Vacant Land Lot As Downpayment For Construction Financing
Dear Group,
I had a quick question. I want to invest in a vacant lot that is located 5 miles from New York City. The vacant land is also located 2 blocks away from a major College. I want to develop student housing on the land.
I can afford to put down 50 % of the cost of the vacant lot. However, could I use my rights to this lot as downpayment for a loan to construct the actual property?
Thanks,
Angel
I've posted another, similar to this, post in lease option forum and no one answered yet. Since yesterday. I am concerned and anxious to hear some specialist talking on this subject. Can anyone help?
Hi,
There is a really good article, that will be helpful, located here: http://www.thecreativeinvestor.com/modules.php?name=News&file=article&sid=493
It is by a tci member Gfous. If the url doesn't show up, go to his member info. and look for this article submission entitled: 80% of Purchase price or 75% of Appraisal - Applying for a Loan
There is a lot more to your question than a simple answer can give.
Much luck,
Terry
Dear Angel,
Your thinking is correct but lets play a little with your inhouse fund.
My suggestion is that you try and buy the lot with financing from the owner. You put 10% down at the True Market Price.
He comes back with a lst mortgage for the balance written for five years. at say 5% interest. No payment due until completion of construction. also you then increase the price by say $30,000 and in consideration of which he comes back with a second mortgage also written with the same rates. Upon recordation of the sale and you now own the property he then sells you the second for say: $100. You have now bought the property at its correct price (a little below true market if possible) But your sale shows the increased price. You now have an equity. He also agrees as part of the sale to Subordinate his loan to a construction loan of (negotiated figure).
Thus you now own the lot, it cost you 10% say of True Value. You have by paying off the take back second increased your apparent equity. The old Owners mortgage allows you to put a construction loan on the property in first position.
You have made a 10% or less downpayment and you are now in position to borrow all the money you need on a construction loan. I would also negotiate a take out loan after completion of construction.
A little bit of money goes a long way. You sell this to the Seller of the lot by showing him how fast he will get all of his money. Fast construction project and fast sale or refinance upon completion.
Now was that not fun? Lucius
Lucius,
You never cease to amaze me with your creative financing ideas . Simple, yet pure genius.
Terry
Lucius,
Would I assume correctly that what you proposed here--seller take back-- would be for scenarios where the seller owns the lot free and clear?
Lucius,
You sad: "He also agrees as part of the sale to Subordinate his loan to a construction loan of (negotiated figure)."
1) What if the seller wont subordinate his loan to a construction loan?
2) What if he doesn't own the lot free and clear?
The answer to your question is YES! here are a few options.
You can try a contract or subordination but in a hot market it might be a tough sell.
You could get a land loan on it with 50% down you should not have a problem.
You could tie up the land with an option for future development
You could joint venture with the land owner and use your 50 and his equity if any to qualifiy for a construction loan to build the housing.
If appreciation in your area is high you could go the land loan route and season the lot paper for 12 months and use the higher appraised amount to qualify.
You could do an all in one construction land loan using your 50 as down payment.
You could get a land loan and or option and bring in a qualified contractor to build the housing.
The 50,000 you put into the land can be used as collateral and or applied as down payment money with any lender. I hope this gave you a few ideas.
Good Luck ! JLWirk