land financing

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land financing

Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes

Does anyone have suggestions on "line of credit" associated with land only?

I believe everyone here knows, that I deal with tax sale properties and due to the economy there is a lot of acreage being lost in this way. In my area there is two different tracts of land that are available for less than 2k each. One is 96 acres and the other is 92 acres.

These lands are listed as "farm" land even though they are 100% forrested and more suited for hunting than farming at this time. What I am really interested in is after I pick them up, how easy would it be to gain an "line of credit" using the property land values as collateral, one is 106k and the other is 140k.

I am really interested in that line of credit to finance the purchase of the tax sale properties that I am interested in to quickly fix and flip.

Which kind of financial institution is best suited to approach for something as this, or is the land financing market just a no go at this time?

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Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes

16y

If the land is severly restricted in terms of its use, it will have much less value than if it was unrestricted. My family owns land in MO, so I watch values there. Farmland that's actively cultivated is the most valuable. Pasture land that's used from grazing, but is cleared and could be clutivated is less valuable. Timberland is less valuable, still, and its value depends on the value of the timber that could be harvested. If you're restricted from cutting the timber or building on this land, it has very little value.

2009 MO survey of land values

Crop land values
Pasture land values
Timber/recretation land values

Yes, its possible for a farmer to get a loan to put in a crop using the land as collateral. That's not a HELOC in the sense you are thinking, though. Its money that's spent all at once in the spring to put the crop in, then repaid when the crop is sold in the fall.

Your best bet is to have a discussion with the bankers in the towns nearest your land. But my guess is that if you can't produce a crop, livestock, or timber on the property, they're going to give the land a very low value.

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Brian Haskins
Real Estate Investor · St. Louis, MO · Member since 2008 · 443 posts · 91 votes
16y
Where are you located? I have a guy here in Missouri that does land financing and has a lot of programs to offer. Would target rural areas to find those lenders.

Brian Haskins
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Jim Wineinger
OP
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
16y
That would be the Knoxville, TN area.

I am guessing that a "farmers bank" would be best bet. I can get the land ok, but may be looking for a "line of credit" with the land as collateral for that line of credit.
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Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
I have yet to hear of credit lines secured by land James. That said, I am sure there are some lender programs to get you some cash out, but I would imagine the LTV would have to be very low these days.

Let us know what you find, curious for the answer myself.
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Jim Wineinger
OP
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
16y
I know that it used to be done, but times have changed and I have yet to find any recently.

Anyway the answer wont come soon, as the program I use takes 1 year to purchase. LTV wont really matter as I will purchase them outright. Land value totals 250k. Purchase price will be approx 4k. No liens other than the "line of credit" if I can find it.

I feel this 4k will be a great investment for a continous line of credit to fund a lot of my transactions instead of using the HML's (even yours Will). Not looking to "cash out" really, Just have funds available when needed.

Worst case scenario, I can charge for hunting priviledges on these 2 "lots".
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Will BarnardPro Member
Moderator
Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
16y
How about a BP hunting and fishing trip on your parcels!
Set up a cabin with 10-12 rooms and charge a few thousand for the week with an all inclusive hunting tour, room and board! Sounds like a blast and your visitors can chat RE investing.
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Jim Wineinger
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Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
16y
Sounds interesting, but even further up the road as the only way to the parcels is through a State park by a 4wd rd then through 3 other similar sized parcels before mine and the State park is a "restoration area".

But it does sound like a fun project. Just remember to bring your lamps and coleman stoves as there is no electricity or gas way back there. And the bordering creek(s) is a known canoeing area with a few rapids.
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Jon Klaus
Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
16y
Timber harvesting possible?

Sounds like great deals. I'd love to hear the details...
1 Reply
Jim Wineinger
OP
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
16y
It might be Jon. Except when the state makes something a "reclaimation area" there is little that is allowed to be done to such an area. I probably would not even be allowed to build that hunting lodge we were all talking about even if I had the planks made from my own trees.

I am beginning to see a lot more of these type deals available up here with plenty of acerage because of the economy.

I see you are looking for a house with acreage east of Dallas. That I am here, very much east of Dallas!!!!!Acreage is here!!!!!!! You might have to build that house but I can find the others!!!!

Too far east? Too far north? Awe shucks!!!!! lol
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Jim Wineinger
OP
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
16y
That was the point in the original question. Since I cant really use the land itself was there a possibility of using the lands value to obtain a valuable line of credit when needed to fix up and flip these deals that I am now comming across on a regular basis.

I know it used to be done for farmers who used the value of their land and or crops while waiting for the harvest and its sale to feed the family and for the seed for the next planned planting.

I remember this from my youth days, but never did like farming so I have not ever looked into how these types of loans were done.

But being able to pick up these deals now (using the land value) and then also gives me the possibility of selling off part of the land as needed for liquidity and or willing it to my successors to set them up. There are just too many possibilities with pieces like this that are going to become more rare as time goes on.

