You are correct, the Builder does not need me, but is a friend. A friend that I trust, but would still want to cover my butt with legal agreements. He is offering this to me because I am bringing the land to him and he stands to make a healthy profit on just the sale of the homes. I had the opportunity to partner with him, however, I need to get a bigger house and I would want the four acres as an investment.
The builder, who has done several other developments thinks the subdivision will take about a year, but I understand you never know.
I am very concerned about the being beaten to the punch.
This is lengthy and confusing, but I am looking at locking up a 14 acre property with an offer conditional on subdivision into five 2 acre properties and one 4 acre property. I want to have a builder do all of the subdivision work and then I would assign the offer to the builder.
In exchange for the assignement, I have negotiated with the builder to give me the 4 acre lot and $40K credit toward the construction of “bricks and sticks” for a personal residence for myself. If I wanted to build a $200K house, I would have to kick in an extra $160K.
If the builder’s homes on the 2 acre lots sell for more than $300K each, I would be entitled to a bigger credit toward my construction.
In reality, I would be getting a $200K home on four acres for a maximum cash outlay of $160K. I am thinking that I could possibly structure this deal so that it is a straight purchase of my personal home for a discounted price and could possibly avoid a hefty tax bill. In addition, the builder would have a loss on the construction of my house which would help his tax situation.
Has anyone run into a situation like this? Any advice or recommendations are greatly appreciated.
Posted by David Krulac on December 12, 2002 at 10:02:06:
Don’t know where you are but typical subdivision around here takes more than a year. We have one that is over 3 years with no approvals.
You need:
wet lands deliniation
historic survey
archelogical survey
endangered species study
driveway permits
septic permits
well permits
sewer capacity pemits
tap in fees
possible road widening
curbs & sidewalks
street tree planting
street lights
storm water control plan
erosion control plan
sediment control plan
typically you need approvals at the local, county, state, and federal levels.
Why would the builder do all the work AND give you 4 acres and a credit?
If the builder is doing all the work why does he need you?
If the zoning permits 2 acre lots why no have 7 lots?
Many sellers don’t want to wait the years it takes to get all the approvals. The value is tremendously increased by the plan approvals and if you’re buying at the raw land price the sellers usually want paid immediately. Around here there is a big demand for developable ladn with many buyers waiting in the wings to out bid their competitors. If that situation exists where you are keep this info close or somebody else may beat you to the punch.
Are you crazy? I’ve never done anything like that! Well, why not? Because I’m not as creative as you are!!
I think what you are planning makes a lot of sense to me, even though I have not done it myself.
What I would advise is that you study the tax issues in some depth, perhaps with the help of some CPA(s) works with contractors. It may be possbie to structure this deal in several different ways, with one or two being better for you and your buyer.