I love buying houses with attached, buildable lots. These deals can be very lucrative. It's like going to a 2-for-1 sale. Sometimes you can pick up both properties for the price of one.
This is one of my favorite top secrets because it just makes good business sense to buy into these deals when the price is right.
Recently, I purchased a house with two buildable lots for an amazing $65,000. Here is the good part. The lots were buildable and each of them had their own separate folio numbers.
The house alone was a 3 bedroom, 1 bath, 1,100 square foot home that only needed $15,000 in repairs and had an After Repaired Value of $120,000.
Here is how I structured this deal:
- Contracted Separately: I contracted all the properties separately. Therefore, I wrote up three contracts. I contracted the house for the $65,000 and the two additional lots for $1.00 apiece.
- Borrowed Money: I called my private lender and told him I needed to borrow $65,000 to buy the house. He loaned me 70% of the After Repaired Value of $120,000, which was $84,000. After the $8,400 closing cost (Estimated at 10%), the loan was for $75,600.
- Closing Instructions: I informed my title agent to close all three deals at one time. The loan covered the price to buy the three properties with the remaining $10,600 going into an escrow account for repairs.
The mortgage from my lender was placed against the house and not the two adjacent lots. Therefore, I owned the two lots “Free and Clear.”
I immediately put the two lots back on the market for $20,000 per lot. I settled on a builder who purchased both lots from me for $35,000. We closed the deal only 3 weeks after I had bought the house and lots.
Soon afterwards, I rehabbed and sold the house for another gain of $16,500. My total profits on this deal were $51,500.
The Buying a House with an Attached Buildable Lot Secret
This type of deal is a great way to make money (by selling the lots) before the principal house is rehabbed or resold. There are tons of these deals out there – you've just got to find them.
However, when you buy a house with a lot, you need to make sure that the lot is a buildable lot. If the lot is not buildable, you will have to be approved for a variance.
The variance process can be quite lengthy (8-12 weeks). You have to request a hearing, normally with the City Council, to argue your case for why you should be allowed to build on the lot. It is up to the City Council to approve or disapprove your request.
Personally, if I know the lot attached to the house is not a buildable lot, I look towards the house to make a profit. If the numbers don't work for me buying and selling the house for a profit, I don't buy the house. I don't like taking a gamble trying to convince the council to give me a variance.
In addition, if the properties don't have separate folio numbers, you may have to pay an attorney to have the lot separated, which can cost you upwards of $1,000 (depending on where you live). It normally takes 2-4 weeks to have this done.
Separating the lot from the house is much less risky than trying to get a variance. I have gone this route on many occasions and so far I have always been able to separate the lot and sell the lot for a profit.