Creative Financing/ways To Gain Control Of Land For Building
Could a creative individual build and re-sell condos on land that is leased for 99 years?
So the transaction would go: secure a 99 year lease on land, obtain construcion loan, build condos, sell condos
Is this at all possible? What would need to happend to make this work?
Yes it is possible, a great deal of 99 year lease land has some pretty impressive buildings on it (including most of those beachfront hotels in Hawaii).
But the reality is that its still easier to do if you can get fee simple title. Every one of those condo purchase loans is going to be complicated by explaining that the condo doesn't own the land.
You are merely duplicating what is a standard practice in Grt. Brit. After all the Royalty never sell only long term lease and the Church never sell only long term lease. Why not do the same here? Of course you can the essence of our law is British Commmon Crude Law and you are right on. I am doing it in single family and as I diverge into commercial Ishall do the same thing. Perhaps I will change my name from Lucius to Henry the 8th I mean it all started when he dumped that older lady wanna be nun. Catherine. Besides she spoke Spanish with a lisp and Henry hated her. Probably saved her life, he beheaded the little 16 year old zoftic that replaced her. But that is when it all started and it has supported the Church of England and the Crown in great style. I mean I am never original I only copy. Seems to work so far. Come on try it you'll like it Mickey likes it.
Cheers Lucius
How does that old British song go. "With her head tucked underneath her arm she walks the bloody tower. etc. etc."
When the Pope ex'd Henry he started his own church not being very original he called it "The Church of England." He awarded the church all the prior lands and properties of the Catholic Faith. But you see he did not have a really marketable title on the properties. So what to do if you can't sell you lease. So that solved that problem. Of course his daughter Lizzie the redhead picked up on all this good stuff and she started hanging onto all of the Royal Crown Properties. Never sell just lease. Go out to 99 years cause that was as far as most people could count.
Soooo ya got it. I want to furnish housing for the poor and oppressed. Ialso am a great fan of Henry da 8. I have borrowed and will never sell land again.
Cheers Lucius
Most people do not realize but the land the World Trade Towers sat on was leased from the New York Port Authority on a 99 year lease. In areas like New York City,Los Angeles,and Chicago this is a common practice.
Quote:
On 2004-04-21 17:45, commercialking wrote:
Yes it is possible, a great deal of 99 year lease land has some pretty impressive buildings on it (including most of those beachfront hotels in Hawaii).
But the reality is that its still easier to do if you can get fee simple title. Every one of those condo purchase loans is going to be complicated by explaining that the condo doesn't own the land.
Ok Ok just look down in the Loop. Do you know that building called the Fisher Building? Just converted to Apartments. Well guess what. My great Grandfather Mr. Fisher aka the Kingfish, built that little darb on a 99 year lease. Why? He did not have the money to buy the land. So thats what he did. Oh yes he also borrowed the money to build it too. talk about a flake. Died super rich in a house of such terrible taste that it looked like he had Donald da Trump for a decorator.
So here I am his great Grandson at the age of 82 starting the same thing again. I mean talk about a slow learner. Thats me.
Lucus Fisher Foster da toid. 8-) 8-)
Just like that commercial says.....Brilliant!
You're very modest Lucious with your "never original, always copy" rhetoric. You never cease to amaze me with your creativity anecdotes. I wish I would have tried to look you up when I was in la-la land/Hollywood a few weeks back.
So, tell me a little more about leasing instead of selling. Is it just the land you lease for 99 years or would that also include the improvements? Can you sell one and not the other? Do you sell a 99 year lease for somewhere near full market value? If so, can the buyer obtain a loan to do this without fee simple title?
How might the paperwork/contract differ from a typical lease (though I suspect your typical lease is anything but typical anyways)
Also, what might be the legal implications of doing 99 year leases. I would think that at some point down the road the buyers could gain an equitable interest "stronghold" on the property. I'd hate to have to evict/foreclose someone who had been leasing the property for 40 years or even 5 yrs. Here in Ohio, land contract interest holders have to be foreclosed if they've been in for more than 5 years or have greater than 20% equity stake.