I am considering do it despite the current restrictions. It is a great deal indeed.
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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
16y
If the land is severly restricted in terms of its use, it will have much less value than if it was unrestricted. My family owns land in MO, so I watch values there. Farmland that's actively cultivated is the most valuable. Pasture land that's used from grazing, but is cleared and could be clutivated is less valuable. Timberland is less valuable, still, and its value depends on the value of the timber that could be harvested. If you're restricted from cutting the timber or building on this land, it has very little value.

2009 MO survey of land values

Crop land values
Pasture land values
Timber/recretation land values

Yes, its possible for a farmer to get a loan to put in a crop using the land as collateral. That's not a HELOC in the sense you are thinking, though. Its money that's spent all at once in the spring to put the crop in, then repaid when the crop is sold in the fall.

Your best bet is to have a discussion with the bankers in the towns nearest your land. But my guess is that if you can't produce a crop, livestock, or timber on the property, they're going to give the land a very low value.
3 Reply
Vikram C.
Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
16y
James, how do you determine the value of the land if it cannot be used in any way?
1 Reply
Jon Klaus
Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
16y
Originally posted by Vikram C.:
James, how do you determine the value of the land if it cannot be used in any way?

Selling hunting leases?
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Jim Wineinger
OP
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
16y
I can currently only go by the county assessor value, which is supposed to be current market value. But we all know how that has changed recently. It used to be fairly accurate but recently is just about like any else's comp values.

The restrictions placed upon a piece of land for it to be restored is supposed to carry a certain time limit for nature to restore things to the normal natural balance. I have yet to investigate when those restrictions would and could be lifted.

If the restrictions are practically permanent then the land is useless and so would be the value of the land. But what I am seeing is that due to the economy there are a lot of larger parcels of land that are being lost by owners because they just can not keep up economically and forget to pay their taxes.

These lands are being lost due to nonpayment of taxes. I am seeing this as becomming a common theme. I takes a while to secure these lands due to the reclaimation period. The original one I came across does have restrictions, but I am finding others that have no such restrictions.

I am looking at the long term trend here, and believe that a sluggish economy will only increase the likelyhood that people will simply "walk away" from these lands as opposed to losing their prime home locations. There are opportunities here for future thinking people and most restrictions can be removed or changed just like zoning changes.

While it does take work, the small purchase price will more than make up for the extra work in due diligence and other changes needed. Basically these are REO's that are owned by the county, not any financial institution. And like the banks they really dont want to own the lands.
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Jim Wineinger
OP
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
16y
Originally posted by Vikram C.:
James, how do you determine the value of the land if it cannot be used in any way?

I dont have to value the land, the bank will do that if I can find one that does this thesedays. Even if the value is essentually nothing to most investors since they cant use it, the banks will put a number on it and loan against it (if they do this) and that will make the acreage very useful to me as a way of lowering the expenses of normally having to use HML funds to finance deals.

Who knows, I might be able to parlay its value (as stated by banks) into a way to making money via the route of being an HML lender myself.

That would make that land invaluable, even though I cant physically use the land.

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Jeran F.
Real Estate Investor · Incline Village, NV · Member since 2009 · 20 posts · 16 votes
16y
James, I can all but guarantee that you won't find one bank that will allow you to borrow against the land. Most banks won't touch land in this type of a market. Try to do a 1031 exchange for something with cash flow. Not easy but possible. You could also sell the land with owner financing and try to flip the note for a discount after a bit of seasoning. Good luck!
1 Reply
Jim Wineinger
OP
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
16y
Thanks for the reply Jeran, but I did not say that I owned the land, but have an opportunity to purchase it. This is part of my "due diligence" in including the BP investors with their knowledge. I was afraid that I was correct that no one is doing this type of loan currently, but if one of our members did know of a lender doing such, it would have made it worthwhile.

Sounds like a no go at this point. But I did want to also bring it to everyone's attention that large tracts of land are being lost due to the economy and there are possibilities here if you can find the right ones.
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Just Don
Member since 2009 · 499 posts · 117 votes
16y
Dont throw the baby out with the bath water just yet.

Locally I here hunting fees are sometimes higher than pasture or farmland values.

How far from major metropolitan city s?

those hunting camping rights MAY well surprise you/they used to be minor/not so any more.

That kind of land here was in HIGH demand and I believe still is on a lessor basis.

How much are your holding costs??further tax costs? can you get that reduced by appealing assessed values?

If all else I would try to put those on a low as possible credit card. I doubt as others say you will find a lender as your thinking of them. Or anything else you can finance to pay these things?

Sounds like a pretty good deal to me and will turn around when economy turns,but when? So you HAVE to be able to pay ALL holding costs!!(or your right back where previous owner is today!!)_ If you want to birddog those leads and need to 'turn them,let me know,,,I will 'look'

what kind of trees are on there??Height? species? timber has little value today but MAY improve when things get better.

