Before I go way in above my head...

General Real Estate Investing
1

About me: I am 24 and to make a long story short, like a lot of other college graduates that are stuck in a dead-end job. But I suppose I should be thankful (and I am) considering the recent unemployment percentages.

I am a complete amateur in terms of REI, and have never completed any deals. However, I came across something recently that appears almost too good to be true and I would like to seek some expert advice.

What’s at stake: The property is located in Southern California and approximately 1.5 acres with only one house standing. The auction listing states subdivisions for 9 homes have already been approved by the city and architectural plans for houses are included.

It has been over a week and no bids have been made thus far (with starting bid of $1,000,000.00 USD). Other listings have posted this property at $1.5M, which I’m guessing is the reserve price before the owners are willing to release.

There are no other pieces of land like this left in the area, and adjacent to this juncture is another piece of land that appears to have gone through this very transformation (from the looks of Google Maps, the adjacent property was bought and split into subdivisions for multiple homes, and I say this because all of those houses look identical).

What now?

Although this appears to be a phenomenal opportunity, I am concerned about the fact that no other RE developers or investors have snatched the property. What are the possible reasons they are holding back?

I realize time is a huge factor until the city can finish the street and for contractors to finish the homes, at which point the project (in my very uneducated guess) may take more than 3 years to complete. Is the time and amount of return not worth the trouble/initial investment?

I’m sure you can guess at 24, I do not have $1.5M to spend nor the additional money required to complete the project. If you can offer any advice at all, let me know how I can find ways to finance this opportunity.

If I will be in way over my head or if you think this is an insane dream, PLEASE let me know as well. Feel free to tell me I am nuts to be thinking about this, any criticism is welcome (how else would a newbie learn?)

I am very motivated to push this project into motion, any comments and suggestions are appreciated. I apologize for this lengthy post and thank you in advance. If there are any additional information I can offer please indicate them in your reply.

2

Shui, I think a $1M property for someone with no experience is recipe for disaster. I don’t think you’ll find financing because of that (and for good reason). Here’s the thing. You’re bringing absolutely nothing to this deal. If you don’t have the money, you’ll need the education to either put the deal together for yourself or someone else. Here’s where I think you should focus your efforts for now.

  1. Educate youself on REI. Read books, scan the posts on this site, ask questions.
    Good books"
    “The Millionare Real Estate Investor” by Gary Keller.
    “1 Minute to Rental Property Riches” by Mike Rossi (Propertymanager)
    “The ABC’s of Real Estate Investing” by Ken,Mkelroy.
    There are many other books that are cheap. Read everything you can find.

  2. Go to ebay and purchase the most updated version of the Carlton Sheets course. Get the one with the DVD’s and the “toolkit” CD. The course is about $75 or so.

  3. Work on saving as much money as you can. You’re young enough to work your butt off! :biggrin

  4. Obtain a credit report and try to get your score as high as possible.

All this will take time and a lot of work. But it’s absolutely necessary to get these things in order before you put any money into a deal. Good luck.

3

In general vacant land requires enough resources to hold on until the payoff. I would only do it if I could finance it and the financing needs to include the developmental costs. That way you are not buying and sitting waiting on the city ( who could end up with reduced revenue or new administration that decides to focus on other projects).

If anyone is not sure if the idea they have is a good one or not, the test is to see if you can get financing for it. If you can’t you probably should not be doing it. Either the value is not there or your idea is not sound. Either way if you can’t get it finance then you probably should not be doing it.

In general real estate is no better than any other investment except for leverage. For example if you buy a house worth $100k and pay cash and the house appreciates to $110k You have just made $10k with your investment of $100k or 10%. But if you bought the same house and put down $10k and borrowed $90k. That same house would appreciate to $110k you would have still made $10k, but because you only had $10k in the house you have made 100%. With leverage you make all the gains but put in less money. That allows you to control more property and generate riches.

4

Thank you phlemboy and Bluemoon06 for your replies, it is tremendously helpful to hear from people with experience.

If the game plan was to shift into a different direction, would anything change? And by this I mean to say that my dad has enough money to purchase the property. I guess it’s quite obvious he won’t see this $1-$1.5M for some time if the deal went through, but it’s not to the degree where he has to liquidate his entire portfolio to buy the land.

This probably sounds dumb but, might I possibly pitch this to the city as a community investment program in order to gain priority (you know, build more homes and empower more people to own a house)? That or simply a business opportunity to banks; purchases made on future housing built on this property requiring loans would use this bank specifically if they are willing to loan me the developmental costs.

