To deal or not to deal?

Hi all,

First-time poster and just getting started on my first potential deal. I'm looking at purchasing a property at, what I calculate to be, 10-15% of market value. It's .83 acres and completely wooded with one side of the property along the road. There are houses nearby, so I'm assuming that sewer, electric, and water aren't an issue (though I'm waiting on a response from the seller for more info there). The surrounding houses all appear to be very nice (one with a garage bigger than my house!), a marina a mile down the road, and mountains galore. I have a signed purchase agreement from the seller, he's definition motivated, and I'm doing my due diligence now. The lot looks great from up above, but my 3D google mapping (and a look at the topographic map) indicate it is in fact a pretty steeply sloped patch of land. I'd even call it a ridge... Now here's where I'm getting hung up. Is this buildable? The area is residential and I honestly see no other use for it but a house, so if it isn't buildable I'm going to pass on it. I'm very excited about this one because my potential for profit in this area is quite large, but don't want to box myself into a property that I can't sell. Any level-headed advice or input would be greatly appreciated. Thank you!!!

Hey @ckakar - nice job taking action and getting this far along toward your first deal!

When you say you've looked at the property with 3D google mapping... have you seen the Google Street View of this property? Have you been able to use the tilt-shift function in Google Earth? Have you looked at any of the historical satellite imagery to see if there's any evidence of water running through this property in the past (whether that's a seasonal stream or a washout)? These things can help give clues as to how severe the situation is.

Ultimately, though, I think the only way to know for sure what the buildability situation is, would be to get a survey done and get a professional assessment on the situation (which, unfortunately, isn't super-cheap). I would start by leaning on the seller for this information and ask them about whether it's buildable, and if so, to provide some kind of evidence to support that.

I've come across a lot of these (I always seem to run into them in California for some reason), and they're a pain because they always look very appealing and valuable at first glance, but there can be some big deal-killing limitations when you start digging deeper. Especially if it looks like houses have been build all around it except for this property... that begs the question of why?

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My first step would be to call county building and planning. In my experience, you can find very helpful people who will give you a ton of great info to make a much more informed decision
If it's an area that relies on septic systems, call the health department and see if there's any record of a perc test or if there's an official who's familiar with that area and can tell you if there's any common issues they run into around that property.

If you think the profit incentive here is worth it, find a photographer who will walk the property for you so you can have some boots on the ground to scout it. Ask for a cell phone video of them walking the property and see how extreme it looks. Ask them for their thoughts about what the landscape of the property looks like in comparison to the properties around it with homes.

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So an update. I spoke with the planning department (thank you, Ian, for the idea!) and they said that there weren't any zoning restrictions on their end and to check with the buildings dept (waiting to hear back) on specifics about what regulations there are regarding the slope. The comforting thing that they did say was that they'd seen many buildings go in on properties as steep or steeper than this one ("Well, we live in the mountains, so we see just about everything!") and that they might just have to put a house on stilts. I'm feeling comforted, but do you think this is enough to consider moving forward with hiring a photographer and getting started with the lawyers? I'm looking at purchasing the property for $2960 including back taxes, which are about $300 (is this outside a reasonable amount? Normal?), and lawyer fees (I received a quote from one recommended office for $1300 flat-rate, but that feels steep to me. I paid nearly that on a Manhattan real estate purchase!). Market value, by my approximation, is around $22,000 based on comparables, and I think I can reasonably expect $15,000 if I'm being really conservative, leaving roughly $10,000 profit. Is this enough? I suppose I'm looking for a knowledgeable opinion telling me that it may be worth it.

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@ckakar, there are always those unknown (and perhaps unknowable) factors that could trip anyone up, but based on those numbers you shared in the post immediately above, it sounds like you're buying with a good amount of margin to work with, to offset some of the risks. In other words, what do you expect your all-in cost to acquire the property to be (what you pay the seller, plus the back taxes, plus all closing costs)? If that number's less than $5k (I wasn't sure if the lawyer costs of $1,300 are the entirety of the title/escrow/recording costs), and you believe comps should support a resale valuation of $15k, well you could be off by half on that valuation (resell it for $7.5k) and still come out just fine for your first deal.