More of your thoughts on this are appreciated.
Dear Eric,
While in the RAF they decided they wanted me to do other things so they apprenticed me a strange organization called the Brothers M. I was suposed to hang with number 6, but I spent a lot of time with number 5. That got me to the Inns of Court. That is an area close to the courts where most of the Soliciters and Barresters hang out. So while there I got an over dose of Contracts and I mean the old stuff going back to the year 800. As I said the written lease of 99 years came into being for real in the 1500's Pretty much standard from then on.
I use a Standard Lease with a few modifications. For example the period of time is as long as I can get it with a top of 99 years. I also include a small little clause that allows me to obtain financing and record a mortgage against the property. Subject of course to the Lease. I also execute to a controled entity a Sandwich lease, say for 85 years. This Entitly then sets the term of the lease for the person who will occupy the property and that is about 50 years.
Ok. The bank makes a loan for construction. The house is built and at that instant with the Certificate of Occupancy it modifys itself on auto to a 30 year amortized loan with an interest rate of 7.2%. Payments of principal and interest in the amount of $375 a month until paid. I have given a full recourse on the mortgage/trust deed, so that there is no required qualification upon assumption of the note by the Householder. We vet him and we do vet but in a different manner then the world has ever seen before. We are looking for a family man who wants to become part of the great American Dream. He wants his kids educated. He wants to climb the ladder from casual labor to skilled labor, to contractor etc. etc. He wants to learn more English, he wants his kids to stay in familia with no gang ties as there is no need for the family is the necessary crutch spiritual as well as supportive in all other ways.
To make it an easy ride for lenders we are named as Trustee (runs foreclosure sales, collects payments and accounts them rides herd on taxes and if not paid will advance and declare a delinquency etc. etc. We stay on top. Our selling organization can get your house furnished arrange an addition cause you had twins and they fight. Can even add a small rental unit and finance it. So you can get a little help on that biggy mortgage payment. Etc. Etc. We also have an option of course to purchase the land during the period of the lease.
Being in California we are adjusted to the Unlawful Detainer so if an interpretation came along that the person on lease is an equity holder and must be foreclosed out we agree and go along. Of course we would buy the land in that instant and then deal.
Remember on the present Spike Market we are so far below True Market that we can do all sorts of things. Arrange contractual purchases of furnishing, add on units. etc. etc.
I hope this answers your questions. I have prepared an article which I hope they hurry up and post I have turned it in. It is written a bit legalese. I hate to write that way but it was necessary.
The name of this Article is:
:A New Wave In Real Estate., Buy, Build, and Learn.
by Lucius Foster 8-) 8-) 8-) 8-)
OK so this leads me to another question:
what exactly is fee simple title? (I think I know but don't want to assume)
and what is the difference between fee simple and leasehold?
Commercial King,
You stated that it might be easier if you got fee simple, but that would require lots of $ upfront just to purchase the land correct? or are there ways around that?
this may be a stupid post, but you may also want to check the records on the property.
These days, most companies and corps are not in the business of owning real estate so they rent or lease. Companies like Home Depot, Wal mart, Cold stone creamery, etc. Their business is selling what's inside the building.
Anyway, you may want to make sure your property is zoned properly, so as to allow you to build condos. If not, that is a step that will come before building. If you expect rezoning in your town to take too long, than it may not make sense financially to own that piece of property.
good luck.
MrREI,
Leasehold would be your right to occupy a property for a specific period of time in accordance with a lease--it does not give you any rights of ownership. Fee simple is the highest type of property ownership--the owner has all rights to the property subject only to public and private restrictions (like zoning or deed restrictions).
"So, tell me a little more about leasing instead of selling. Is it just the land you lease for 99 years or would that also include the improvements? Can you sell one and not the other? "
For the most part improvements run with the land. In other words, at the end of the 99 year leas the improvements that were built on the land become the property of the landlord. Yes, you can sell the land, subject to the terms of the lease. Yes you can sell the improvements, i.e. you can assign the lease.