In the mean time,check out who owns in between property to best roads,,,and see if those are soon available. Putting larger tracts together of smaller ones has value also!!
2 Reply
Jim Wineinger
OP
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
16y
There are still possibilities that I am not dismissing.
For instance if no one bids on this property, after one year it becomes "surplus land" that can usually be obtained for about 1/3 the original asking price (taxes plus court costs plus attornies fees), which would be about 500.00 for this property.
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Jim Wineinger
OP
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
16y
Just to update those who were interested in the large tracts of land that were available.

The 96 acre tract with all the restrictions was not available at auction time as the taxes were paid up by the owner.

The 92 acre tract of land with limited road access but no restrictions on it was included in the auction and several investors fought over it. It ended up going to one that I know and his winning bid was 68K.
That will give him 6.8K in interest over the next year, if reclaimed, and if not he then ownes the land worth 168K.
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Vikram C.
Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
16y
Jim, it looks like these were not such great deals after all. Paying $68K for unusable land with a possible market value of $0 to $168K is a risky "investment" for anyone other than a local buyer who plans to use the land for his personal pleasure.
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Jim Wineinger
OP
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
16y
I think you misunderstood my last post VC. The land with the restrictions was no longer availble at auction time, but another parcel a little smaller with no restrictions was auctioned off and bidding stated at 1.5K and investors liked it so much that they fought over it and it ended up going for 68K to the highest bidder.

There are no improvements on the land and road access is about 200' but the property opens up quite a bit after that behid the other road parcels to the total tune of 92 acres. These are good acres without any restrictions as they are outside city limits and not in any reclaimations area as the first parcel that I spoke of was.

I just could not compete with the big boys at this time. It would have been a great area to develop with limited road access and therefore could even be a "gated community" if the right developers got ahold of it.

My thoughts were of that hunting lodge that was spoken of earlier. I do appologize to everyone who I confused by bouncing my talk back and forth between the two parcels.

I was also attempting to tell everyone to watch for these larger parcels to come available in your areas as I am seeing more and more of them being lost due to economic conditions.

I saw the opportunity and could not take advantage of it but I hope that this will open others eyes to the possibilities that are out there because they could be very beneficial to someone who is watching and is on their game.
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Vikram C.
Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
16y
Thanks for the clarification, Jim. The transaction makes much more sense now. Seems like a good deal if you can get a property for less than half its current value. I suspect doing the valuation on land would be a fun exercise - less comps, more financial analysis.
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Account Closed
OR · Member since 2008 · 1k+ posts · 845 votes
16y
[[[.....how do you determine the value of the land if it cannot be used in any way?...]]]]

I'm sure it varies by area, but in my area, those parcels are sold as "recreation land". Prices are very low, but this is a recreation area, and people buy them and place private campsites on them.

Some of the larger parcels come with "land owner tags". In short, you are guaranteed one hunting tag for every 40 acres you own. The non-landowners get their tags through a lottery.

Even here in Oregon, it's possible to buy 120 acres for about 10K, if it is not buildable. Price, of course, is determined by what is around the parcel.

For $10k I could buy 40 acres near The Dunes State Park or the BLM where ATVs are permitted, if I happened to like to dune buggy. It's a place to camp, and nothing else. Haul in your own water. You aren't even allowed to sink a well.

An acre in the mountains, with nice trees, on the road to the ski slope or close to fishing, might set you back $25K.

Hey, people spend more than that to buy time shares in private campgrounds.

1 Reply
Jim Wineinger
OP
Real Estate Investor · ten mile, TN · Member since 2009 · 1k+ posts · 374 votes
16y
Used to be that in these deals (tax sales) that most investors were looking for the amount of interest that they could recieve for their "bids".

Most were redeemed by the owner within the reclaimation period and therefore the interest amount was the most important factor to them as they were not counting on owning the property outright.

But as more and more of a percentage of their monetary bids were remaining tied up in the lands they ended up actually purchasing the investment strategies have changed.

Anything that you can pick up for less than half of the land value (no improvement value included) is always a great deal. Assuming that you do have an exit strategy for the properties.

Without that exit strategy you are really purchasing the right to pay taxes for a long time on something that can not be utilized (except for hicking, hunting, fishing). While this may be ok for a piece or two, as an investment it is only a drain on funds unless there is a possibility of building a "community" in the near future or a nearby city expanding into your land area (speculation).

But the fact that these larger parcels are beginning to become available leads me to mention it here for those who have the ability watch for these parcels that could be transformed into those money making projects.

Be in an outdoor paintball club, race track, community, hunting lodge, or other project that requires space.
1 Reply
Vikram C.
Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
16y
PNW, $25,000 for one acre seems a bit much. Is that the going rate even in the area you had recommeded earlier? I was hopeful of getting around ten acres for that price. Should I look at other more remote states - Wyoming, etc? This is not for an investment - it is just to buy some land in an attractive area, build a small vacation home and perhaps use it for a couple of weeks per year.

There's no way that it will make financial sense, so I am just looking for land that will be cheap and in a pretty part of the country. And not too hot in summer.
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