, and up in this subdivision. So I felt that the value was there, but again, you've got to remember it was in an HOA. So it's 11 acres, but it's deed-restricted property that, because of the covenant, could only be used for one single home site, and it could only be used for residential and non-commercial purposes. And it was also located behind a gate in a gated community with recurring HOA fees, and it was priced at about $100,000 on the open market. So to be clear, it was a fairly limited pool of potential buyers, all things considered.
Now, in the back of my mind, I always had a plan B, because I thought that if it didn't sell well as a 11-acre piece, I might pursue a minor subdivide on this property, which is to say that instead of keeping the property as one piece, I would divide it into two separate building lots and sell them piecemeal, one and then the other. The reason that I thought it would be better to do that is because when you subdivide land into smaller lots, it ends up being more liquid, mainly because it's easier to sell to a buyer at a lower price point. But I was about to order the survey, and then I realized I had to find out how to draw that line so that I could maximize the resale value of the two lots and, more importantly, maintain enough usable soil on each lot for a septic system and a potential septic system repair area.
So looking at the soil map of this property, our soil guy identified four separate suitable soil locations across the 11-acre property. I could see clearly that suitable soil areas one and two on the western half of the property really kind of tucked into that corner created a pretty obvious western building lot, and we call that Lot One. But the distance between soil areas three and four was wide enough that we had to be kind of strategic about how to draw that dividing line, because what we ended up doing with Lot Two would be to make it the slightly larger of the two lots because we had to draw that vertical dividing line in such a way as to scoop out enough of the soil Area 3 to keep that as a designated repair area for Lot Two. If the soil map were better, I could get three or four building lots, but it wasn't. The soil map was good where you had the good soil, but you only have enough for two home sites, especially since they're going to be four- or five-bedroom homes. So I gave the surveyor this sketch for guidance with rough annotations based on like GIS measurements of that property, and what he did is he transferred that into a finished survey map a couple weeks later that we then went on to submit to the county. And this is what the survey map looked like. Now remember, this wasn't free, and so we have to account now for the added cost of getting the survey done; that was $3,800. So that brings our total cost to date up to $45,100.
But wait, there's more. There was another $800 in costs that went into this project. The reason why was because there was a new calendar year, and so the HOA basically gave the new HOA fees, in addition to another $400, which was to reimburse the subdivision and the HOA's attorney for updating the bylaws of the HOA to include the new building lot and the new acreage, etc. But we have two listings now. We have a 4.4-acre lot, which we call Lot One, and that is listed at $49,000. And the other lot is a 6.6-acre lot, which we call Lot Two, that we've offered for $59,000 on the open market. But remember, you know, at this point in the game, it was like six months into the deal, and when I get six months into a deal, I start getting restless. If it's not selling, like I start getting aggressive; I start pushing stuff around, like, what can we do? How do we find the buyer? How do we make this a good deal for that buyer?
I had this idea in my head: the potential buyer for this land couldn't visualize it; that for some reason they wouldn't be able to visualize the site plan; they couldn't see what it would look like when this land was developed and it had homes on it. So what I actually did—and I don't often do this, but in this case, I actually hired a 3D rendering service online to develop like 3D sketch renderings of the two respective home sites. And a lot of it is just kind of to get the buyer into a process of visualizing what comes next and what you can do, like, "Oh, you know, why'd they pick out that house plan? Like, I would do it like this. Or why'd they put the driveway there? You know, I would do it like that." It's like, "Oh, do they have a pool?" Kind of gets them unstuck and gets them thinking about the possibilities on the land and not just seeing a wall of trees, which is kind of what was currently on the ground. And in this case, it worked, because what happened is shortly thereafter, two different buyers put in offers on each of the respective building lots. One of the buyers, we settled for $47,000 for Lot One, and then we settled with the other buyer for $52,000 for Lot Two, and they were both cash offers, which is great.
However, there was a problem, because both of these buyers had 30-day closing timelines contingent on the approval of a conventional septic system for both of the two properties, but we hadn't applied for septic yet. Typically, if you go through the county office, it's going to be about a couple hundred bucks, $300, $400, $500; it would depend on the county, but in this case, it would have been pretty cheap with the county. The problem is that there's no timeline that you can count on, and they might tell you, "Oh, yeah, it's like two weeks, maybe three," and then they might not talk to you for a month; they might get backlogged for a month; they might turn around and visit the property in six or seven weeks. And if you're calling for a status update and they know it's you and they're not ready to talk to you, they'll just ignore you. So what I did in this case, and what I do in other cases like it, is I hired my soil scientist, who had done the preliminary soil evaluation, to also go out there and do each of the respective septic applications for each of the two buyers. It's more expensive; in this case, that was about $1,700 per lot, and so that is $3,400. But now we have two building lots, each with their own separate septic permit, which is great.
A lot of people watching this are getting ready to tell me, "Alex, you're crazy; you overpaid for the septic permits; you should have just told the buyer that it's their responsibility." Understand that when I can avoid it, I don't even let the buyers do the septic permit; it's too important, and they just mess it up. They don't want to do it; it costs money; there's some paperwork; they've never done it before; they talk a big game, but ultimately it's not something that they want to do, and they will tax you if you make them. When you leave it to the buyer, you lose control of the timeline; you lose leverage in price negotiations; and they just don't know what they're doing, and so they'll wait till the day before closing; they'll put it in last minute, and then they'll complain to you when the county office tells them it's six weeks, and then they ask you for an extension, then they're frustrated, etc. And they'll also complain about the nominal application fee. They're buying $50,000 land, but they're going to use the $400 fee to negotiate you out of $4,000 or $5,000 in purchase price, or more likely than any of the issues that I just raised, they'll just ignore you; they'll just ignore your listing and drive down the road and buy the property down the road where the soil work was done. That's right; that's my property. Because these two lots sold in the 30-day time frame of the purchase agreement that we negotiated.
So now that they sold, we're going to recap the final numbers, and I'm going to show you the accounting of this deal. Lot number one ended up selling at $47,000, so we walked away with about $42,600 on that one. Lot Two sold for $52,000, and then when you deduct the commission of 8% plus a few hundred bucks for closing costs, that was $47,300, which brings our total net revenue to $89,900 against a total cost of $49,400, which means that our gross profit on this deal ended up being $40,500 from end to end, from close of escrow on the buy side to close of escrow for the second lot that sold on the sell side. That was an eight-and-a-half-month project. All in all, it was a little bit of a slower time on market than I wanted it to be, but it was still a success, and I learned a lot. If I could go back and do it again, I would have planned for the subdivide earlier, and if I did, I'd probably save about three or four months of time on market. Just so you know, like this is work, but if you're interested in doing this type of stuff, like anyone can find these types of opportunities to find these types of deals. What it boils down to is you just have to build the right list and make enough offers. And in the next video on our channel, what I'm going to do is show you how to do exactly that. Click this link and watch a video about how to find the best off-market deals at affordable prices, and I'm sure you're going to enjoy it. [Music]