Can I Do This To Get An Income?
I own several vacant residential lots that have tripled in value over the past several months. I want to keep them and watch them ride, but I want to keep doing this. I have access to decent lines of credit, but the more I buy, the more my LOCs are strained and my credit score goes down.
This is what I want to do, I want to sell what I have and buy more. How do I do this? I have seen others offer owner financing. So I would offer to sell each lot for $19,900 and do owner financing with $5000 down and say $259 a month for 5 years (or whatever the amount inc interest). I would get a profit of $20000 upfront with my 4 lots currently owned and I can use it to buy more. Also, I will be getting about $1000 a month income from the monthly payments. it seems to easy. Can this be done?? what am I missing. I have only owned the lots for 6 months, prices are starting to climb but I am still able to sell with a 50% profit over what I paid. Can anyone help me see what I need to do to make this work right?
thanks
Only problem I see with selling them outright is the capital gains you'll incur. How about doing a 1031 exchange? Not sure if you can do that with land though. I assume since land prices are going up housing values are ging up as well. The following scenario might be profitable for you as well.
Partner with a local builder and build three houses on the lots and then sell the houses. You have the land the builder has the buidling capabilities. Could be a win-win situation.
Don't lose sight of the big picture. You have already gained some good appreciation. Don't be greedy and risk "losing" it because you want more. As someone else has said on this site..."Pigs get fat, hogs get slaughtered" Don't be a hog
Good luck,
Q
good thinking re: 1031. Can i do 1031's when owner financing? I guess I can hold onto the land until the 1 year point this June-July and then start this process. I signed a contract on another lot today that I found by just sending out mailings. It is still 50% off what realtors are asking for the same lots and from what I can tell from the tax records, they are selling at the higher rates too (dec 03).
I am looking for income, but don't want to lose my income to taxes, so I will look into the 1031s before I sell.
Re: building homes. Won't i be in the same situation with taxes? I have been able to find land cheaply, like under $5000 with $240 cc. Will the houses show up as liabilities on my credit? Should I keep them to rent out? or am I trying to sell them before the builders are done and I don't have to close but just assign the contract to new buyers?
Don't want to be greedy, just trying to find an income to continue staying home with my 4 kids as I am newly divorced.
thanks for your help.
Some thoughts here...
If you go the route of having a builder build, one possibility may be for you to just hire the builder essentially as a contractor. In other words, you keep the title to each property, builder builds the house, and at settlement you and the builder get paid according to the agreement you worked out with each other. The builder could show you the plans for the house and once you decide on the sale price for the "total package" (that house on your lot), market the total package. Builder doesn't build spec; home gets built once you have a signed purchase contract with a new home buyer.
Don't know what geographic area the properties are in and so don't know how long the building season is per year. If you do one of these deals per year, wouldn't that help?
Nancy,
Can you please clarify this part:
"Builder doesn't build spec; home gets built once you have a signed purchase contract with a new home buyer."
I also wanted to ask you, under the scenario you described, how do you know who gets what part once the house is sold? of course you'll have a contract but what's customary in such deals?
thechangingtable
Just curious where the lots are located that you have, i just purchased 1/2 acre for 175,000 in Mass,
I wanted to try the same exact thing ( owner financing for a monthly income) with some vacant lots I own. However they need wells put in and the well drillers will not do the work unless the property is owned free and clear. Is there a way I can do owner financing and get around this hurdle without having to pay for the wells myself ?
Quote:
On 2004-02-02 21:42, LadyZenaa wrote:
I wanted to try the same exact thing ( owner financing for a monthly income) with some vacant lots I own. However they need wells put in and the well drillers will not do the work unless the property is owned free and clear. Is there a way I can do owner financing and get around this hurdle without having to pay for the wells myself ?
Dear Lady Zena,
One way is merely to talk to the Well Digger, be careful they are very cold.
If he is really insistant it usualy means that he is used to working on credit and wants the ability to slap a lien or a mortgage on in first position. You can always agree to subordinate your mortgage, one time to the lien of the Well Digger.
