You own the lot. Your offer is a “build to suit” situation.
You live where the cost of land is an “open book,” i.e., any potential client can go to the courthouse and find out what you paid for it.
You want to sell the whole thing as a package, land plus custom-built home, at one lump sum, and you don’t wish to divulge to the client what you are making on the land.
So, when in the course of the construction is title to the real estate actually passed to the new owner, the client?
Will the bank lend the money to the client for construction of a new home on property the client doesn’t own?
Replies
I would not transfer title until I got final pauyment for sure.
to keep land price isolated, you wouldnot be able to do a cost plus builling though.
Bank? That is the customer's problem and I'm sure bank policies vary from one to another.
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Bank? That is the customer's problem and I'm sure bank policies vary from one to another.
I've heard this twice before, Pif. In both cases, it was from builders up here, whose excellent reputations preceed them, who only build "cost plus," who have enough folks knocking at their door to be able to pick and choose their projects.
But what about us po' boys, without reputations, whose few client prospects come in dragging all kinds of tales about how they can only do so much with their construction lender.
Clients with big incomes, big dreams, but little savings. Or they may have savings, but don't want to tap them for their little vacation home project. They're thinking 90 percent financing.
That's when bank terms become builder terms. But, as I said, if there are people lined up outside your door, you can choose to isolate yourself from all that.
Before I lived in this little feifdom of trophy vacation homes and the builders that build them, I was a metro area suburban guy, living where all the homes that got built, actually got lived in. And almost all of these were being built by two-income families, scraping by, trying to build the most house they could with what little money they could put down.
The builders there had to live or die by what the bank said about terms and payout schedules.
I get the impression that you think I live in some fantasy island in the sky where we don't deal with reality.But I have thirty five years doing this stuff, and I can assure you that 1973 was the last time I let a customers banker dictate terms to me. Long story there.Builders get the deal they will accept. I refused to accept bowing down to them. Same with insurance companies. All I need to tell either is what it will cost. How to afford the payments is not my concern.As long as you own the land that someone else wants to buy, you are in the driver's seat.
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Will the bank lend the money to the client for construction of a new home on property the client doesn't own?
Yeah, right.
I sold the land to the client. Very simple for him to look up my cost if he was interested. Profits shouldn't be embarrassing to you. Mine was well over 100%. Subject never came up, but I was ready to discuss it. Client knew he didn't pay more than market value for the land. That's important.
Then I proceeded to build him a house. I provided the construction loan (as a mortgage- guess where I got the cash?) but that's a very unusual deal for an unusual house. Upon completion, the construction loan (mortgage) was paid off with permanent financing. Turned out to appraise nearly 50% higher than it cost to build so everybody was delighted.
What you paid for the land isn't relevant. If you'd paid half what you did, would it have any different market value now? The land is one issue, the house another.
Your other choice is to own the whole thing until your client closes. Then you don't have to separate your land and construction costs.
PAHS Designer/Builder- Bury it!
"The land is one issue, the house another.
Your other choice is to own the whole thing until your client closes. Then you don't have to separate your land and construction costs."
PAHS Designer/Builder- Bury it!
Yea, that was part of my points as well. Hes the boss as long as he owns the land but as soon as it closes the new owners are the bosses. He realizes this as he wants to retain ownership through the constuction process but he wants the buyers to actually obtain the loan for the house with out offering the land "yet". The bottom line to the message is the owners obtaining an unsecured loan as you mention on his land . As you also mention, " yea right ".
If you come up with correct information on obtaining unsecured loans in the amount to build a new house , would you please share that with me ? Id love to have that in my arsenal.
Like I said , the only way Ive heard it done is by contract and that requires the owner to deed the lot to the buyer in exchange for a contract. If I was the owner , a contract would not be sufficient collateral to me or my bankers. It would be an option for a trusted individual , but I would not risk it. It is risk for the seller that a banker wont enter into. Thats enough for me .
Tim Mooney
Will the bank lend the money to the client for construction of a new home on property the client doesn't own?
I believe that it is called a construction loan. No different than if one wished to purchase an existing home.
Make your down payment, build your home, and your done.
Well, it's not quite that simple, but from the information I have seen, that's basically it. These types of loans do exist, in order to let a buyer select a lot of their choosing and build a home on it.
When the title transfer takes place...........I would guess when the initial loan closes, then the bank probably holds title to the property until construction is complete and the mortgage is finalized.
Countrywide just popped into my head. Do a search on them. I called them about aquiring a construction loan. They service builders, not potential ho's.
Look in the paper, real estate, there's gotta be brokers offering construction loans.
Piffin and Smith live on Fantasy Island. Don't let'em tell ya different! ;~`)
Eric
oh; and what you (or whoever) paid for the land has nothing to do with this equation.
