Pre-Newbie Seeks Land Purchase Advice - Posted by LE

Real Estate Investing
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Posted by LE on November 05, 1998 at 09:11:23:

Karp wrote: “see if he can set up a charitable remainder trust so that he can take a ton of deductions and upon his death the portion that you bought remains yours (which you should be able to buy for well under 100K) and he and his heirs get a heck of a deduction come estate tax time. Look into that and let me know.”

Sorry, I don’t know what a char. remainder trust is, but I’ll see what I can find out today. I know he’s already taken huge deductions based on the “best use” of the land with many more lots (ie he’s deducting $200,000 a year for a couple years as a charitable donation). This is based on the value difference between what he could have used the land for (many small lots) and how he actually used it (four big lots), donating the difference in value to the land conservancy.

#2) “if this place is remote…” It’s not. It’s at the edge of the rapidly expanding suburban Detroit/Ann Arbor area. The school district for the property is part of the community I now live in (70,000 inhabitants) So it’s doubtful any type of rural housing program would apply.

#3) Not sure I follow. The land can’t be subdivided in anyway. You buy the whole 10 acres or nothing, and within that 10 acres you get to select any 2 for your building site. The land conservancy is a Michigan non-profit company that now holds a legal interest in the land, even though they have absolutely no ownership. They have the right to enforce the terms of the conservation easement (like no building, no subdividing, no hunting, and other environmental stuff). So I’m not sure what you’re suggesting by buying the conservation part of the land.

BTW, this is exactly the kind of info I was hoping for, so I hope you don’t find my reply questions too basic. I really do want this land. Just to sweeten the idea, one of the other 4 lots just came back on the market (new owner ran out of money to build his house) and the new owner’s asking price is $279,900 (not the $200,000 he paid last year or the $200,000 price I have on the adjacent lot).

Thanks for all your suggestions.

LE

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Pre-Newbie Seeks Land Purchase Advice - Posted by LE

Posted by LE on November 04, 1998 at 20:32:27:

I recently found 10 acres of property with a unique history and aesthetic. The seller, an 89 year old man, has sold all of his 325 acres except this parcel. He appears to have been looking for someone he felt “deserved” the property he has tended for almost 50 years. Problem: he’s asking $200,000 (reasonable in this market) and I can only afford $100,000. This man has made his fortune from various land deals across the country, and he tells me I can manage this acquisition. But he wants me to educate myself and offer him the solution. I am totally ignorant on all this, but I’m trying to learn fast.

The seller states, “I am your bank. Tell me how you want to buy this, any way besides giving you the land, and I’ll listen.” He will lease, lc, mortgage, or “other” He has said he will lease and sell to me at today’s price in 10 years or more if I wish, as one option. But he wants me to give him at least 3 options. I hope to live on the property and not have to sell it to make payments in 10 years, but…

I know this is a pre-basic question to many of you, but I really do want to educate myself and pursue this. Can anyone offer advice?

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Offer him immortality & tax free bonds? - Posted by FJW

Posted by FJW on November 05, 1998 at 19:39:03:

This is going to sound nuts, but I remember hearing this from some guru somwhere along the line and it will mean some more homework for you, but maybe it’s worth a shot. I’m thinking this guy and his family are well off and really don’t need the money and he obviously seems to like you a lot. So, what would you want if you were rich and a good portion of your time was spent thinking about meeting your maker in the garden-haven you spent your life cultivating? He may already have one or he may be too humble for the gesture…I don’t know him you do.

You say you have $50,000 to put down. Well, say you take 5K to 15K of that and buy a monument for him with plans for a small memorial area placed within the paths that fall on your parcel. Design it with the intent to appeal to what you think he would like. It could be a statue, It could be a marker, a wall, whatever. Now whith the rest of the money go hunting for Tax Free Municipal and Tax Free Municipal Coupon Bonds. I can’t tell you what they’re going for now or if you’ll be able to find good ones, but here’s the deal.

Bonds are bought at a discount of their maturity date which is on of the variables that determines their yield. You can buy them with different maturity dates and devise a way to have the estate or his heirs receive lump sum payments at various intervals.
You may even be able to offer him a higher price, depending on the price of the bonds today.

