Investor · Scituate, MA · Member since 2020 · 17 posts · 7 votes
I have an opportunity to tear down an old house on land owned by my father and rebuild something new. I am leaning toward a rental and holding onto it for a while. Problem is that I don't know the appropriate approach to analyze it as a deal. Should I try to buy the land, or share profits with my father? Are there different ways to look at a deal like this?
Rental Property Investor · Atlanta, GA · Member since 2019 · 1k+ posts · 872 votes
4y
Hey @John Joyce, there are many different ways you could go with this..
I'm going to assume they own the property free & clear. If not, these options would still apply but would need to be tweaked a bit.
1. Just purchase the land from him with a construction loan, build a new home, rent it out & refinance. This is ideal if he wants absolutely nothing to do with the project and just wants $$ for the property.
2. Partner with him on the project by having him add you to the title and going in on the project together. This is ideal if he wants to be fairly hands on or has capital to invest in the project and wants to split returns with you.
3. Purchase the land from him with a seller carry. This could get tricky if you'll also be getting a construction loan for the new build. Maybe he would even finance that too? Essentially, this strategy is great if he does not really want to play a hands on role in the project but has capital and still wants to see some returns in the form of loan payments. Make sure you discuss terms and when/if you'd pay him off in full after refinance.
I am certainly not well versed in new builds so there could be more options than this but these are the three big ones I see.
Hope this helps a bit. Please, feel free to reach out anytime if you have other questions or just want to chat!
Investor · Scituate, MA · Member since 2020 · 17 posts · 7 votes
4y
Thank you @Brenden Mitchum your response was very helpful. I like your 3rd option with the seller carry, but just want to clarify some things so I understand it better. I would take ownership of the property for $0 down and promise to begin making monthly payments after it is finished and rented. Then apply for a construction loan to build the house. Then refinance the finished house to pay off the construction loan and possibly the loan to my father. Does that sound like a reasonable plan, or are there any flaws that you see?
I'm certainly not an expert in this and have never done it myself but I'm not seeing any obvious reasons that structure wouldn't work. As long as you and your Dad are happy with it, should be fine.