He is getting you on the right track. If I were going to do the deal I would ask the owner to subordinate the land and use it as collateral to obtain financing from the banks to build what you want and how many the engineer advises. People call this “Purchas Money Mortgages” which is very common in the industry. This way you don’t have to wait 5 years to pay off the land to do what you want…
Most likely the value will apprais for more than it is at it’s current state. This difference becomes your equity and strengthens the deal.
Also, I would try and avoid a lot of road building; because, in my area it cost about $150 per liniar foot wich includes the curbs. If you could make a small access road into a large built up facility and more parking lot/landscaping rather than the roads, you may also save money. I would use country rock gardens and have a few country boys haul in some trees from the country side to save on landscape cost…
Last, but not least I have brought in engineers and road builders as equity partners with now money down for their portions of service. This is wonderful creative financeing to keep in mind for future deals if not this one. I built a small sub division with on money in the deal once…
JR
Land purchase to subdivide. Request input. - Posted by John (Austin)
Posted by John (Austin) on January 26, 1999 at 16:18:39:
Let me list the details thus far:
a) ~3 acres in city limits, good location
b) 80 year old owner wants to dump property
c) Will not budge on $1/sq ft price, total $125,000
d) Comprable land from market analysis ranges from $1.50 to $2.80 /sq ft.
e) I plan to subdivide land and sell the lots. Zoned for duplexes
He will finance at 6% for five years.
Questions:
What type of offers should I submit with regards to his terms?
Any “subject to clauses” ideas?
I need to build a street with utilities, this will effect the price of the land and the market analysis because the other comprable lots have a street. What will that cost and what should I be aware of?
Re: Land purchase to subdivide. Request input. - Posted by charles (del)
Posted by charles (del) on January 27, 1999 at 15:41:01:
comments…
make sure your comparables are “real world” and take into account variables such as location and roads as you mentioned. Especially important with owner financed deals I think.
Talk to a local site engineer/ surveyor. Take them a tax map or existing plat and tell them how you would like to develop these lots. They should be able to give you rough cost estimates.
Go to local planning and zoning and verify zoning. Look at setbacks, etc. to estimate number of units allowed. THIS IS THE BEST WAY TO DETERMINE VALUE. In other words assume an approved duplex lot is worth say $30,000 and you can get 10. Gross value is $300,000. Costs to develop are $150,000. Then raw land value is $150,000. This I feel is the best way to determine value because each site is different.Give yourself some extra room as you are taking on all the risk.
Make sure to talk to a commercial banker to make sure you have the financing to make the improvements and either sell the project or refinance after 5 year balloon comes due.
I know this real estate site stresses the benefits of owner financing, make sure you do not overpay. I would rather get my own financing and get a deal on price if I had to choose.