Creative acquisition of new property

6 Replies

I've got my eyes on a nice property for sale, it's primed for new construction (grading, sitework & retaining walls done, plans approved).

As far as acquiring it, I've been searching a bunch on BP on this and haven't come up with anything, other than people like @Karen Margrave and @Albert Bui

I'm trying to figure out if I can lease the land from the owners, and give them title to a SFR I own (about equal value as the nice property). Once I complete construction and sell, then I pay off property owners + interest. How would I structure something like this?

Ironic: I just found out that the owners are friends of our family!

@Daniel Siapin I will private message you too, but post some ideas for others to see. 

You don't mention if you have the cash to build or will be getting a loan. A lease will muddy the waters, and complicate the deal so I wouldn't do that. Also, you didn't mention how much you were buying the land for, how much you have to put down, etc., or what experience if any you have. Would you be doing as owner/builder or ? What is the value upon completion? Having so much of the initial work already done has value, and makes for a much simpler project, so that's great.  

Any construction lender is going to want in 1st position with their loan. You might be able to get the sellers to subordinate to a construction loan thereby taking 2nd position behind the construction loan. Once the house is completed, and sold or refinanced they get paid off. The danger for the seller is that you spend all the construction money, and the house isn't finished, then they endup with liens, from subs.  Whoever does a construction loan will probably have a system in place for disbursing construction funds to help with that issue, there's a few ways that is done. 

Another safety measure would be cross collateralizing the loan with your other property. 

Talk to @Antonio Gonzales for more information. He's the lender we're using on our condo project in San Clemente. 

Thanks for the mention @Karen Margrave . Daniel, I would be happy to explore the different options that may be available for your situation. As long as sellers are open to creativity and there are sources of leverage, a mutually beneficial solution can usually be accomplished.

Sorry for leaving out details, so here's a more clear picture:

Property is just over $500k, ARV is around $1.2M (semi-new homes in area go for $400/sq.ft.). Plans are for 3600 sq.ft. SFR. I've worked on these, but never on my own. My father did one down the street ten years ago, and the business of building homes runs in the family.

I can put down around $300-400k, but then I don't have much for the construction.

I would be doing as owner/builder, unless I can be convinced otherwise.

I would expect construction lender to disburse construction funds, and that wouldn't be a problem.

If you have $300-400k to put into the deal, you should be able to get a construction loan from a bank to finance the whole thing.  Most banks will loan 75-80% of the total construction costs (land costs plus building cost), but will likely want a GC on the project (I have yet to work with a bank that did not require a GC). 

Assuming the construction costs are around $150/ft2 (can be more than $190/ft2, otherwise your $1.2 ARV means your loosing money), the total cost would be ~$1m. If you bank required 80% of cost (thats what I am getting), you would need to bring ~$200k.

You should be able to use the bank to finance the lot purchase and construction at the same time.

Now if your $300-400k is not liquid, that might be a different story.

@Mike Wood Thanks for the input.  The GC I've been talking with on this job (and others) consistently keeps things around $100/sqft for structure (excluding permits, demo, grading).  Tomato vs Tomaato?  Either way, hiring a GC is minor, I'll most likely be hiring one.

@Antonio Gonzales It was nice speaking with you yesterday on an initial option of acquisition + construction.  I'd like to hear your creative ideas on working with seller for "mutually beneficial solution", hopefully w/better cell connection.

Thanks for your time and input!! Daniel

Wow, $100/ft2 seems like a steal in California.

On my new construction duplex's in New Orleans, I am struggling to keep them under $100/ft2 and never can I get it below $80/ft2.  That's for entry level housing, not cheap, but not fancy. And that here where labor is relatively cheap and permits are almost nothing (my current project is a $200k project and my permits are less than $1500).  

Best of luck