What would you do with this property?

[DMAC]

Hi, I have a bit a unique situation with a rental property I own and I'm looking for some advice.  I have a single family home currently rented for $1500/mo, the mortgage on it is 1k/mo. The balance on the mortgage is 190k with 28 yrs left. The original purchase price was 214k.  The home sits on a large lot, essentially twice the size of the lots in the neighborhood.   Half the lot is just grass that the renter did not have any interest in so I'm currently leasing that half of the lot to an adjacent neighbor for $100/mo.  That neighbor has proposed the idea of subdividing the lot and purchasing that half for 25k.  I also have an unsolicited offer to purchase the entire property/lot for 250k. 

I'm leaning toward selling half the lot and continuing to rent the residence out.  Am I missing anything I should be considering? What you you do in this situation?  Let me know if you need more detail. Thanks!

[Weedy Acres]

Is the house on two lots?  Or just an extra big lot, that you'd have to get surveyed and subdivided to sell?

[DMAC]

Is the house on two lots?  Or just an extra big lot, that you'd have to get surveyed and subdivided to sell?

It's an extra big lot that would need to be surveyed and subdivided.  The neighbors that want to buy it have agreed to do all the leg work with the surveyor and city to facilitate the subdivision.

[Weedy Acres]

If it was a separate buildable lot, my advice would be to sell it separately.  Because a buildable lot will always be worth more standalone than as part of another lot.

But it's not.  So a couple ways to look at this:
Market value = $100/mo (I'm curious what the neighbor is doing with the lot now that brings him this value)
$100/25000 = 5% return.  If you can get better than 5% on your money, sell it to him and invest the proceeds.

What will the house be worth on a smaller lot?  What will the other buyer pay for the reduced-lot house?  If it's significantly less, then I'd reconsider subdivision.  Or subdivide and wait to sell the house to someone else in the future.

[Warlord1986]

Call your friendly local planning department and ask if you can subdivide the lot. Some zoning districts have minimum lot requirements, and street frontage requirements. For example: in zoning district A, you need thirty feet of roadside frontage and lots have to be one acre minimum. Zoning district b only needs half an acre, etc. This way you do not run into the unpleasant surprise of the local planner saying 'No, I can't approve this, it doesn't meet our ordinances.'

Source: I'm a friendly local planner. Until people call me a communist for not allowing them to subdivide their property into a pentagram with no road frontage for ambulances. Then I start hissing.

[DMAC]

If it was a separate buildable lot, my advice would be to sell it separately.  Because a buildable lot will always be worth more standalone than as part of another lot.

But it's not.  So a couple ways to look at this:
Market value = $100/mo (I'm curious what the neighbor is doing with the lot now that brings him this value)
$100/25000 = 5% return.  If you can get better than 5% on your money, sell it to him and invest the proceeds.

What will the house be worth on a smaller lot?  What will the other buyer pay for the reduced-lot house?  If it's significantly less, then I'd reconsider subdivision.  Or subdivide and wait to sell the house to someone else in the future.

The neighbor uses the lot as an extension of his backyard, a place for their dog to roam and kids to run around on.  I bought the house as a spec home and there was another spec home exactly the same a few blocks away with a smaller lot, both homes sold for the same price.  Many buyers viewed the large grass area as more of a burden to maintain. 

Based on a recent appraisal of the home it was clearly shown that it was appraised about 25k higher than comparables due to the increased lot size.  Based on that appraisal I believe I could sell the property for 275k in its entirety and 250k subdivided. I believe the unsolicited offer I received is a bit low.

[DMAC]

Call your friendly local planning department and ask if you can subdivide the lot. Some zoning districts have minimum lot requirements, and street frontage requirements. For example: in zoning district A, you need thirty feet of roadside frontage and lots have to be one acre minimum. Zoning district b only needs half an acre, etc. This way you do not run into the unpleasant surprise of the local planner saying 'No, I can't approve this, it doesn't meet our ordinances.'

Source: I'm a friendly local planner. Until people call me a communist for not allowing them to subdivide their property into a pentagram with no road frontage for ambulances. Then I start hissing.

