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Borrower saw opportunity to construct seven homes by raising foundations above the flood plain.

Opportunity and Scope

The borrower, CFF REI LLC, found a low-cost opportunity to build in a residential area in Abilene, Texas, but the target lots were designated “base flood”, or 100-year flood plain, by the Federal Emergency Management Agency. Nearby lots above the flood plain sold for $30,000, so CFF REI bought the nearby noncontiguous lots.

CFF REI subdivided the two lots into three and four lots each, for building seven three-bedroom, two-bathroom, 1,210-square-foot single-family residences with a living room and kitchen.

The borrower’s cost basis was $7,000 per lot with the purchase, plus $9,000 for 36” dirt fill to raise the foundations out of the base flood level, bringing the total cost per lot to $16,000.

Since the market cost for nearby buildable lots was $30,000, the borrower’s cost basis per lot was 53% below market, yielding a $111,000 savings.

Finding two nearby lots that could be subdivided into a total of seven lots enabled CFF REI to benefit from economies of scale. They were able to negotiate for multiple jobs to be completed rather than only one job if they were building a single home.

Exit Strategy

The exit strategy is to sell all seven homes at approximately $183,000 each—after realtor fees—a goal the borrower is on the way to achieving. With all homes sold and the loan and financing costs paid, the borrower will realize a profit of roughly $232,000.