I suppose asking for a quote from builders would be faster but, what would be a good estimate for developmental costs on 7 homes? With that regard, what percentage of the property cost should be loaned from the bank to avoid sinking $1M right off the bat?

I can see why banks would be turned off by this idea, and really I’m just trying explore any options at the moment. This most likely will end up falling through the cracks and slip away, but is still a good learning experience (also it doesn’t hurt to dream a little). Again, any and all comments are appreciated.

5

I probably watch too much TV but I watch for a different reason I take their sayings and apply them to my daily communication. I am into using that dialogue to show you things in your life. For example if you watch the movie Silence of the Lambs Dr Hannibal Lechter asked if we seek out things to covet. The answer was no we covet what we see. But what we see unless we are really lucky is not usually the best investment. I hear all the time that there is this house on my street or next door to my mother’s house. People just can’t get past that house or piece of land. I had one guy that came to me for help on this house on his block. It was not that good of a deal but he wanted to do that deal and after he did he didn’t want to do anything else (mostly because he didn’t make much money for the amount of work). It was like on the movie Wall Street when Bud Fox only had information to give the investor Gordon Gecko about his dad’s airline. If your dad is not a union official for a whole lot of airlines then your life as a Wall Street information peddler will be short. In real estate if you don’t have s system for generating leads on properties that make money then you real estate career is going to be very short. Ask yourself why are you so fixated on this one piece of land? Is there money there? Do you covet it because you see it? Make each investment be the best project available to you at each time. How many other pieces of land have you looked at? Is there one already with a road that is cheaper. Is there one with tear down houses on it that you can develop? What is your exit strategy? You should begin with the end in mind. I look at dozens of houses before I even make an offer on one. When I am in acquisition mode I have as many as 5 offers out at any given time. Don’t fall in love with the property fall in love with the deal. If it doesn’t have money on it you don’t want to do it.

6

Just to clarify. I’m not an experienced veteran. I’ve learned a lot from books and this site and doing some home improvement projects. Why not try this idea. Get your Dad to loan you money to buy a few inexpensive houses or multifamilies that you can buy at a huge discount, rehab and rent or sell. If you rent the properties out, you can pay your Dad back when you refinance the property to get your money back. If you sell, pay him back then… A miilion dollar property is no place for a newbie. Your focus should be on learning the REI business. Not figuring out how to make a deal work when you have no idea what to do. Good luck.

7

shui jiao,
I feel like you want to swim the English Channel but you are just starting to learn to dog-paddle in the wading pool! So I second Pflemboy, too much , too soon. And way to risky for your Dad to use his retirement money…

Southern California also has a ton of foreclosures, so the timing may be too risk to hang on to a subdivision for years even.

Why not take a deep breath and make a plan to buy your own first home/duplex in this BUYER’S MARKET? This is where your job (dead-end job) can help you. You may qualify for a loan since you are employed.
Study, make your plans and keep us informed.
Good luck,
Furnishedowner

8

Here’s something you may not realize…

Most cities require that developers build the road and water/sewer infrastructure then you hand it over to the city for free.

Not only do you have to buy the land, you will likely have to build the road.

Start with something you can handle.

dave

9

Shui the others are right you need to start small to get experience in the field. But you are in the right direction,
Only people who dare to dream big, achieve big goals So never stop dreaming big, dream big and work towards achieving the goal. Once you start with rehabs and rental you will soon find yourself doing bigger deals and projects in 1-2 years. And Yeah if you fail the first couple of times DO NOT GIVE UP because failure is a next step towards success.
The very 1st deal I made in RE did not make me money, I was having a -ve cash flow infact I still have that property and -ve cash flow, I have not refinanced it just to remind me that the mistake I made, made me more money on my future deals and not to repeat the mistake I made, the next 2 deals made me $60k each.

10

Shui Jia0, I like your ambition and your intuitive sense.
Listen to your intuitive sense. There is indeed a reason why other developers have not purchased the property and a reason why the current owner has not developed.
I would not push this project into motion if I were you.
Land eats three meals a day. You have property taxes and the costs of development. You also have debt servicing during construction. Also there may be hidden costs in addition to infrastructure and home construction. In many cases, local governments charge tax assessments for connecting to existing utilities. Do you know how much it will cost to connect to water, sewer, electric ect? Are there any new home construction tax assessments for local schools, fire departments or other municipal services? Would you need to impose Mello Roos? Are there any competitors that are willing to take a loss on developed property just to get the buildings off of their books?
I do not view this as a “phenomenal opportunity.”
I believe that you would be much better served to start smaller than this.