Real estate sales are public record. Have you ever heard of a buyer saying to a seller: "but you only paid xxxxx for this place".
What's that got to do with anything? If you own the land it's yours, and it's worth market value. period!
I Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
"Will the bank lend the money to the client for construction of a new home on property the client doesn't own?
I believe that it is called a construction loan. No different than if one wished to purchase an existing home.
Make your down payment, build your home, and your done."
I'm not sure I agree. The bank would be loaning money on a building they couldn't foreclose on, unless Gene were willing to somehow make his land part of the security of the loan. I'm no expert, but I think that the land and building both have to be part of the security. Maybe someone here has done a deal where they own land and get a loan to build a house... and the land became part of the security, didn't it??
Once the loan is set up the deal on the land is closed. The owner of the land is paid for the land.
Just like buying a house.
The bank will only make progress payments, so they are always ahead of the situation.
I'd love to hear from someone that has experience in this.
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
As I have mulled this over in my mind, I cannot think of a bank in their right mind that would finance building on a property they could not foreclose.
Imagine Mr. Joe Builder and his wife Joan. He's a sole proprietor and runs a small housebuilding company. He buys a nice building lot, and offers a "build to suit" deal.
Mr. Sam Buyer comes along and makes a deal wit Joe to have a dream house built on the lot. Sam gets his banking from Insanity Savings and Loan, and they are financing the cost of construction of the house on the lot, with the deal understood that title doesn't pass until final payment after completion.
House gets halfway built, and Joan and Joe have the world's messiest divorce. Joan's lawyers tie up the property with a billion letters and lawsuits.
Where does this leave Sam Buyer and his lender, Insanity Savings and Loan?
Well, I like Eric's explanation that the land changes hands when the loan is made, meaning you, Gene, get paid for it and proceed to build. The lender funds the loan in several chunks... first one is the land, in full... second one on completion of foundation and first floor, third on completed shell... fourth on etc. etc.
I think Allan Edwards is about to clarify this over at JLC. I've only been unfortunate enough to deal with a bank job once, and it was a PITA. Fortunately the owner had a chunk of his own money, too, so he more or less met our payment schedule.
Gene, quit mulling and call the bank and ask them!
Every bank has their own programs and they set their own policy. Also, every bank has their own standards for securing the loan.
I would assume that most construction loans will want to pay off the land and wrap that amount into the construction loan process, but I could also very easily see them taking the first position on a free and clear lot and providing construction loan funding. The advantage should be quite ovbvious...they are securing first rights to the land and whatever is built on it, and only providing funding for the building. I can't imagine why any loan officer would turn down this opportunity since it substantially increases the ratio of equity to loan.
If you own the lot free and clear, the banks will gladly take the first position if you'll allow it.
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
"The bank would be loaning money on a building they couldn't foreclose on"........and that's why bankers put conditions on construction loans.....
the real issue here is, why would the buyers get (and who would give it to them?) finacing for a house being built on land they didn't own yet.......
Pif and Mike do in fact both live on islands, and it wasn't too many years ago that Mike's, like Pif's, was connected to the mainland via ferry only.
I've gotten the impression that they inhabit that rarified air way up there of design-build remodeling, and that there is enough demand for their excellent services that they can kiss off the tire kickers, shoppers, and folks with small savings accounts, but whose large incomes can get them big 90 percent construction loans.
But we're talking new construction here, and my guess is that the great majority of residential construction done today is financed, with the builders living under the highly common four-draw schedule.
I'm just wondering how this all might play out for me, if I buy a choice lot I'm looking at, and hang out a build-to-suit sign. I might run into a real high-margin possibility, but with buyers that want to finance heavily.
I really ought to go and talk with my financial guy and my banker. I thought someone here might have "been there and done that," but it doesn't seem so yet.
I thought someone here might have "been there and done that," but it doesn't seem so yet.
I've posted similiar questions in the past. If there is someone here with this knowledge he's not stepping up. You can't find answeres to everything here. I know it feels like you can, but it isn't always so.
Sometimes those two island guys don't even have the answers!!! lol
Buy the land if that's what you are thinking. The rest will work itself out.
Either you need and eager buyer who really likes what you do...........sounds like that will be completed in the next year or so............or you will find a way to build this house yourself and sell it.
Eric
give me an idea of what a 3-5 acre lot is worth up there.I Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
Eric, Gene....the question has been answered several times in several different ways.