"Do you sell a 99 year lease for somewhere near full market value? If so, can the buyer obtain a loan to do this without fee simple title?"
At the begining of the 99 years the lease sells for pretty close to the same price as fee simple. Thereafter the value of the lease goes down until near the end it is almost worthless. Yes, there are lenders who will lend money to buy a lease.
"How might the paperwork/contract differ from a typical lease (though I suspect your typical lease is anything but typical anyways)"
Not much. Except that most leases of shorter term infact prevent you from doing a whole bunch of things that you want to be able to do under a 99 year lease. For example, modify the building, build a new building, etc.
"Also, what might be the legal implications of doing 99 year leases. I would think that at some point down the road the buyers could gain an equitable interest "stronghold" on the property. I'd hate to have to evict/foreclose someone who had been leasing the property for 40 years or even 5 yrs."
Not really, its done all the time. Usually the land lease payment is small relative to the overall value of the deal so payments have a tendency to get paid on time. I once thought about trying to buy the land under a certain government housing project here in chicago and then evicting the CHA on the grounds that their slum was so bad that it constituted a breach of the lease provision not to "waste" the premises. Now that would have been a tough eviction case.
Here in Ohio, land contract interest holders have to be foreclosed if they've been in for more than 5 years or have greater than 20% equity stake.
yeah, here too. And that is probably as it should be. I'm all in favor of people getting their day in court.
[quote]
On 2004-04-27 10:47, MrREI wrote:
OK so this leads me to another question:
what exactly is fee simple title? (I think I know but don't want to assume)
As Nancy has pointed out Fee simple is what most people think of when they think of owning land. Its yours. The only guy who can take it away from you is the government if you don't pay your land lease. Oops, I mean your property taxes.
"and what is the difference between fee simple and leasehold?"
Leasehold conveys property for some period of time, at which point it reverts to the fee simple owner.
"Commercial King,
You stated that it might be easier if you got fee simple, but that would require lots of $ upfront just to purchase the land correct? or are there ways around that?"
Oh, there are ways around everything. You just have to be like Lucius and borrow from everybody. The other traditional answers to the question of how to acquire this land without much $$ include: an option to purchase. The option gets funded by a bank as an acquisition loan when they fund the building. A contract to purchase with a very long mortgage contingency period which gets funded likewise. Making the seller a partner in your new condo project by agreeing to a percentage deal for him. Usually on that scenerio the trick is to convince him that your project will be wildly successful so that his greed agrees to take no money up front and billions (by virtue of his three percent of gross sales) on the back end. All of these get you fee simple title and make it easier to fund the rest of your project.
Of course if you take the long term view of things the best position to be in is that of the 99 year lease landlord. Eventually he is going to inherit all your improvements. If he lives long enough.
Commercial King,
So you could get an option to purchase and the bank will fund this? and then turn around and give you a construction loan? Essentially funding everything? with no out of pocket costs
This is great...
I thought of making the land owner a partner. What % would they get? I'm still working everything out.
Commercialking or any others here - can you expound a little more on the aquisition of land for development thru the purchase option strategy and what needs to happen in order to get the Bank to fund your multi-billion$ construction project. Also in using the strategy of convincing the land owner/seller to forgo payment upfront in exchange for a share of profits after construction- when implementing this latter strategy is financing acquired relatively easy after land procurement( the land the seller puts up).
Thanks in advanced for all who will reply.
Here is one. Why would you lease for 99 years, spend millions on improving it to only have to walk away when the lease is over? granted you would be dead by then. but, you would not be leaving anyting to your heirs? makes no sense to me. Any expantions?
Heres a great low-cost high return story. Guy I know had something like $10k or $20K in his IRA account. So he uses the money to purchase an option to buy a bunch of land for a period of two years. During the two years he gets all the approvals from local gvt to put in a shopping mall plus anchor tenants, etc. Suddenly his $500,000 (or something like that) land is worth $5,000,000. Flips the option to the development co for a $4.5 M profit in the IRA, so its tax free.
