A Successful Subdivision
Can Boost Your Profits

Property: A 2,800-square-foot split-level ranch house in Eugene, Ore., a college town of about 140,000. Eugene is known for its scenic environment, liberal political slant and affordable housing, which in recent years has drawn buyers seeking a small community and better quality of life. Built in 1964, this home is on a 17,000-square-foot sloped lot and has five bedrooms, two-and-a-half bathrooms, a large family room with a home-office nook and a two-car garage.

Investors: Ron and Bess Blacquiere, both in their late 30s, are real-estate agents and investors. Bess Blacquiere bought her first house in Eugene in 1991 just as the real-estate market there was heating up. The couple refurbished it, and they now rent it out and maintain it as the cornerstone of their portfolio of investment properties. They've bought and sold 10 investment properties during the past decade and currently own five, including this ranch-style home where they now live.

Strategy: The Blacquieres have a mixed portfolio of properties; they've held some for a long time and sold others to free up cash for new ventures. They say they often buy older homes that they can rehabilitate and sell at a profit or hold for an eventual profit. They bought this ranch-style home for a below-market price that matched the owner's current remaining debt on the mortgage. They were able to buy it for this price because of its condition and the owner's willingness to sell quickly. The owner had overspent in anticipation of a mortgage that wasn't approved and wanted to avoid going into default.

"As investors, we said the house is in such dire need of updating that we wouldn't be able to offer much more than was owed on the property," says Mr. Blacquiere, who offered the owner $230,000. But before they agreed to buy, Mr. Blacquiere wanted more from this deal. He didn't believe that buying the home and remodeling it would provide enough profit to justify the investment. The couple decided to find out if the home's large lot could be subdivided into two parcels, a possibility because a change in city zoning allows reduced lot sizes to combat sprawl. They consulted the city, hired a surveyor and learned a subdivision was possible. The couple bought the home in January 2004, and subdivided the property into a 9,500-square-foot lot for their home and a 7,500-square-foot lot adjacent to it.

Purchase arrangement: The Blacquieres offered the seller $3,000 in cash and assumed the remainder of the mortgage and debts. They also paid $2,000 in closing costs. "We got a $230,000 home for $5,000 down," says Mr. Blacquiere.

Amount invested: The Blacquieres spent $105,000 total to subdivide and refurbish the property. They spent $97,500 on renovations ($17,500 more than they budgeted), $5,000 on surveying and $2,500 on city fees for the rezoning. They spent the bulk of their renovation budget on the kitchen ($22,000) and the bathrooms ($20,000), which now have new tile floors, plumbing, fixtures and shelving. They also invested in new floor coverings ($12,000), a new deck and lighting ($10,000), fresh paint throughout the house and new skylights and windows.

Profit potential: The Blacquieres anticipate a minimum profit of $115,500. They bought the home for $230,000 and invested $105,000. Based on recent home-sales prices in the area, this house likely would sell for about $375,000, giving them a $40,000 profit if they sold now. In addition, the new lot that they created through subdividing would sell for about $75,000. Because the Blacquieres plan to hold the vacant parcel for at least two years, they expect it will appreciate and its value could grow significantly if they build a home on it and then sell. "We're going to sit on it for now," Ms. Blacquiere says. "There are not a lot of residential lots available in this area."

Unexpected costs: The Blacquieres spent more than they planned on remodeling, especially on labor. Mr. Blacquiere says he's beginning to tire of these types of projects, in part because they eat up time he could spend on his full-time job as a Realtor. During this and other remodels, he says he typically spends time ferrying materials from building-supply stores to on-site contractors to save on labor. This money-saving tactic works, but it's also time-consuming. "I'm a Realtor and it takes time away," says Mr. Blacquiere. "This is money I wasn't able to earn [selling] real estate."

Lessons learned:

1. Look for potential. Be creative when you're looking for opportunities, says Ms. Blacquiere. "See if there is the potential to create some equity," she says. Short sales and fixer-uppers often offer more upside than homes whose owners aren't looking for a quick sale. 



2. Take advantage of contingencies. The Blacquieres recommend that investors use contingencies in their offers so that they aren't obligated to buy a property if it becomes clear that the deal won't be profitable or will be unsuitable in some other respect. For example, the Blacquieres included a contingency in this deal that enabled them to back out if the ranch-style home's parcel wasn't able to be subdivided. "There was an inherent risk that it might not be," says Ms. Blacquiere. Contingencies usually have expiration dates, so act swiftly to get the information or approvals needed to know whether you want to proceed with the purchase.



3. Follow local real-estate news and laws. Because the Blacquieres work in real estate and follow the news, they knew that their local government had recently reduced minimum lot sizes for single-family properties in an effort to reduce sprawl. "We're kind of insiders to a certain degree. It does give us a leg up, for better or worse," says Mr. Blacquiere. "Maybe a would-be investor should team up with a Realtor who's aware of the market and buy together with him. There's a million people out there looking for a home-run investment. You want access to opportunities. It might pay to share the profits."

-- Ms. Hodges is a free-lance writer in Seattle.

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