Sell As A Package Vs Spec Home
Greetings all,
As an as yet unrealized builder/developer, thanks to all those that take the time to post and share their knowledge and expertise on this forum. It’s really appreciated.
I live in a really hot real estate market (Northern California) where everything, including fixers, gets bid up and sells quickly. The very lowest end of the resale market is $200-225 psf and goes up from there. About the only niche where there is the slightest time lag (a day or two, tops) is residential infill lots (nothing under $100k) and prime rural acreage (low end $150-250K). Now some might find this somewhat discouraging, especially those of us that may seek creative acquisitions, since there is no such thing where so many have lots of equity and cash, but I’m thinking there must be some opportunity here somewhere.
I have seen mentioned here the term ‘sell as a package’ (this home + this lot) as opposed to building spec homes and having the buyers obtain the construction financing at which time construction would begin, which seems pretty clear for the ‘back end’ of this strategy. However, after scouring this entire forum with every possible search word for further information on these techniques, this is as far as I have come in my understanding.
Would anyone be willing to clarify this a little and also give an overview of the ‘front end’ of this method, in terms of possibilities for controlling these lots until the package sale occurs, especially from a creative (read: preferably nothing down) or partnership perspective, or advise where one might find this information.
Since my background in is construction (rehabs and management), those aspects are do-able, but it’s the creative REI concepts that remain elusive. Perhaps this is really ‘running with the big dogs’ and requires considerable financial magnitude to do deals of this nature, but thought I’d ask anyway.
Thanks again for all the helpfulness.
Best regards,
Dan
Dan,
, then one thing that has been done in my area is getting an option on the lot, with stated option price and time period within which the option must be exercised, in exchange for paying an option fee, nonrefundable if the option isn't exercised. Alternatively, the purchase contract on the lot could be contingent on obtaining a buyer for the total package (or have an extended time frame for closing) with you having the right to market the property, erect signage, etc. However, since you indicate that your market is very hot, to give the owner some incentive, perhaps you would want to consider giving the owner a piece of the total package sale. In this case, you'd want to make sure there was enough in the deal for you and the owner after deducting the builder's cost and profit.
If you don't want to take title to the lot and hold it while you're trying to find an end user (marketing the lot as what I have called a "total package"
Hi Nancy,
Thanks so much for the reply and the suggestions and again, very much appreciated.
It seems like two possible outcomes would be flip it or build it. Until I have done a couple and am comfortable with the process, I would probably be inclined to flip initially. There is one thing I'm not clear on though, and that is how I (we-investor/partner/contractor) would get paid in either of these cases? I think I saw mentioned somewhere taking back a note for the future profit if built., but are there any other possibilities, especially for flipping?
Thanks again for your helpfulness, and I hope these questions aren't too elementary (sometimes due to information overload).
Best regards,
Dan
Dan,
If you want to build on the lot, you will either have to take title to it or have some partnership formed with the owner of the lot whereby the owner would get paid for the lot plus some additional money once the total package (house on the lot) were sold to an end user. This is what I was referring to in the next to last sentence of my post above. If you take title to the lot and then sell the lot, you'd get paid at closing. If you decide to assign your purchase contract to someone else (flip), then when you get paid is whatever you negotiate with the assignee.
Hi Nancy,
Thanks so much for all your helpful suggestions and advice. Your efforts are appreciated.
Best regards,
Dan [ Edited by dboullie on Date 04/22/2004 ]