Hermans corner
The Skinny:
1st land development project that started Luke on a new trajectory.
ARV: $750k
Improvements: $150k
Purchase: $470k
Exit: Builder bought out Luke and all other investors.
Luke and his fiancé were searching for a place to live once they got married. They liked the Orem area and so Luke reached out to a realtor to search for a house in Orem. The realtor said he didn’t have any houses that he was aware of, but he knew of multiple lots that were available. Comparing market pricing Luke saw an opportunity.
The agent also had a connection with a local builder that Luke had worked with before. Luke and Mike Muehlman owner of Hawthorne Homes went to lunch to work out a plan. Luke was to find lending partners to gap fund the closing. Mike, the builder, would get an A&D loan from Central Bank for purchasing the lots and do the improvements. Luke found 4 lenders to participate in the deal.
The strategy was: buy, develop, sell. The project was meant to be a quick land flip. If that didn’t work we would build and sell or build and keep.
We purchased 3 lots in August 2022. Timing was crucial. Orem city was getting ready to repave center street 2 weeks after we purchased. To help us speed the process along we purchased the lots subject to the previous developer’s bond. We needed to line up the excavation and all the utilities within that window. It was a miracle. We bought the properties and the day we were signing the excavator was digging.
A few days after we finished the excavation the city of Orem repaved center street. We put the lots for sale at their new price.
The market started to tip and so we gradually lowered the price of the lots. Until we reached a close to break even price and let the lots sit at that price. Not much activity.
In September Luke went to a URIEA presentation on land development. Steve McCleery was the presenter. After the presentation Luke met Steve and they set up a lunch. Luke learned during this lunch that his land flip numbers were off for what was needed in Orem. Luke and Steve formed a solid friendship.
The lots continued to sit on the market. One of the lenders started getting worried about their funds. As time went on this lender got more belligerent. After a few phone calls one of the lenders currently in the deal was able to replace the worried lender.
The builder partner was ready to do the vertical development, however his cash was tied up in another project. Luke just so happened to know the investors on the other project. Luke and Steve worked with the investors on the other project to help them find a buy for their 8 lot development. They found a buyer and closed at the end of April 2023. May 1st the builder then had the funds to buy out Luke and the other investors on the project.
The builder’s plans were to go vertical and sell or hold the houses there.
Milestone Moments:
– This was Luke’s first land development opportunity
– It gave him the confidence to talk with land developers in the industry
– It was Absolute Foresight Enterprises first opportunity to do a multi-unit project and charge an acquisition fee.
Key Takeaways:
– Take action towards your dreams
– Seek advice from professionals in the space before jumping into a real estate strategy you are not as familiar with
– Sometimes the solution to your problem lies in helping others solve their problems
August 2023 Update:
Hawthorn Homes has excavated on all 3 lots. 2 of the lots have foundations and framing. Ramblers coming along nicely.
