Owner Finance contract

2 Replies

Hello BP community,

I have a property I can buy from a friend in Hayward, house is condemned but lot is huge and it is near the UCEast Bay - so I want to build a rental income property for students - I have drawings and have spoken to city - so my question is - if my friend OF the property to me, gives full tittle, he stays with a lien, can I take out a loan against the property to fiancé the build? He is a childhood friend and is willing to give me great terms until final product is done - also should we do the payments thru a tittle company? thank you in advance for your valuable advise!

Best,

-Claudia

Updated over 2 years ago

Also can someone share an Owner finance contract used in CA? thank you!

@Claudia Moran It will be difficult to get construction loan without giving the lender the first lien position (which in your scenario is held by the seller).  If you are good friends - may be he/she can agree to the 2nd lien position?  The best would be to find the construction finance lender first and then figure out the exact logistics of how to structure it.     You  need to find the builder also to get an estimate of costs and time so that you can be sure to structure the deal accordingly.    It is important to figure out true value of the land. 

Another option is that your friend, instead of taking a lien position, stays on the title for a % ownership.  That way - he/she has security and at the same time you have not used up the first lien position.  

Most construction lender's i'm aware of will finance up to (let's say) 75% of the acquisition cost AND up-to 100% of the construction cost. with that said, it seems like acquiring the property isn't so much the struggle if you can work out a deal with your friend. The construction lender would then see that "purchase" as an acquisition, and you could refinance it with them to get a reimbursement of acquisition cost (to pay off your friend and remove their interest/ 1st lien) PLUS construction costs (with bids as mentioned above). your level experience will play a role in the terms you qualify for, just as a disclaimer (in-case this is your first construction project)

There are a lot of nuances here that may make this tricky, but I believe it is possible. Definitely consult with an attorney so you and your friend are on the same page and it doesn't ruin a long-time relationship if things go sideways. And I would suggest reaching out to a Broker who is familiar with construction loans so they can set this up the right way.