9 acre development loan advice

[Brice Holasek]

Hey all, thanks for your time if reading this. I have done a lot of reading over the years, got 1 flip under my belt but put that rehabbing hold for now. I'm currently in a new situation with my parents 9 acre property in Eden prairie MN. My father currently has a $1,700,000.00 HELOC loan on his property for 10years now, the interest is catching up with him and us(as we have been helping on payments) . I think the bank knows this and it is coming up for renewal, but they don't want to renew the loan.

I have to a couple other banks , no one interested in the loan, we're hoping to capitalize the interest until it is developed 3 to 5 years? He is 87 and Mom is 85, both want to stay in home as long as possible. 

Property estimated value? $11,000,000.00, I'm using Pulte homes of mn tentative plot they did when they offered $2,650,000.00 in 2012. Thinking minimum of $500,000.00 per lot, likely worth more. I saw a vacant lot in Edina MN recently sold for $1,500,000.00, 1.5 acres but only partially buildable. Property in question is across the road from a regional park with lake, trails etc. My point being it's a nice property but unsure how to approach getting an asset based loan while he still lives on it and capitalizing the interest until lots are actually sold.

I did try the "find a financial pro" on bigger pockets home page haven't heard anything yet.

The equity in the property is there, we can add additional equity if needed, any help or guidance would be appreciated, thanks

Brice

[Jay Hinrichs]

Quote from @Bill B.:

Is there a need to do this before they pass? If they paid even $2M with a sale price of $11m you could be looking at $1.5M in federal taxes and another $1m in MN taxes if this was always a homestead and never depreciated. I understand if your family is running out of money it might be worth paying. But saving $2.5M in taxes has its benefits.  

Could they get a new primary home loan, or a small reverse mortgage, could you borrow against something? Could you sell off just a couple acres if you think from your example that would be more than enough to pay off the Heloc? There are a lot more $2m buyers than $11m buyers, plus they get to keep their homes and save 8o% of the taxes. Still a solid E2M. 

I suppose the counter argument is if they need any assisted living Medicare is going to look back and take as much as they need.  

this is a great point with this kind of equity tax planning is very important. 

I have seen this done and have done it once in Portland Albeit on a much less expensive property. However what I did was buy the property today and give the parents a term limit life estate or in this case maybe a 5 year lease with no payments type of set up.. But again tax planning is important.

the reality of a lender coming in and doing an interest accrued loan is going to be slim to none in the open market 

I did some bridge financing for a project in Bend that went like this and could work here.

Lennar put up 2.5 mil NON refundable deposit but secured it with a first position deed of trust that called for no payments . So that is not taxable to the owner at that point. I provided further funding securing a different asset to allow the project to move forward ( 3 developers working on contiguous projects and needed some bigger money for offsites which I provided). 

So in this case I think working with a large national or regional builder coming to a price today that would work have them put up the 1.7 mil in non refundable EM  then a lease to stay in the property and then execute the purchase after they get all their entitlements done. ( not sure how long entitlements take.. or Like Lennar had done on my bend deal they used their own cash to do infrastructure and quite a bit of vertical before they actually closed. Close is scheduled for late Aug this year.. but by that time Lennar will have well over 6 mil into the deal. 

Or some version of this.. I dont see lenders doing this deal at all unless there is a huge upside like 20 to 30% apr.  Also on the Bridge loan I did in Bend that was 7 figures it was/is interest accrued at 30% interest. However the developer was stuck and they are going to make north of 5 mil when Lennar closes.. so for them to pay me 400k in interest for a year or so to get to the finish line penciled for them they spent a year trying to find that magic 10% lender with no luck.. In addition the reason I did this at all was the fact that Lennar was in place with the big non refundable deposit. I would not do this on a property that has not gone through entitlements or has a reputable buyer in play or in contract etc.. 

U may find a lender that will do this as a loan to own scenario.. IE they will do it but if it does not work they are going to look to foreclose and take ALL the equity.