| Homes with extra lots may present a real estate | | | | The obvious plan for an investor was to buy the |
| investing opportunity. They may provide a way to | | | | home, sell the lot and then sell the home -which is |
| reduce the cost of a rental home you want to buy, | | | | what he did. Of course a big chunk of that potential |
| or just a way to make a profit buying and selling. Of | | | | $25,000 profit was eaten up by the transaction and |
| course, this can be tricky if you don't know the rules. | | | | holding costs. Ideally, then, you want to combine this |
| Typically when a city was platted, the residents | | | | strategy with a low offer so you get the home for a |
| proceeded to build a home on each lot. Of course, | | | | little under market as well. |
| some built on two lots. This is why even in regularly | | | | There is another way to use this strategy. If you |
| spaced homes there will often be house or two that | | | | were looking for a rental home as an investment, and |
| has a larger yard than the rest. If these homes, along | | | | homes with extra lots are similarly under-valued in |
| with their garages and other out-buildings sit properly | | | | your area, take a look! You might pay $20,000 more, |
| on one of the two lots - meaning they are set far | | | | but if you sell the lot for $45,000 and have just |
| enough from the lot line to comply with city | | | | $5,000 in costs associated with doing that, you net |
| regulations - the extra lot can be sold. | | | | $20,000. |
| Usually, even if the property has been combined into | | | | This might be tough if you financed the deal, but the |
| one tax parcel, you can split off the other lot, get a | | | | bank may allow you to sell the lot if the proceeds |
| new tax number for it and sell it. Why is this | | | | are applied to the mortgage loan. In that case, you |
| significant? Because the value of the home on one | | | | lowered your cost for that rental home by $20,000 |
| lot plus the value of the other lot sold separately is | | | | when compared to other homes. Refinance, and that |
| often much higher in total than the house will originally | | | | could be enough to turn a negative cash flow rental |
| cost with both lots. | | | | into a positive one. |
| I first heard about this idea from a real estate agent | | | | Apart from being a real estate investing opportunity, |
| who had done this in a small town in Northern | | | | you could do this when you buy your own home as |
| Michigan. He had noticed that many homes in one | | | | well. If you really don't want to mow a large lawn, |
| area had two lots, but the houses were sitting | | | | buy a home with an extra lot and sell that lot. If you |
| squarely on just one of them. The lots in that area | | | | can get the seller to agree to selling it as two pieces |
| could be sold for $45,000, yet the homes with the | | | | of property, you could pay cash for the lot, and so |
| extra lots only sold for about $20,000 more. People | | | | be free to sell it without getting approval from your |
| will only pay just so much extra for what appears to | | | | lender. |
| be just a large yard. | | | | |