Of course if I had my druthers, I would merely make arrangements for the Buyer of the Lot, to go into your bank and get the money on a loan. This makes for happy Well Diggers and even happier property owners. Oh yes watch where you put the septic tanks and stuff. Remember always down slope away from your well supply. Why do I know this? I made a rather interesting error and produced imediate Gray Water.
Cheers Lucius
I am in Florida. There is water and electric, but septic is required. Have not looked into the problem the other person noted. Will have to check that out too!
How much is a septic install these days? Sewer is coming but not for several years. Also, I am in a Flood Zone and elevation is 11 feet, does this mean a stilt house (it is 2.4 miles from the Gulf). I would consider building if I knew more about how to contract with a builder, but I don't. Can you elaborate more.
<IMG SRC="images/forum/smilies/icon_redface.gif"> [ Edited by thechangingtable on Date 02/02/2004 ]
I am going through the same thing ! Need well and septic...I might just try to add it into the payments...the people I am dealing with don't really care the total price just the monthly payments. I am talking folks who need a place to put a mobile home. They don't really seem to care the total just the monthly payments. There seems to be a big need for smaller , cheaper lots.
If you can make a good profit on these lots at this time, then sell, either outright to reinvest or thru owner financing to generale monthly income.
Taxes are part of the business (and life). You're not going to dodge paying taxes by not selling, just prolonging it.
Capital gain taxes is currently only 15%, much less than what most pay on normal income. Also, if you sell via owner financing, you may qualify for the installment sale tax treatment where you are only taxed on the portion of "income" that you have received in that year. Talk with you tax professional about this.
If the values are stable or rising, I'd sell them quickly. Being in a flood zone, you may have only rice paddies tomorrow.
Roger
Also, if you sell via owner financing, you may qualify for the installment sale tax treatment where you are only taxed on the portion of "income" that you have received in that year.
Can you explain this just a little more...thanks !!!
since I have no earned income i could probably write off some of the capital gains from business expenses I guess.
how do I know when to sell and how.
I have one lot I pd $4000 for in 2000 and it is now worth $50,000. Another I pd $6000 in 2001 for I sold for $35,000 in 2003. Now I have another 4 lots I paid $4000 each for and now they are worth $15-17000 according to the realtor who sold them to me in 2003. I admit I do feel greedy now that I am writing this but don't want to sell to soon but don't want to miss the boat either.
Another twist is that the 4 lots can also be sold as 2 double lots since they are both next to each other but on separate streets. My realtor told me that I could sell them for more because people want bigger lots and there are NO listings for side-by-side double lots right now in the area. Do I want to split these up to maximize owner financing??
You'll need to work out the particulars of the deal(s). Sell, not sell. Owner finance or not, hold them longer or get out now.
These lots may increase in value, or they may not, or something else may happen to lower their value or raise it. Holding property is a risk.
As far as money goes, I'd rather make a fast nickel than a slow dime any day. You can always play the "what if" or "if only" game no matter which way you go.
What if I sold them today and tomorrow the price jumped $10K? you still made money didn't you?
If only I'd sold them yesterday, I'd have the cash to buy this great deal today?
Make a decision and be satisified with the outcome. It'll all work out.
Roger
Quote:
On 2004-02-02 20:53, omega1 wrote:
Nancy,
Can you please clarify this part:
"Builder doesn't build spec; home gets built once you have a signed purchase contract with a new home buyer."
I also wanted to ask you, under the scenario you described, how do you know who gets what part once the house is sold? of course you'll have a contract but what's customary in such deals?
Omega1,
In the scenario I proposed, the builder would only start building the house once the owner had a signed purchase contract from the buyer for the new home. If it were a spec home situation, the builder would break ground and start building while the owner was trying to find a buyer for the house.