The neighbors have been in talks with the city planner and indeed there are a few road blocks that need to be overcome.  The biggest issue seems to be centered around a drain on the lot that the city has an easement on.  The lot we want subdivided is rectangular on a corner and is still larger than most other lots in the neighborhood.

[money_bunny]

If they will let you build a multi? Get some more units.

[fishnfool]

It sounds like a nice lot to put a duplex on!

Personally I wouldn't want people using my lot for anything. If they get hurt on your property you are responsible and could get sued!

[ender]

Honestly I'd be tempted to tell the person offering to buy it that if they can do $260k it's theirs.

$1600 / $250k is only 0.64% of the value (lower if it's able to sell for $260k), which strikes me as awfully low, especially since it doesn't seem like your $1,000/month mortgage payment includes property taxes (can't really tell based on what you said here, could be either way). And it definitely wouldn't include any repairs/maintenance.

[adamcollin]

I liked your idea. I think you will able to save more money in this way.

[LordSquidworth]

If it was a separate buildable lot, my advice would be to sell it separately.  Because a buildable lot will always be worth more standalone than as part of another lot.

Had a property appraised recently.

It's one acre with a close to 4,000 sf house.

Appraisal was $367,000 in one piece.

Or $367,000 for the house on 1/2 acre, $70,000 for a 1/4 acre lot, and $70,000 for another. Said whatever I do, divide it if I sell it.

[DMAC]

Honestly I'd be tempted to tell the person offering to buy it that if they can do $260k it's theirs.

$1600 / $250k is only 0.64% of the value (lower if it's able to sell for $260k), which strikes me as awfully low, especially since it doesn't seem like your $1,000/month mortgage payment includes property taxes (can't really tell based on what you said here, could be either way). And it definitely wouldn't include any repairs/maintenance.

The 1k mortgage does include property taxes but does not include maintenance or repairs.  I purchased the property in 2008 for 200k so the value based on actual purchase price is a little more decent.

[KMB]

Hi, I have a bit a unique situation with a rental property I own and I'm looking for some advice.  I have a single family home currently rented for $1500/mo, the mortgage on it is 1k/mo. The balance on the mortgage is 190k with 28 yrs left. The original purchase price was 214k.  The home sits on a large lot, essentially twice the size of the lots in the neighborhood.   Half the lot is just grass that the renter did not have any interest in so I'm currently leasing that half of the lot to an adjacent neighbor for $100/mo.  That neighbor has proposed the idea of subdividing the lot and purchasing that half for 25k.  I also have an unsolicited offer to purchase the entire property/lot for 250k. 

I'm leaning toward selling half the lot and continuing to rent the residence out.  Am I missing anything I should be considering? What you you do in this situation?  Let me know if you need more detail. Thanks!

Can you sell both? Does the unsolicited buyer even know who owns the vacant lot? They may not care about it at all.

And if someone knocks on your door trying to buy your property they are not starting the negotiations with their highest offer. I wouldn't be surprised if you could sell both parcels for close to $300k. Don't get too greedy. If your buyer walks you've got nothing...

[zephyr911]

Definitely sell, because that's a mediocre rental return. How you get the most $$ possible is not my area, but it sounds like you have some good leads on that.

[DMAC]

UPDATE:

Just thought I update the forum with what actually happened.  I was able to subdivide the lot and sell the newly created lot to my neighbor for 26.5k, this happened in January of this year.  Over the last couple months I've noticed that market in the area heat up so I listed the house on the now smaller lot for 275k. I had a full price offer within 2 weeks and we just closed last Friday.  Thanks for the advice!

[Hotstreak]

UPDATE:

Just thought I update the forum with what actually happened.  I was able to subdivide the lot and sell the newly created lot to my neighbor for 26.5k, this happened in January of this year.  Over the last couple months I've noticed that market in the area heat up so I listed the house on the now smaller lot for 275k. I had a full price offer within 2 weeks and we just closed last Friday.  Thanks for the advice!

That's a great outcome, thanks for the update!