Big Bucks With Options

As we left off in our last post, Mr. Adams has obtained an Option from Mrs. Walters to purchase 40 acres of land on the outskirts of the city. In doing a little homework, Mr. Adams has discovered there is a shortage of lots that allow manufactured homes. In discussing this situation with dealers of manufactured homes, Mr. Adams has also obtained the names of developers who have been selling developed lots to buyers of homes from these dealers. They have explained to Mr. Adams that the majority of buyers of manufactured homes do not usually already have land or a lot to put the mobile home on. Some of these home buyers have the home placed in a mobile home park wherein they rent the space for the home. However, many of these buyers would rather have their own land to place the home on.

In doing a little more homework, Mr. Adams does some research on the land itself. He had already done much of this before, in order to buy an “Option To Buy” the land.
The land is located on a County Road with frontage. Water and electricity are available along the road. The homes in the area require septic tanks for sanitation. In checking with the County Planning & Zoning Mr. Adams discovers that the maximum density is a one acre lot, primarily because of the septic tanks. Mr. Adams then visits an engineer he knows who has planned similar size land tracks for development.

He discovers that for approximately $10,000 per lot he can get the following improvements:
1000 gallon Septic Tank (installed) = $6,500
Water Lines from road to lot = $1,000
Driveway and Pad for home = $2,000
Electric Meter Loop = 500
Other off-site improvements, such as streets and dirt work, should be approximately $160,000 for the forty lots. Figuring another $40,000 for miscellaneous costs, the engineer’s estimated total to develop 40 lots which are ready to move onto, is $560,000.

Next Mr. Adams, in talking again to mobile home dealers, appraisers and developers who have been selling lots, discovers that the fair market price for a developed one acre lot is $32,500. This would compute to a total gross sale for 40 lots to be $1,300,000. Armed with all this research, Mr. Adams is now ready to take the next step and sell his Option.

These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.