My First Deal

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My first land deal is officially done. Previously, I was looking at duplexes searching for a “house hack” where you live in one side and rent out the other. It turns out my first deal is a land development deal.

Details of My First Land Deal

I purchased a .25 acre lot in an older neighborhood a block off the Caloosahatchee River in an area of town that was developed in the 1950s & 1960s. The lot had a home on it previously that was demolished in 2008 after a fire.

I purchased the lot for $9,200 and a few hundred in closing costs. At the same time, I found a builder to put up a single-family 3 bed 2 bath 2 car garage at about 1,700 sqft. – 1,400 sqft. heated and cooled. The builder charges per sqft. of the total footprint of the house versus the marketable heated and cooled total. An important question to ask any developer.

Impact fees, charged for developing raw land in some places are credited back to the builder on a previously built lot. Note that the laws differ by state and county. Because there was a home previously on the lot it saves me about $7,500. It appears the total cost to build will be about $160,000 for tile throughout, granite, & stainless steel appliances. There is a local credit union that will do a construction loan for a non-owner occupied at a reasonable rate that requires 20% down.

Current Status

At this point, the contract details are being worked out with the builder and the underwriting process with the lender. Total build time should be about 9 months after the contract is executed.

Comps are going for about $125 per sqft. for renovated but older properties built in the 1950s/1960s. Real estate agent believes it can sell for $205,000 or $147 per sqft. (I don’t currently think it is worth that much). The rents on the property will conservatively be around $1,400 per month. My plan is to hold the property as an income-producing property.

Calculating ROI on My First Land Deal

With a new home, there should be less major maintenance than an older property. With a mortgage of $775 per month, taxes & insurance at $350 per month, maintenance & CapEx (capital expenditure – paying for big fixes like an AC unit or roof) $150 per month. At that conservative rental estimate the deal would cash flow at $125 per month, which is a measly 3.75% cash on cash return.

The upside is, it could realistically rent for closer to $1,600 in which case my cash flow is $325 per month or a 9.75% annual return. Not too shabby for my first land deal.