LandInvestors.com Forums **Ask A Question** The traps- when a good deal really isn't because of the subdivision

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    Shammgod
    Participant
    Post count: 127

    I’ve had this happen a few times already- deals that seem like a GREAT deal based on the landwatch comps, that end up being a bad deal once I call and start talking to realtors.

    I know many here aren’t calling realtors to do additional due diligence on properties/areas. Curious are people here getting burned not doing this, or finding out another way that the property wouldn’t be good?

    There’s been multiple subdivisions where after I’ve spoken with a realtor there who tells me that specific subdivision doesn’t sell for one reason or another(because of restrictions, etc…)

    Are most here not calling and talking to realtors(I was under that impression), or is there anything else you’re doing to avoid the ‘trap’ areas?

Viewing 8 replies - 1 through 8 (of 8 total)
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  • David Clive
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    Post count: 10
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    Shammgod – It is definitely good practice to call local realtors / land agents / land sellers. Initially I didn’t and some of the properties that have lingered in my inventory never would have been purchased if I made more calls upfront. Now, I call around. I have found that every area has it’s unique issues, but one of the most common that I’ve run into is overly restrictive covenants – they may inflate land values of surrounding listings because the neighborhood looks nice, but in my experience, they take much longer to sell in rural areas because very few rural buyers want restrictions or extra fees (the closer you get to town the less of an issue this tends to be).

    Another red flag is when a disproportionate percent of the responses I get from a mailer come from the same small area. Not necessarily a problem, but I know I should dig a little deeper.

    I learned this lesson the hard way. Even if realtors are trying to lead you to their listings by calling out issues in other areas, it is good to know what the potential issues are be before you commit your capital to the deal. All it costs to get this information is a few semi-awkward calls – “umm, I’m looking to buy a property that is in your area but not your listing and I thought you could give me some advice…”.

    Shammgod
    Participant
    Post count: 127

    Another red flag is when a disproportionate percent of the responses I get from a mailer come from the same small area.

    Ya, this happened to me as well. A very high % came from one subdivision. Brought it up on the last call and Jack said not to worry and to be buying them. Only flag I see is that it sells really slow in that area. Got close to $40k in potential purchases from that one subdivision though so may just pick up a few at first to see how many calls I get, and wait on the rest.

    Kevin Farrell
    Moderator
    Post count: 1031
    ProAdvanced

    Shammgod – I was recently advised that buying in a certain area made a ton of money for Jack in the past. I was hesitant because I had some information that made me think there would be problems selling. I had accepted offers on 6 properties all between 10 and 40 acres in this area. I only bought one because I was not comfortable with it. I have had that property for sale at 1/3 of comparable value for 3 months and I have had over 50 inquiries. I finally think I have two serious buyers who can actually write the check. (I won’t sell on terms due to the circumstances on this land). I am hoping to sell to one of them soon. Damn glad I only bought one.

    Jack and Jill are a great resource to us but each of us must still make our own risk judgements. If something doesn’t feel right about the subdivision, buy a few and see how they sell. If you by 2 or 3 real fast and put them on the market, you will know in a month if you are getting a good response. If they sell, you can go back and buy the rest of them. Then you will flood your own market so you need to be ready to hold that property for a while until it sells.

    Milan
    Participant
    Post count: 511

    I agree with Kevin here. Listen to your own gut and yes it all is some risk. The properties won’t fly from the shelf like Jack is saying. Especially when you do bigger deals where people have to open the wallets to pay for land with 5K + cash. If you have large capital, yes it’s not a big deal. You buy more and have fun and do more mailer. You diversify. It’s all good. But if you have only 20K, you buy 2 or 3 properties and the selling waiting game starts. And it can last a while. Just persist, don’t expect much and keep moving forward.

    Shammgod
    Participant
    Post count: 127

    Thanks for sharing your experience with a similar situation Kevin!

    The properties won’t fly from the shelf

    Ya the subdivision I got them on often take 12-24 months to sell, so even pricing much lower than competition I might be sitting for a while.

    Thanks for the feedback Milan.

    David Clive
    Participant
    Post count: 10
    Pro

    Might I recommend that you try testing the market before completing a purchase by posting ads for a property you have under contract (or don’t specify the parcel number and post a generic ad that matches the location and attributes) and see how many views/inquiries you get at your expected selling price. It should only take a few days to find out if the area is hot or cold. Best case scenario, you have buyers lined up and ready, worst case scenario, you save yourself from buying land that doesn’t sell and you spent your time instead of your $$ to figure that out.

    Mike Marshall
    Participant
    Post count: 33
    ProAdvanced

    If this is obvious to everyone, I apologize. However, in general, land that is a part of a recorded subdivision will likely have more restrictions placed upon them. These can be in the form of HOA CC&R’s, map restrictions (restrictions recorded on the face of the subdivision map itself), utility easements, open space easements, and of course zoning restrictions. While vacant rural land that is not a part of a recorded subdivision will still be affected by zoning ordinances, it won’t be impacted by other types of restrictions. Point is that when buying in recorded subdivisions it is prudent to perform more due diligence so you don’t get stuck with an unmarketable lot. If a lot in a recorded and built out subdivision has been vacant for a decade then there is a real reason why. You have to find out why and maybe you can untangle the knot but you may have to make better use of your time and move on. I helped out someone from the community on this very issue last week. Hope that adds value for someone.

    Matt
    Participant
    Post count: 158
    Pro

    So here’s my take, but I’m still a little green. The way I see it you have the market value of the property, ex: $10,000 is the cheapest on LandWatch/other sites. Let’s assume you can see that a few properties have indeed sold in the area that you’re targeting within the last 3 months. Maybe they’ve sold in the $7-$8,000 range but they’re at least moving. Then I (personally, and maybe naively) wouldn’t worry too much about the HOA restrictions or what the dues necessarily are (assuming everything is paid current and the holding costs won’t kill the deal). I feel this way because the market sets the market value right? The HOA fees and restrictions and all that is baked into the market value. If you removed it then you could argue the market value should be $20k or something, and the issues named above are what’s pulling it down. So if I can get in for $2.5k and sell for $5k then I’m fine.

    That’s my take and I’d love to hear if people think that’s crazy or if they think that logic checks out. I’ve got about 9 months under my belt so I am by no means an expert. What do you guys think?

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