Now then, turning to Mr REI's question. Yes it is possible to get the lender to lend all the acquisition and development costs. (Usually these are not bank deals) In my friends case the key was getting JCPenny or somebody for an anchor tenant. The lender says, Ah, we have this nice AAA tenant who will pay a minimum of $xxx per year in rent. Therefore we can loan 10 times $xxx and know we will be paid back, in essence they are relying on JCPenny's credit not my friends.
As to WMwealth's question it it s a good one. Clearly you are better off with fee simple. But sometimes you cannot get it. So you do the deal you can do rather than some theoretically "better" deal that can't actually happen. Life is a constant compromise between the ideal and the possible.
Lets say you are Wallmart. You're not really thinking about 100 years from now. You're trying to figure out how to beef up your financial statment for the next quarter. Owning a bunch of land forever is not as helpful as having the cash inyour pocket and a place to build your store. So what do you care about fee simple title or a 99 year lease? To Wallmart its one and the same.
Commercialking I like how this option strategy works, I have an investor who has agreed to be a money partner for buying land and developing so I have the option money if necessary. In the above scenario after using the $10,000 to purchase the option, how many more costs are encured during this two year period and what might they be. Also was this lot a FSBO and if not could this strategy work with a listed www.property.Thanks for the great example.
I'm a newbie, but I can take a stab at this one...before I did my research, I was asking the same question. Most land might be too expensive to buy out and the build on in prime areas, like downtowns of major cities, etc. Also, some landownders might not want to sell. I'm in Vegas and there are even friggin casino/hotels built on leasehold. I believe most of Manhattan is leasehold, as well as most of England.
If done right, it can be a win/win for both parties: the land owner gets a residual/passive income for quite some time and the burden of property taxes is transfered to the lease holder. The leaseholder gets the benefit of developing on a piece of property he might not otherwise develop on due to cost..
Granted, like you said its only 99 years, but you could have an option to buy, renew the lease, but either way like you said we will all be dead in 99 years so it wouldn't be your problem anymore.
:-D :-D
Quote:
On 2004-05-07 22:07, WheelerDealer wrote:
Here is one. Why would you lease for 99 years, spend millions on improving it to only have to walk away when the lease is over? granted you would be dead by then. but, you would not be leaving anyting to your heirs? makes no sense to me. Any expantions?
This topic is very, very interesting. And I hope will be useful to me very soon. I had found a property that was semi-developed. I wanted to take it over and redo/complete it. As I mentioned on another post, I've now decided that there were too many unknowns with the existing improvements so passed on the deal. Now to this topic.
I found a great piece of acreage just down the road from the above one that would be perfect for the development I was planning. Seller isn't getting any offers as he's asking about 3x the going rate per acre. So, he's interested in dealing. He was originally asking about 4x, but has gone down several million.
Now to give you background, I'm not a developer per se, although I do work with development projects from the design side. I do have a lot of construction management experience as well. I fell into the first deal as a birddog really, client got too busy, deal was too good not to pursue myself. Now after doing all the business planning, etc., I'm wrapped up in what a great project this would be in this general location, so I'm STILL pursuing it. (Really good from a business perspective for my existing biz too).
So back to dealing with the landowner. My first thought was to bring him in as a partner so that the land would be owned by the business free and clear (no mortgages, etc., on the land currently). An exit plan would let the owner be paid off in about 5 years so he would no longer be a partner, and he would have gotten an inflated price on his land (not as inflated as he's ASKING). I figured that compared to the costs of HML or private equity deal, paying a little too much for the land would end up being cheaper.
If I went this route, how easy would it be to obtain bridge financing to cover architects, engineers, etc, so that I'd have all the documentation needed for a full construction loan?? With this project, I'd estimate architect/eng. costs to be at least 1 mill.
With the above discussion, I'd think the 99 year lease might be an option?? How are LTV's figured?? Is this something that would be worth pursuing for me?