Posted by Tony Colella on February 20, 2005 at 17:39:26:
If you can’t find it, build it. But when you build you are quite often dealing in more cash, higher payments and a longer time frame until you begin to receive an income from the property.
Developing is a nice way to create a wholesale deal but if you negotiate and work the foreclosures in todays market, you can quite often buy a land/home package for less than you can build it.
It might take a few grand and some clean up but you can get it rented quickly and use better financing on the buy side.
And yes, we do place a tenant in the home as soon as possible. If I choose to landbank that deal then I have an income during the seasoning period and beyond.
I do not landbank all of the deals because I don’t wish to overleverage the portfolio.
Posted by patsears on February 20, 2005 at 10:57:38:
Hi Tony,
Regarding you “land bank” procedure-is there an upper limit to how many times or how many homes the banks will let you have equity loans outstanding in, at any one time? Or have you been able to do this to all your homes? (this would obviously be better as their would be no limit to your pyramiding ability)
I’m trying to decide whether to take back a pretty profitable note on my first “Lonnie Deal” tommorow, or just sell it outright at a cash discount to get money to do a land/home deal. I’ve about burned up my financial calculator trying to decide which would be best. I’ve put
7 months of time and work fixing up my first home, and it’s hard to put a price tag on the labor & effort part of the equation (except for the knowledge that I won’t be doing it again!).
It might be best to use it as a rental or lease/option and hold it as long as possible, to ensure I “get my money out of it”, but I would be willing to give up some profit now if I could parlay it into even bigger returns tomorrow, possibly by graduating to one, then many, of your land/home deals. By getting cash now, I could start immediately, rather than waiting 6-12 months saving up for it. I definetely don’t want to just go “sideways” profitablility-wise (or downward!)
p.s. When you do one of your L/H deals from scratch (finding land, building real estate-qualifying foundation, buying then moving home onto land, etc…) how long does it usually take from start to occupancy?
Re: Tony-“land bank” question - Posted by Tony Colella
Posted by Tony Colella on February 20, 2005 at 15:53:48:
First let me explain that when we “landbank” a deal, we only do one or two, we do not do all of them. These are also not equity loans, they are true refinances with the bank obtaining a first deed of trust (mortgage) and us pulling cash.
By pulling cash on the one deal, we lower the cash flow on that deal but the cash from that deal can be used to spawn 3 or 4 more deals that will kick off even more cashflow (which more than offsets the loss).
When developing from the ground up, I would forecaste at least 4 months (for bad weather, building delays, inspections and marketing).
Re: Tony-“land bank” question - Posted by patsears
Posted by patsears on February 20, 2005 at 16:33:51:
Thanks for the reply Tony!
So let me get this straight-by refinance do you mean something like this scenario?:
You, using either 100% of your cash, or maybe a construction loan with 10%-20% of your cash, put together a land/home package for, as an example, say ~$45,000. This home would retail though a Realtor for ~$70,000. You then stick a renter in there for 12 months to cover the payments on the construction loan (for seasoning purposes, if required.) Then at the end of 12 months, you ask the bank to create a first mortgage against the $70k value home. With a likely LTV requirement on investment property of 65%-70% (am I in the ballpark here?) you would get to pull out ~$45,500 to $49,000. After paying off the construction loan, you’re left with only $500 to $4000, which does’nt seem like a whole lot.
There are lenders that will go up to 80% LTV on a doublewide. Tony may have found lenders that will do higher. At 80% the loan is %56,000 so he is pocketing $11,000, not bad. The key to Tony’s development deals is that he can get a new doublewide cheap, $20k from a local dealer. I need to find a dealer like he has or become my own dealer.
I got the above answers from his book. It is a very good read. Buy it! Best investing, Chris