Developer/owner Financing
Greetings,
Just stumbled on to this board and have a few questions. I did not expect to find myself in this situation, having no previous real estate experience (but have read much on the subject and I do have a relative who has been rehabbing for 20 years), but after the stock market started to sink, I found myself in real estate for diversification.
Here's the deal:
I have 6 lots in southern colorado that I have purchased varying in size.....within a 50 mile radius. I am just in the process of finishing a house on one of those lots, and have paid for it with cash. I have significant equity tied up in it. I have a great relationship with suppliers and a builder in the area, but I live 1300 miles away.
I am interested in owner financing options when I sell it. Can someone please explain how I do this in a manner that I can pull some cash out to begin building the next one?
Is it generally a better idea to sell outright and continue building, or provide a steady cash stream with owner financing?
Any thoughts on where I go from here are greatly appreciated. The goal is 2-fold. Build some equity and a cash stream. I am NOT interested in renting or becoming a landlord.
Thanks in advance.
Terry
Greetings, From a fellow minnesotan.
Why, not just sell outright and get all your cash? Then you can continue building......I see no need for owner financing unless your have trouble selling.
Any other thoughts?
HI Terry....welcome aboard.
Why are you using your money?
Im a builder and I never use MY money to build a house.........especially with interest rates as low as they are.
Since you have equity into the home(s) then refinance them....and cash out whatever amount the lender will let you....some will refi up to 90%.
If you want to take the difference and buy more property the so be it.
You may want to look at John Locke's Subject To methed.
You need to understand the whole concept but his
course / book is very informative and simple.
You may want to also look at getting into the developing side of construction, less
micro managing as is the case with building.
I personally am trying to get into the developing side.........unfortunately most sellers in the surrounding counties that I live in will swear up and down their land is sitting on a Gold mine.........and their price reflect it.
There are so many paths you can take....you need to figure out which is best for you......but be aware that the construction side does have risk and unforeseen problems just like the stock market.
I have been around construction since 78'.......it is a roller coaster as well, you need to know which ride to take...
: )
Good luck.
We originally thought this was going to be a retirement home, then over the course of a year ended up with 5 other vacant land properties. I'm not into paying interest unless I have to...despite the tax advantages and the low interest rates.....and we had the cash to finance it. The idea of owning our retirement place free and clear was appealing. The idea of developing came about as we continued to find these land deals. The area is projected for good growth over the next decade.
Part of what I'd like to do is create a long-term cash stream, hence the idea of owner financing to some degree......but I don't want to screw it up the first time out the gate.
I will check into the recommended resources.
(Brandon.....enjoy this summer like weather, you know it will be short lived. )
Thanks for the responses.
Where did you get the money to build? I have aome nice acerage that I would like to build a house/ or houses on, but dont have the money to build. Linn
I started saving a long time ago........compounding interest is a wonderful thing.
Alright, here's how you can quarterback this deal:
Offer Owner Financing, have buyer put down 5% (The more the better), create a 80% 1st Mortg, and a 15% 2nd Mortg. Sell the 80% 1st Mortg to a note buyer at closing and keep the 2nd as an ongoing cash flow stream. You collected a lump sum for future building and created a steady cash flow with the 2nd. Selling the note at closing is called simulteneous closing.
To sweeten the pot consider this:
1. Add a 5yr to 7yr balloon
2. Charge an above avg interest rate
3. Allow the note to season for a few months to create a historical payment track record
Note: Make sure your buyer has the economic ability to pay back and the're not a credit risk.
Touchdown !
Mark,
Cashflow Consultant
Thanks, Mark....
I will look into this. Your suggestion just resolved some brain stall thinking.
I appreciate it.
Terry