Insofar as how the owner and builder would work the numbers out, it could be done somewhat the same way as if you owned a building lot and hired a builder to construct a home for you. You and the builder would enter into a construction contract to build this house, these specs for X$. Builder proposes a construction number that takes into account his profit. Don't know that there's any customary number as each builder operates differently. If the builder's already working in the area where the lot is, and he wants the business, hopefully he charges less. Whatever the builder's number is, the owner adds in the lot cost +hopefully something on top of builder's construction cost and arrives at the price at which the total package (house on lot) will be sold to Mr. and Mrs. Jones. So property owner/seller would have to negotiate a number with builder which leaves room for seller to make something on house as well as lot. At closing, builder gets paid his number less whatever he has already been paid in advances by buyer's construction lender. Seller gets sales price less the payment to builder. Mr. and Mrs. Jones get permanent mortgage which takes out construction loan. Everybody goes home happy.
in follow up to the assistance I read here, I am still looking for future income. I met with a builder who will build a home for me with $1000 down (no construction loan) and it will take about 9 months to build. I will then start marketing/listing the property as I will have an assignable contract. Will this work or is there a catch somewhere that I have to watch out for? Another thing is that this builder uses his own lots, so I will still have my other lots but I am going to look for other builders which will build for me without getting a construction loan if that is the route I choose to go. I am also doing the FL real estate course online, so hopefully I will be finished in order to sell my own property. Advice??
thechangingtable,
I'm not sure I understand your last post. It sounds like you're saying that a builder would build a spec home on one of his lots, you would give him a purchase contract for the property (home & lot) and then you would try to sell the property to Mr. & Mrs. Jones. Builder completes house in 9 months. If you aren't able to find an end user buyer by then, presumably you would have to take title on the house the builder built on one of his lots.
As you pointed out, that proposal wouldn't use one of the lots you already own. Why not take one of your lots, hire a builder but don't have him start building until you sell the property (that is, the proposed new house on your lot) to Mr. & Mrs. Jones? That way, the end user would be bearing the cost of construction and you're not stuck with trying to sell a spec house. You'll also be avoiding the possibility of having to take title from the builder on the spec built on his lot.
thank you for responding. 4 of the 5 lots I own are in subdivisions where there is little building yet. I have seen 3 homes built. There is no electric on the streets, it is about 1/2 mile away from my lots.
The other lot I have, I am not ready to sell yet.
The builder is building just outside of the area where my lots are. Prices are going sky high, but no building last time I visited.
I guess I would be wondering why there's no building in the area where the builder's lot is located. Why hasn't he built a house on the lot--the lot that he's willing to sell to you AFTER he builds a house on it?
Maybe I'm missing something here, but it sounds to me that what the builder wants to do is have a guaranteed buyer for the house -- you.
this is a mass builder, i have not even had a chance to pick a lot yet because he has not opened up new lots to buy from, from the info I have gotten, real estate agents snap them all up as soon as he closes on them. So me even getting one would be lucky and probably not even the pick of the litter. But they go pending ASAP. This guy has a good thing going. I don't mind the wait.
As far as the area, it is a very hot area, I don't know how it has stayed as empty as it has being 2 miles from the gulf in a city with a decent mall/shopping, access to a major interstate, airport, beaches, etc. but now the secret is out and prices have really started to escalate. [ Edited by thechangingtable on Date 02/13/2004 ]
oops, made an error. the contract is not assignable per my realtor friend/agent who introduced me to the builder. BUT, he will pay all closing costs (no prepaids of course) if I use his lender. This could pose problems as I would be a NOO/Stated Income/No Doc buyer. Guess it was too good to be true!
Still looking for income!
OK, bringing this back up because i just hit my one year anniversary on most of these lots. I listed 2 of them them on ebay to try and sell out right. If I cannot sell them outright, I would like to do owner financing because i have found two more lots and I need the money to buy them and then either flip them or owner finance those too.
I would like to do 1031's, but can I do them on owner financing deals? Any links to amoritization schedules? I created an S corp to take in the monthly payments and the down payments. Can I do this even though the lots are titled in my name. What is next, what kind of paperwork is needed with owner financing? A deed and a note right? Help!
You prob what to have a chat w/ a CPA, ATTY, and 1031 facilitatory.
This way the CPA and atty can set up the right structure (s-corp might be) and the facilitator can work the 1031 magic.
Changingtable-
I am looking to buy some property on the west coast and build there as a business as my wife has accepted a new job near Ft. Myers. Perhaps we could talk about what you have available property wise? Email me if so. Thanks
Regarding the cost of septic.....I'm building a 3/2 in Lake Havasu. Septic costs are approximately $2500.00