Sell Property Before Building It... (Is It Possible?)
Hi group,
I was just wondering if the following is possible. Assuming that I can tie up the raw land, but am unable to qualify for a construction loans because of the monthly payments. I know that I could probably sell the development opportunity to someone, or even team up with a developer.
However, would a developer be able to sell an "unbuilt" home to a buyer, and use the sales proceeds from the bank to finance the actual construction?
thanks,
Angel
Dear Angel, Yes.
What is the difference between Seduction and Rape? Good Salesmanship.
And so it is in the present instant.
The easier way is to dream it all up to plans and then sell the deal to the ultimate user. They do the financing and you just take back a note for your future profit upon completion.
Lucius
There are several ways you could go (though I wouldn't necessarily use Lucius' colorful analogy). You could tie up the property and then assign to a builder. You could also tie up the property and then assign to a developer (who could secure the municipal approvals and then assign to a builder). You could tie up the property, get the approvals, close with the seller, and then team up with a builder to install improvements and do the building of houses once you have purchase contracts in hand from end users. Often end users purchase new homes from plans only, as opposed to spec homes or as-built models in new construction communities. It just depends on what makes the most sense in the deal.
Hey Group!!!
Thanks a million. I just have one concern, and although it doesn't fall directly on me it is of interest. Is the end user expected to pay monthly payments on the property until it is built?
Assuming they buy from plans, also are they suppose to buy at less than market value?
-Angel
If, for instance, you have title to the property and Mr. & Mrs. Jones give you a purchase contract for the specific house to be built by your builder on the lot, they would get a construction loan (also lot loan unless they were paying cash). Their lender would issue draws or payments to your builder as the work progresses and is inspected. At the conclusion of the process, M/MJones would get a permanent loan for the house on the lot by the time they close with you, "taking out" the construction loan and if applicable, lot loan.
Construction loans can be negotiated which do not have monthly payments, or where the payments are financed as part of a reserve account.
construction loans offten are 6 to 9 months on single family
The term of the residential construction loan will depend on several factors, including what is going to be built (custom, semi-custom, production housing), time of year and climate. Building a true custom home can take 6-9 months (or longer), but production (tract) housing usually is built much more quickly.
Angel-a word of caution-when playing a flip game or "unfinanced" deal like this it is a common tactic for your prospective purchaser or partner to simply wait you out and buy the property after your contract has expired. You need to team up with an investor who can pull the trigger on the close or you will often be squeezed out.
Angel,
gofastboat11 is right. One way to avoid this is to team up with a builder-contractor, close on the lot, and market the property as a total package (this house on this lot) to end users. Then the end user is responsible for the construction loan. Your builder wouldn't start building until you have a signed purchase contract from the end user for the lot with house constructed on it.[ Edited by NancyChadwick on Date 04/11/2004 ]