For example:
Like I said, I don’t know current prices, but let’s say you could buy 50K face amount of bonds to come due in ten years for 15K, and another 50K face amount due in twenty years for10K, and another 100K face amount come due in 30 years for 15K. I remember the way this guy was using them, he tried to put together a deal where he was offering the seller the equivalent of twice the amount of equity in the face amount of the bonds. ie 50K equity would be 100K face of bonds. The other part of using these things is they’re tax free and(you’ll have to talk to a tax advisor about this one) the seller may be able to use today’s cash value of the bonds as basis for the sale. So, no capital gains either.

I have to look some things up, but there’s something to think about.

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Re: Pre-Newbie Seeks Land Purchase Advice - Posted by hk CA

Posted by hk CA on November 05, 1998 at 14:45:44:

How about simply leasing with the option to purchase within 10 years. He receives option money, rent payments, and the land is improved, thus adding future value.

You receive use of the land, protection from other buyers, and time to make the purchase when you can afford it.

It sounds to me like he really wants you to have it, but wants you to learn from this experience. Don’t disappoint him.

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Here’s one … - Posted by Redline

Posted by Redline on November 05, 1998 at 11:46:40:

I’m a little new at this also but this was the first thing that came to mind:

Buy the parcel from him owner financed over 10 years. Put down your money (whatever you can swing. If it’s 100,000 then put it down). Pay off the remaining $100,000 over 10 years. Sounds like in 10 years you’ll have enough appreciation to refi and cash the guy out and you’ll own the whole property.

Issues:

  1. Can you afford the payments on the $100,000 over 10 years? Structure the payments anyway you can. Interest only, principal only, deferred, whatever.

  2. Can you afford the land payments AND to build a house on the lot?

I’m sure someone else will come up with something much more creative than this, but hey I tried.

RL

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www.whats your “out”.com - Posted by karp

Posted by karp on November 04, 1998 at 21:50:52:

Dude, I think this is a supremely cool transaction that has infinite possibilities. In fact, you didn’t even sound like a pre-newbie to me except for one critical thing.

WHAT THE HECK IS YOUR INTENT TO DO WITH SAID PARCEL?

Until you have already researched and determined exactly what you want to do, how in the heck can you come up with reasonable options? All you have said is you want to live on it. Does this mean build a house on it? Does this mean subdivide and then build?
Answer exactly what your intent is and this deal sounds to me like a slam dunk…

Thanks,

karp
aka Karl Hartley

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The wheels are turning now - Posted by hk CA

Posted by hk CA on November 05, 1998 at 19:57:51:

Don’t know how feasible that plan is, but I’ve got to say, that’s the kind of thinking that makes deals work! There’s always a way if you’re creative enough.

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That’s disount of their face amount. - Posted by FJW

Posted by FJW on November 05, 1998 at 19:44:00:

That should say " Bonds are bought at a discount of their face amount."

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Re: Pre-Newbie Seeks Land Purchase Advice - Posted by LE

Posted by LE on November 05, 1998 at 15:08:30:

hkCA wrote:
How about simply leasing with the option to purchase within 10 years. He receives option money, rent payments, and the land is improved, thus adding future value.

This option you outlined was his only “for example” option he mentioned. How do you determine a monthly lease payment? Is it based on the amount he would receive in interest from investing the purchase price? Does any of the lease payment go toward the principal; if so, how much? Are payments deductible as mortgage interest is? Can I build on it while leasing, and if so, how is my interest in the land improvement protected? What if I have to sell the home built there while I’m still leasing? How low can you go with these payments? Do you put a percentage downpayment? And the big question only I can answer - can I afford to purchase it in 10 years without having to sell it to get the value out of it…?

Do I sound like a four year old yet? Why, why why? How does it work?..

Thanks one and all for your patience and guidance.

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Re: Here’s one … - Posted by LE

Posted by LE on November 05, 1998 at 14:23:32:

Thanks for your comments.

I can afford $100,000 total, with $50,000 down - meaning I’m financing $50,000 over 10 years. And that only if he gives me a very good interest rate. Yes, there’s the rub. He’s asking $200,000, and he’d be able to get it. I just can’t see any way to swing the $200,000 in any traditional way. But he says he wants to sell to me because I appreciate the land. Not sure how about the structuring options… What would be the best deal you could imagine, for me, that would still pay the guy a reasonable amount but reduce the overall cost? He’s willing to take a hit in the long term (I believe) but not give it away. Ideally, I can find something that will give him income (lease, loan or other payment) until he dies, and then in some way be beneficial to his estate, so they can get deductions, and thereby be willing to reduce the price/payments. Make sense?

