Rent to Own on Land for custom home development

4 Replies

Here's the scenario: I am trying to get into the STVR market in Bend, Oregon. After some research, I think I found a niche that would make good returns, but that involves building a custom home in an expensive area. I found a lot that meets all my requirements. It's been on the market for about 500 days and recently took a price drop to a pretty competitive level. I would like to secure the lot (because it's a rare find) but do not have the cash to buy it outright. I looked at construction loans but they require having a solid bid from a builder. The builders require having house plans to give a bid. The architect needs the land to design the custom house around. But I can't secure the land without a loan. Catch 22. The natural solution would be to take out a land loan then get a construction loan after I have the plans/bid. This seems a bit risky and expensive. I was thinking an alternative option would be to ask the seller for a short-term rent-to-own contract. I think this would enable me to give sufficient time to design the right house and find the right builder. Has anyone done this before? Are there any big downsides to this scenario? 

Another option you could pursue would be owner financing with a quick balloon (2-5 years or less depending on how quickly you think you can get the build and the sale completed) so that you have control of the land, don't need to get all of the capital upfront, and can get the design and construction team up and running. The seller is receiving a steady check and if you don't pay they can take the land back. 

If time is of a main concern there are a few prefab companies in the NW that make a solid product and can potentially save a little time on the build side of things. 

How many architects have you talked to? I find it hard to believe that absolutely no one will draw preliminary plans for you unless you own the land. I would see if someone will design some preliminary plans while the lot is under contract and also see how long that would take. Then see how much time you'll need for the builder to put together a good bid and the bank will need to review and issue funds. Once you have that time frame, see if you can get the land under contract and just give yourself enough time before closing to get all those pieces together.