What answer are you guys looking for?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
I have been there and done that - in places other than here where cash flows freely. I say to the customer, this is what it will cost - you go talk to the bank amnd figure out how to pay for it. They do, and I do.You really ned to talk to the bank which is why I said in my first post that different banks have different policieds. "If at first, you don't succeed..."I built my house for myself, on land that I owned, right here. I got a 95% construction loan on it. My bank is a private local bank with a rep for local involvement and slightly higher rates than the national or regional ones with set policies.No body here can tell you what your banks policies are. Some are very flexable, depending on competition, money supply, rates, national policies, etc.......
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
"I really ought to go and talk with my financial guy and my banker. I thought someone here might have "been there and done that," but it doesn't seem so yet."
Ive done it a bunch and I just got here.
I really dont understand the question other than you want to flim flam a job out of the land ? Sorry if Im wrong.
The bank pays construction money on first morgage . That includes the land. Period.
Now , there is what is called a muliti-closing . Sometimes it takes three owners or more in a closing to make a deal work or money put in escrow to be settled at a later time . There are lots of trails to success as long as you cover your bankers butt.
I bought a piece of property from ex partners last year and it was tricky. What we did was put half the money in escrow for the partner that wouldnt be there . I could write a big essay , but you want the bottom line;
You can go to a lawyers office and have an agreement written up that I owe you for this property when my house is complete and you sign over the deed to me . That would work for the banker and I. You got any problems with it ? Thats the only way I know that it works . You take the risk. You can build a spec on it and control is legally. Dont look at the lender to take the chance , look at your self . U da man with the property. One rule of thumb Ive always went by is that I dont ask my banker for somthing I wouldnt do in his place. There are a few deals a year here where landowners sign over a deed for a signed agreement. U gotta have a deed before you can build.
Does that do it ?
You still need to talk with your lender , but the above is not the brightest question to ask him. He would not enjoy the subject about the" land is not really secure ". Anytime you talk with your banker you need to sound as professional as him. He needs to have confidence in you. Always cover your bankers butt as well as your own.
Oh yea. Ive got two different bankes and one is a lady.
Tim Mooney
You can go to a lawyers office and have an agreement written up that I owe you for this property when my house is complete and you sign over the deed to me .
Tim, here in Michigan they call that a Land Contract. It's done everyday, all day on new construction here. If I were to read you the real estate closings, I could point out every new house closing because the closing is almost always a double closing....first the house, then the lot.
Many places they are called Contract for Deed....it's all the same type of deal...nothing really complicated, nothing risky, no new ground being broken.....
I'm not sure why your thinking that Gene is trying to flim-flam a job out of the land. I'm under the assumption that the land is owned free and clear and that is plenty enough security for most banks, as long as someone has the income to make the payments...
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
"I'm not sure why your thinking that Gene is trying to flim-flam a job out of the land. I'm under the assumption that the land is owned free and clear and that is plenty enough security for most banks, as long as someone has the income to make the payments..."
I thought it was explained in my post , but Ill try again.
Gene owns said land . He wants to advertize build to suit . That means to me he wants to not only build the house that they are going to buy , but sell said land . Why dont he just build a spec? I know its done and I said so, but,.... someone takes a risk unless buyer writes a check for land and owner deposits money. Then were open for business again. He can then hire him to buid the house and go to the bank with a paid for deed thats free and clear. Thats the only way I do business , but I know its done a few different ways. Like I said , if its not done by the book then someone has risk. I told Gene he could accept a land contract and deed over his land at that point . The bopttom line is that the land has to be deeded over to the new owner or someone is talking about risk again. To me , Gene should take the risk if hes implementing it.
Blue , the only way you are going to do business with me is show up at closing with a clear deed with title insurance in trade for a good check cashable that day in exchange . Thats the only way it works with me . If you buy from me , its the same deal. I will make a deal where the money is in escrow, but the money has to be there .
Now if Gene wants to sign over the deed, stamps and all with out security , then thats up to him. I would not ask a banker such a request. I have checked into it and called both my bankers to see if it was being done . The male banker said , "if its being done , its done with out our knowledge". " I have no proof that its being done ." " We cant have anything to do with it because of our underwriters. "
I assumed it was banking policy too after speaking with the female banker. She just said we would never be involved in somthing like that because its not banking principles. I felt like crawling under a rock and my realestate broker was the one that told me. Since then Ive spoken to developers and builders and its going on for sure , but the banks dont know it here. At least they didnt admit it to me.
If they want his land I say buy it . If they want him to build their house then thats their choice . If he wants to build a spec and own the rights , then get started. Those are three different deals that will hold up.
Tim Mooney
Now if Gene wants to sign over the deed, stamps and all with out security , then thats up to him. I would not ask a banker such a request. I have checked into it and called both my bankers to see if it was being done . The male banker said , "if its being done , its done with out our knowledge". " I have no proof that its being done ." " We cant have anything to do with it because of our underwriters. "
I assumed it was banking policy too after speaking with the female banker. She just said we would never be involved in somthing like that because its not banking principles.
