New Construction Wholesale Exit Strategy

[Megan Lewis]

I'm negotiating a new construction deal that I plan to wholesale. The property hasn't even broken ground yet. Any recommendations for contingencies to include in the contract? The typical inspection and appraisal strategies don't quite apply in the same way they would for a home that is already built. 

My only idea so far is to get a new construction appraisal based on the bill of materials for the building plan.

[Bryant Brislin]

In addition to being a wholesaler, I'm a land broker and specialize in selling land to builders.  Unless the seller is asking for it, there is no need to be specific on contingencies. You would just ask for a contingency period (aka option/feasibility/due diligence period) that is a timeframe that gives you enough time to find a buyer and hopefully there is enough time left over for the buyer to check what due diligence the seller has in regards to any construction docs (aka architecture), engineering, soils, etc.  Land deals like this do technically have a lot more moving parts, so I personally don't like to wholesale land, but it depends on so many factors.  

[Eliott Elias]

How low is the builder willing to go on the price? Why can’t that buyer negotiate directly on a different property with the builder directly? I don’t see how this could work.

[Bryant Brislin]

In addition to being a wholesaler, I'm a land broker and specialize in selling land to builders.  Unless the seller is asking for it, there is no need to be specific on contingencies. You would just ask for a contingency period (aka option/feasibility/due diligence period) that is a timeframe that gives you enough time to find a buyer and hopefully there is enough time left over for the buyer to check what due diligence the seller has in regards to any construction docs (aka architecture), engineering, soils, etc.  Land deals like this do technically have a lot more moving parts, so I personally don't like to wholesale land, but it depends on so many factors.  

[Scott E.]

So are you saying you have buyers who would take this deal as-is and take over the construction themselves? Or you have buyers who would want to continue to work with the seller to have them build out the home that is permitted?

Your seller is a real estate developer. They deeply understand 'the game' which can work for you and against you in this situation.

Not sure why this developer would allow a wholesaler to lock up their deal for under market value. I am a real estate developer and I can't think of a reason to ever involve a wholesaler before breaking ground unless I was already really in a pinch (hard money loan coming due, no option to renew).

All that being said, I recommend you just have this conversation with the seller. If the value you bring is that you have a huge network of cash buyers who are looking in this area, and the only way this developer will reach those buyers is through you, then it's pretty obvious why they should go under contract with you.

[Bryant Brislin]

@Scott E. I wouldn't assume the seller is a developer, or at least a full-time, savvy developer. I've had many land deals where the seller is a hobbyist/part-time/one-off developer who just got plans approved and never intended on building it or can't build it anymore.  Or a family member, money partner, et al who has taken over.  

[Michael Marchman]

There is no way this will work.... :)

[Adam Bartling]

@Megan Lewis , I do SPEC home loans, Home owner and investor construction loans.  The Construction loan market right now is under preforming, getting financing for someone with Zero construction investing is tough right now.

I have 30+ lender who can lend with 2+ homes built in 3 years but only 2 with No experience. 

660+ FICOs, 9months reserves, with 5% contingency. LTV 65% max for Newbies

Let me ask you, who is going to qualify for the new build loan???

You CAN be the salesman for the builder on the payroll and do not have to be a realtor.

Got any other ideas of questions, just ask.

[Wayne Brooks]

@Megan Lewis I assume you are not talking about a typical wholesale deal….get a contract and flip it in a couple of weeks…this is not going to work. I assume you plan to go under contract, and when the house is built in a year or so, and assuming the prices have gone up by then, flip it just prior to closing. This was popular back in the really boom days and people made 30-40k on deals this……until the music stopped and they got left holding the bag on 3-4 houses and lost their deposit. You will have a substantial deposit, this is not a $1k EMD deal.