building on vacant lots

[Frank Windsor]

Is it a good idea to buy vacant land to build on? And how would I go about financing the construction? Is there any way that I can get a company to build and not have to pay until the house is sold? Or should I try to sell it before it is built and use that money to finance the construction?

[Dan Auito]

Is it a good idea to buy vacant land to build on? And how would I go about financing the construction? Is there any way that I can get a company to build and not have to pay until the house is sold? Or should I try to sell it before it is built and use that money to finance the construction?

Traditionally Frank, it is best to buy existing and rehab them or put on additions, vacant land if it was already yours and free and clear could be viable with a construction loan(bridge loan) which would convert to term upon the projects completion and the home appraising for the cost of construction hopefully it would appraise for more (what would be the point otherwise.

Sometimes new construction can require you to of course have plans drawn and approved, having a company do this would relieve the responsibility from you but also take away profit for their efforts, leaving you with less than you could get otherwise, add to that impact fee's, holding costs and the cost to sell just to name a few and you may end up with MUCH less than you hoped for.

Fixing and selling homes that need cosmetics repairs only are so much easier as often you don't have to pull permits, get approvals, pay impact fee's, builders, and if you market it while you improve it, your holding costs will be minimal as well.

Back to your original question of having them build and you not have to pay until completion, most investors look for hot subdivision builders and put down a deposit on a new home to be built, counting on the home selling for 10-15% more than their original contract price hence on a $200,000 home they may walk away with $25,000-$35,000 if prices continued to escalate while the house was being completed, some builders are putting clauses in that mandates that you actually occupy it so read the assignment provisions clause carefully if you think about going that route.

Pre-selling is great but it isn't as easy as it sounds, and you really have to have every potential cost covered or you could end up broke due to unforeseen expenses that accrue during the process.

Buy existing and cosmetically repair, then sell, if worse comes to worse you could rent or lease option it, it is a much safer road to hoe until you have more experience, heck even those with experience will say the heck with new construction, as it often isn't worth the hassle of going through all the hoops to get to the finish line! Hope this doesn't discourage you Frank. Dan

[Frank Windsor]

Thank you for the reply. I was hoping that I could because I can purchase tons of lots through the county courthouse for as little as $28.00. I guess I could always re-sell for a nice profir.

[Dan Auito]

Thank you for the reply. I was hoping that I could because I can purchase tons of lots through the county courthouse for as little as $28.00. I guess I could always re-sell for a nice profir.

What would be the probable selling price if you market them at fair market value? If the lots where worth $5,000 you may be able to use them as collateral for a 80% loan to value construction loan that will allow you to place the prefabricated low dough homes!

One thing to do would be to get the plans from the manufacturer and have an appraiser give you an opinion of value based upon completion on and including the lot, the banks can begin to design a loan around a probable value upon its completion.

At $28 a piece I think I would buy a whole subdivison! IF everything else was in order.

[Frank Windsor]

Which would be the best way to find out the appraisal value of vacant land? I don't want to spend tons of money to pay someone to come and look at grass. And would the bank want to give a loan to someone with not so perfect credit?

[Just Information]

You are undertaking a major project and to do this many key factors must be in place first.

You will need to research how must land is truly available for development by checking easements; rights-of-way; Caveats; and covenants of the subject property along with any building schemes, notices of permits, etc. which may affect the property.

Having a property rezoned can be a major project if the property is in a restrictive county.

And the other factor will be the infrastructure and your project impact in the community.

You will need to know:

What is the Zoning and Official Community Plan land-use designation for the property.

Current regulations on the use, density and building dimensions permitted on your property.

If the property is located on unstable soils, you may be required to undertake a geotechnical assessment before constructing a new structure.

Be sure to check city and county Tree Removal Bylaws as some time ago I did a development that caused me a little grief since the law protected trees 4 inches and above from unnecessary removal.

If you do not have the funds or technical skills to this project, You will need to partnerup up with a developer who has them. Parties sign a development agreement; the owner contributes the land and the developer brings in the construction and management skills, funds to develop and its goodwill. The developer will construct buildings, market, sell, and realize proceeds. A part of construction or sale proceeds will go to the owner; the balance to the developer. They will jointly sell the units to individual purchasers.

This will not be an easy undertaking for you, just be sure you are ready for a major roller coaster ride when you set out to develop land.

I do not want to discourage you but if this will be your first time in developing taking on a project of this size can be vary troublesome.

I have always suggested to my students to learn all they can about developing land, learn all the city, county and state rules and regulations on developments and most importantly have a source of funds in place and a lot of it as the numbers will run up vary fast on you.

A book that has been vary helpful in this process is called Getting Financing & Developing Land by Michael C. Thomsett

[Clint]

http://www.84lumber.com/84homes/affordable.asp

And

http://www.jimwalterhomes.com/

[DionEvalueMortgage]

While I will let the other guys post information on project stuff and contract provisions. Here is what you could look for.

Construction to Perm loans are always a great choice. I have commented on these programs before in the site. Usually the builder needs to be approved on the lender and the rate of interest as usual is based on credit worthiness. Land ususally isn't included in the loan amount so you must own it already. The lender will loan based on the anticipated value of the home.

Something to watch out for...as more and more lenders are coming out with this program you must make sure the loan can paid off with no penalty. As Dan stated most builders don't allow assignable contracts into their projects however if you are doing it by yourself you maybe able to finagle that in. Check with a local mortgage broker, these programs are not traditionally supported by banks. If your in FL, give me a buzz and I will see what we can do. :noel: