Anyone Cracked the Code on Vacant Land Financing?

[Philip Wrigley]

This has probably been discussed before but without trawling through old posts I am curious as to what others have done here: We're looking at purchasing another property in Southwest Michigan's Arts Coast area (Saugatuck/Fennville/Glenn), but instead of buying an existing home we're considering buying a lot and building.

We've bought plenty of investment properties over the years, but vacant land financing seems to be a completely different beast. Since there's no income yet, the DSCR route that we normally use doesn't really help. How are people financing these purchases? HELOC? Conventional land loan? Local bank? Commercial loan? Something more creative like a credit card?? ;)

The intention would be to buy the lot now, build within the next year or two, and then refinance the completed project into a long-term loan once it's operating.

Would love to hear what has worked for others, particularly if you've built vacation rentals. Any lenders you've had good experiences with?

Trying to avoid tying up a huge amount of cash if there's a smarter way to do it.

[Jay Hinrichs]

Quote from @Mike Grudzien:

I'm following this because I want to know, also!

Land is generally either All cash or seller carry until you have a project that a bank will loan on.  Other than that small commercial bank might help you if its local and you have a substantial deposit relationship with them.  I fund land flippers in a number of states and they use me for the cash purchases. Then we flip the dirt.. Or in my logging days in Oregon I did have a line of credit from a local bank but that was for our business of buying land logging it and then either splitting it into parcels or reselling. However the TIMBER was the main value driver not the dirt. Generally speaking those that own land understand after a time that cash sales can be hard so they will look at short term owner carry and if your in position to refi and build that's the way to go.. I just sold one last month in Prineville OR.. were my buyer put 30% down and I am carrying for 3 years.. As I understand in rural Oregon it can take 1 to 2 years to get a permit to build. But many sellers will just want cash and sit until they get it.. Also if its an infill or popular area you maybe competing against local builders who can pay cash/or use their lines of credit to buy their inventory.