Tim, now I'm getting more confused!
I understand perfectly the three scenarios the you mentioned as "acceptable" and I agree 100%.
But....I don't understand whatever you are talking about in the quotes above. Maybe I'm missing something...but I don't understand the phrase "sign over the deed, stamps and all with out security". I didn't read anything in his original posts that talked about deeding his property away without some form of security.
Maybe I misread or simply didn't read one of his posts.
In any event, there are several ways to accomplish whatever he's trying to do...and I'm with you, you don't have to "flim-flam" anything....especially if you own the land! There isn't any more powerful position other than being the tax collector!
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
You didnt miss anything except mebbe part of the first post.
Heres the set up;
"You own the lot. Your offer is a "build to suit" situation. "
This is a given hes worried about ;
"You live where the cost of land is an "open book," i.e., any potential client can go to the courthouse and find out what you paid for it."
Now hes slipping into the real deal right here ;
"You want to sell the whole thing as a package, land plus custom-built home, at one lump sum, and you don't wish to divulge to the client what you are making on the land."
He actually wants to sell and convey a peice of property that he owns , plus a house that doesnt exist for one lump sum. Says it right there . I guess I read print like its a legal. I read every word in a closing and think about every sentence . If Im satisfied , I move on . One time I stopped a flim flam on me . I was selling a lot off a parcel and what it really said was "all" . My wife signed it and told me to hurry up as she had a hair apointment. Her hair came close to costiong her "all " her property at a lot price. I asked for clarification and the lady couldnt answer me . I said go get your boss now to explain this to me or Im leaving cause it doesnt look right to me . She asked me , "what does it look like to you'? It looks like my full legal, not a lot off it . I dont see the dimensions of the lot off the legal. Sure enough the boss confirmed my worries. My wife had gave it to them and was frustrated at me. After it was over , she said , way to be bird dogging . I screwed up, sorry.
What you did was answer the last part of that question! I got hung up on the first part.
Now here he even sees the problem ;
"So, when in the course of the construction is title to the real estate actually passed to the new owner, the client?"
hahaha , before it starts , duh. That was really funny .
But wait , he sees another potential problem with his thinking ;
"Will the bank lend the money to the client for construction of a new home on property the client doesn't own?"
Thers your sham complete . He wants to sell the whole shebang on built to suit before he builds it and he gets around to wondering if the bank will accept that deal. No, he never said anything about deeding his property away, but hes damn sure asking for all the money without a deed or a built house. Now , Blue , thats what his type says in black and white.
Tim Mooney
But.... everybody needs a dream. <G>
I outlined exactly what the normal sequence is, with my acting exactly as the banker for the construction loan, complete with mortgage. Didn't apparently get his attention. But then I didn't have a solution for obtaining a large unsecured loan.PAHS Designer/Builder- Bury it!
Gene, it mostly likely is possible that a construction loan could be taken on the land, but the bank will require that their lien gets moved into the first position. The land owner simply has to sign off..
I'm assuming that you are the owner and here's my take on the situation.
First, you should understand that all land records are public. Second, you should also know that it's very easy to hide ownership of the property using a land trust. Land trusts are very simple documents. Third, you really don't have to apologize for capitalizing and profiting on the land. Land speculation can yield nice profits, but it's also just that, speculating...which means you are risking a lot too. Don't be ashamed if you've made out...and don't let a homebuyer cash in on your profits just because they want a home.
Remember....He who owns the land, controls the deal. You're in control...don't give it up. If you want to sell it as a package, then that's how it's going to be done, if they don't like it, they can go elsewhere.
blue
Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
what you pay for land is your business in fact I find it easier to sell if buyer feels it is going up in value.
I bought 40 acres in 78 for 25m 5 down and balance ance a year payment
severed 2 lots and sold them for 12.5 each after which I sub-divided balance into 38lots, built a road and started selling
First one i8m , I now have 14 left 1/2 to 1 1/2 acres 35m-42.5 so who cares what you paid
I have gotten money from a bank to build spec homes by using a bridge loan which gave me the money up front (easier on your knees if you are not catholic and have to deal with a banker)
I have found that when you build a pre sold house on a lot of your own the buyer fells you should give him a hell of a deal because of the proffit you are making on the land which disappears fast if you aren't careful
at the moment I strickly sell lots that way I know what I am making .
I sold 12 to a modular home outfit where I took back a mtg which was paid on closing usually 3 months and it worked fine.
In a private sale I would not give title unless paid off otherwise the tell the banker that they own the lot free and clear and want to pay you on the side a no no even for your closest relatives who turn into thieves faster than you can turn your back