Other random thoughts or questions I'd ask myself:

  • How does the topo look for some of the nearby improved lots (where houses have been built)? If they're comparable to your lot's topo, you might be in good shape. If no lot as steep as this have been improved, yet, that's not necessarily a deal-breaker in my mind, but obviously isn't as positive a sign.
  • Are any of the lots that border yours improved? If so, might be able to flip it to a neighbor, either as a primary exit strategy or as a back-up if all else fails.
  • How far out did you put your closing date on your purchase agreement with the Seller? If you have enough time to allow for this, personally I like to list the property on Facebook after I have it under contract but before I've actually closed on buying it yet, especially if I have any nagging concerns about the salability/value of a lot. Doing so just saved me from sinking $16k into acquisition costs on a lakefront lot that no one seems to want. In that case, the values just seem to vary widely from one area of this particular lake to another, and several prospective buyers (more than 6) were turned off by the HOA's deed restrictions. So I'm cancelling the contract and will save my money. If you have a really short closing date on your PSA, currently, since you indicated that the Seller was very motivated and therefore presumably reasonably accommodating, you could ask the Seller to agree to an amendment to the agreement, extending the closing date so that you can research the open questions regarding feasibility of building on this lot.
  • Lastly, is that road that this lot has frontage on a side street, or some sort of through road / "main" road, relative to the area this is in? I ask because it almost looks in the satellite photo like there could be a double yellow line down the center of the road? If so, just in my general observation in the areas where I've noticed such things, country roads are often line-striped only when they are more "main" roads, as opposed to side streets / internal subdivision roads / etc. Again, not necessarily a deal-breaker either way, but if it was something of a main road, which might have relatively higher traffic and less privacy than a side street, I'd just make sure the comps I was relying upon for valuation have similar conditions, or factor in the potential for further discounting on resale value if they don't.
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Good input @Ian-Johnston!

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@retipsterseth Thanks!

@ckakar I'd say getting someone out there to look at it on the ground will help you decide if the more expensive and larger commitment next steps are what you want. It's entirely possible someone used this property to dump a bunch of building supplies and garbage or maybe there's an old rotted frame of a 5th wheel camper left behind that can be costly to remove or some other issue that you won't even think of until someone encounters it while walking around the property.

I've gone out to a ton of properties over the last couple years, and there's been a decent amount that we've passed on or negotiated a better deal because of issues we found.

If this isn't allowed, just let me know and I'll take it down, but here's a video I shot at a property I was scouting that could have been a massive headache if I didn't go out there to see what it actually looks like. People leave their properties unattended while living out of state, someone finds a way to drive in and just unloads all of their garbage there.

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David, thank you so much for your incredibly thoughtful responses. After another day or so to think on it, I'm really leaning towards moving forward, except that I haven't heard back from the seller yet, so I'm going to give him a phone call tomorrow (perhaps not as motivated as I thought based on three years of back taxes unpaid) to get permission to view the site and have a photographer take some photos. I think the margin of safety is pretty wide here, so I think I'm ok. I like the idea to preemptively list to establish interest before moving forward. An as to your other question, no it's not the main road. It's a side road to a lot of residential properties, so I'd call it a big secondary road if you will.

And as to Ian's point, I think you're right and would like to get someone out there before moving forward. Do you typically get explicit approval before doing so? Because I haven't heard from this guy in a few days. Fortunately, I think I'm pretty safe as far as dumping and campers go because it's a steep uphill from the road, so there's no feasible way to dump on the property unless they hiked it up the ridge. Your video was helpful to watch because that really looks like a gorgeous property and it's such a shame it was such a mess. My former archaeologist wants to get in there and see it, too (probably a bad sign). Not to mention the potential environmental issues you could encounter with all the garbage dumped there. Every time you pan up I think "Oh, maybe it would be fiiiine!" And then you pan back to the ground... I expected a body when you mentioned the tarp.

Thank you to everyone for the thoughtful responses. I'm nervous about moving forward because this will be my first deal, but I think it's like learning to swim a bit. You can read all the literature and take all the courses you want to, but you're not really going to understand until you jump in the water. I think my margin on this is wide enough that I can use this as a learning opportunity and still come out ahead if I make mistakes. Fingers crossed!


All great advice given here.

I would reiterate, seeing the topography of built out lots in the area could be a big help. Also, within google earth, you can put the cursor on one side of the lot and then on the other and watch (at the bottom right had of screen) how the elevation changes. Keep in mind this has a margin of error, but can give you some idea of the drop.

Lastly, I would most definitely have someone go put eyes on it. A picture is worth 1000 words. And a video is worth much more. Not only for you, but for your future buyer.