Notes for subdivisions? - Posted by Randy -IL-

Posted by Ken on November 17, 1998 at 19:36:05:

Make the lots 1/2 acre or more and the notes will sell. One note for each lot.

Notes for subdivisions? - Posted by Randy -IL-

Posted by Randy -IL- on November 17, 1998 at 18:42:33:

Bear with me, this does have something to do with notes. (eventually)

As you all know, larger vacant tracts tend to be lower in value than smaller subdivided plots. Sort of a bulk discount.
In my area the dollar difference is great and so is the demand for small rural plots.

Scenario: The goal here is to buy a large tract and subdivide it to provide a little (or a lot) profit and/or a free lot with little or no cash down.
A person was to find a larger tract and have it appraised and surveyed as several smaller plots among other legal hoops.
Provided that the total appraised value for the lots combined is 25-30% higher than the contract price for the larger tract, could one note purchase all the individual lots as a large tract?
Because the lots would probably not sell at the same time, should there be several notes (one for each subdivided lot) sold for simplicity and resale (Lots AND Notes) purposes?

According to the seller I would be buying many acres. According to me I would be buying many smaller lots at the same time.

In general, how do note buyers feel about this type of deal?


“Backsiding” Paper - Posted by John Behle

Posted by John Behle on November 18, 1998 at 24:54:38:

It’s done all the time. Many land developers depend on the sale of their paper. They usually buy the parcel on a note and then structure partial release clauses to release individual lots when they sell.

A technique called “Backsiding” paper is where they buy on a note and then sell at a higher value on a note and then pay (through a trade or substitution of collateral) the beneficiary on their note with the paper they created. Paying paper with paper is what the scenario amounts to.

You will have to get to know your paper buyers before you start and then structure the notes to meet their criteria. It can be a great deal for a paper buyer. We used to get a nice 30% rate of return on some land development paper in our area.

It was attractive to me because I could fund the notes through refinancing the properties that I traded them for.