I can afford this $100,000 total and be able to stay in my current house and then later be able to build the house I want after I sell this one. Any more than 100k, and I may have to live in a tent.

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Re: www.whats your “out”.com - Posted by LE

Posted by LE on November 04, 1998 at 22:09:44:

My intent is to build one large home, for my family and my parents (dad is becoming handicapped and needs help). So, I want to build and stay put indefinately. The land is the last of 4 10-acre parcels, and the owner has planted them as a nature preserve since 1952 with this in mind. Main restrictions: no subdivision ever, pick your 2 acre building site for your one home, and the remaining 8 acres is under conservation easement. No building of any kind on “conserved” land (reduces property taxes). This also means that there are 32 contiguous acres under conservation, all with trails, wetlands, spring fed lake, etc. None of 4 owners can block other owners from using trails, but the whole 40 acres is fenced from general public. You get the picture.

Still sound like infinite possibilities to you? Please share a few and I’ll be eternally grateful! :slight_smile:

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Re: Pre-Newbie Seeks Land Purchase Advice - Posted by hk CA

Posted by hk CA on November 05, 1998 at 16:10:50:

>How do you determine a monthly lease payment? Is it based on the amount he would receive in interest from investing the purchase price?

A. How much do you want to pay? He seems to be saying to you, “make your own deal. Tell me what you’ll do.” If he says no, than you’ve begun the negotiating process.

>Does any of the lease payment go toward the principal; if so, how much?

A. See above answer.

>Are payments deductible as mortgage interest is?

A. I don’t believe so, but check with an accountant.

>Can I build on it while leasing, and if so, how is my interest in the land improvement protected? What if I have to sell the home built there while I’m still leasing?

A. Yes, you can build on it. Consult with a real estate attorney. Unless you are seriously planning on buying this property, you shouldn’t make improvements on it. I assumed you were serious about buying it. If you have to sell while you’re leasing, you have several options such as assigning your L/O or exercising your purchase option when selling.

>How low can you go with these payments? Do you put a percentage downpayment?

A. See answer #1.

>can I afford to purchase it in 10 years without having to sell it to get the value out of it…?

A. I don’t know what’s going to happen tomorrow, let alone ten years from now. But knowing what you’re up against can help you plan for that future. You can’t get to second with one foot still on first. Investing takes some risk. But the bennies are exceptional.

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Re: Pre-Newbie Seeks Land Purchase Advice - Posted by Rich

Posted by Rich on November 05, 1998 at 15:38:06:

It sounds like you’re answering a lot of your own questions. I’m not sure how you go about building a house on land that you’re leasing. My suggestion would be to see if he would sell you a 1/2 acre parcel to build on, and finance the remaining acres. You could then use the land as collateral to help finance your home. I think a good real estate lawyer could help. An 89 year old man isn’t going to live for ever, and you want to make sure his successors are aware of your arrangement. BTW, $200,000 for 10 acres seems like a bunch to me. The most you would pay in my neck of the woods for 10 acres would be around $50,000, and that’s with a lake view. Good luck!

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here’s a few… - Posted by karp

Posted by karp on November 05, 1998 at 07:52:37:

#1) Okay, it’s early and I am coffeless but here’s what comes to mind: I would like to see if he can set up a charitable remainder trust so that he can take a ton of deductions and upon his death the portion that you bought remains yours (which you should be able to buy for well under 100K) and he and his heirs get a heck of a deduction come estate tax time. Look into that and let me know.

#2) Again at the risk of sounding like a broken record, if this place is that remote, some of the revamped rural housing programs truly do kick butt. They are so underused, my mortgage company is going to devote a full time staff person to helping people use these. We’re talking 100% financing, no MI, easy qualifying you name it. Check the area you are in and speak with a qualified lender and see if that isn’t a possibility.

#3) If you can afford part of this, why not have the part you buy be the part that serves his needs- namely the conservation of the land. Then let him profit by contracting out with his past business associates to build you a house and let him finance it with the money you’vre given him until you can refi and buy it from him.

Let me get caffeinated and I’ll think of some other ideas. By the way, I am jealous of your deal so if you can’t put this together, get it under contract and assign it to me!

Best of Luck,

karp
aka Karl Hartley