The listing agent works for the seller. It is their duty to get the best for the seller. They will never recomend an offer that has something they don’t understand. Most R/E agents do not understand creative real estate, they know only one way to sell is to owner occupied with traditional financing. It is unfortunate that more agents will not try to understand the REI. When faced with something untraditional it is common to be told “you can’t do that” or “that is illegal”.
I had an agent once tell me they would not write a sub2 deal because “we would both go to jail”.
Hey everyone. Great forum! I have been browsing for a few month’s, but this is my first post here.
I’m going to buy a piece of property (raw land) in the Charlotte, NC area to build a house on. I’m planning on doing the construction myself. This is going to be my primary residence but I also want to generate some cashflow from it. I want to build a duplex or, a SFH with a mother-in-law sweet type thing. I’m also considering some other options to generate income like a garage to rent or horse stables. I have two goals; 1) To build equity into the property for some other RE investments 2) Generate enough cashflow to cover my expenses.
Since I’m new to REI I have a few questions:
From what I understand it’s very difficult to get financing for raw land. What I would like to do is purchase the property with a “lease with the option to buy” with the following terms:
Buyer(me) to put down 10% earnest money.
Lease term(s), 1 to 2 years to excercise my option.
Construction allowed to begin before the option is excercised.
Balance price to be paid in full at the time the option is excercised.
Is this possible? What I would like to do is control the property and complete construction before the option period is up. That way I could get a HELOQ to pay for the property. How should I present this to a seller?
Should I offer to pay the Realtor’s commision when the L/O agreement is signed so their motivated to help me do this deal?
Are there special zoning requirements for this I should look for?
Please feel free to comment or criticize any of this. As I said I’m new to REI. I’m planning to look at several properties next week and I’m a little nervous now. Hopefully if I find the right property I can start making some offers. Thanks in advance!
Posted by Randy (SD) on September 12, 2005 at 12:52:16:
First challenge is how are you going to fund the construction? You cannot get a construction loan on leased property, and a construction loan would require to be in 1st position so if your seller was willing to do owner financing he would have to be willing to subordinate to the new construction loan.
Second challenge is never construct any building on property you are leasing with an option to purchase (assuming you have cash to fund the construction).
It is difficult to get financing for raw land, however it’s not as difficult when the land purchase is rolled into the construction loan, most likely your best options.
Hi Scott, thanks for the quick response. I wasn’t clear on the financing. I have enough money set aside for either the construction costs OR the land aquisition but not both. That’s why I wanted to L/O the land. I’m an engineer with building experience, but I know very little about creative real estate. Just what I have read so far.
Posted by Randy (SD) on September 12, 2005 at 13:34:28:
Since you have the reserves to fund the construction (not requiring a construction loan) instead of a lease option, propose seller financing. This could be a contract for deed, otherwise known as a land contract or it could be a note and deed. The differences are in how title is held.
In a CFD the seller retains legal ownership by virtue of the deed remaining in his name until the terms of the contract are fulfilled however you as the new buyer have an equitable interest in the property. Your name it is recorded as a owner (with equitable interest), the tax bill comes in your name, you get all the tax deductions of ownership etc…
In a note and deed, the deed is transferred into your name secured by a note and mortgage payable to the seller (just like you went to Wells Fargo) except the seller is your lender. If you’re seller is receptive to a lease option, he should entertain a CFD or note, just explain it has to be this way or you cannot proceed. You would be taking a HUGE risk building your dream home on leased property, even though you have a “option” to purchase you’re merely a tenant with an ordinary lease… don’t go there! One additional caveat to the note and deed is your seller has the option to sell his note in the secondary market, suppose he doesn’t want to wait 6-12 months for you to finish the construction and refi into a traditional mortgage, he can sell his note for cash.
Thanks again Randy, that’s what I needed to know. I’m going to do some research on both options “CFD” and “note and deed”. The property I’m going to look at is listed through real estate agents, will they be willing or able to present this type of an offer to the seller?
Posted by Rob-MI on September 12, 2005 at 18:19:25:
Not to butt in on your conversation, but I was told that the Real Estate agent HAD to submit all proposals to the seller regardless of how rediculous they may sound or seem to the agent.
This is true in I believe all states.
The next thing is how it is presented. When I sold a property last December, offers were presented to me?
“I got this absurd offer don’t understand it one bit. I don’t believe an agent even wrote such a thing, must be their first contract. Now, here is one that looks very good.”
Is this presenting an offer? legally probably but did I even look at it? No
I guess that’s why it’s so important to find a good real estate agent, which brings up another question. If an agent list’s a property on the MLS do you have to deal exclusively with that agent? What if, like Rob said, the agent writes up an absurd offer the seller doesen’t understand can I find someone else? How do you guy’s deal with this?