Hello,
I own a some beachfront land in a partially developed neighborhood. Prices keep going up steadily so though I want to, I’m not sure if it’s the right time to develop.
I have an investor willing to put up the construction costs for a +cashflow hospitality project but how do I partner up without losing land in return?
If the investor pays for construction and operative costs he is entitled to the earnings, but I don’t want to give up any land.
Suggestions?
Thaks,
You’re facing a two edged sword. If you build too soon you might be leaving money on the table as a result of an appreciating market. On the other hand, building costs are relatively low right now and might make up for it. If the numbers are acceptable now, my sense would be to pull the plug and build since waiting just adds risk.
If you are borrowing the money yourself, you might be able to cross-collateralize a construction loan with another piece of property so that you lose that one if things go bad. Or, you might be able to partner with a developer where you provide the land, they provide the building, and you split the profit along some equitable line. Any construction loan in this case would be borne, collateralized, and warranted by developer (his risk and expense). If he ran into problems, you get to keep the improvements and his warrantee bond (which you should demand) would keep you whole. The devil is obviously in the details here. Personally, I would avoid partners at almost all costs but it is an option for you.
i think you should be the land in a trust to protect it and then offer a lease option on the land only to the developer for the set time frame to build. Since it is a lease option, he is improving the land, if he decides not to exercise the option he loses his improvement money, This way, he needs to pay you off for the land when the home sells. Have the option set for the profit your looking to make.
SO if land is worth 100K and you want to make 50K, make the purchase option 150K to the developer. You can set it with no payments due and a balloon payment in 16 months which gives time to build and sell. Also make it a NNN lease, so he is responsible for taxes and insurance since everything will change once the home is built and CO is issued
Since it is a lease option and he does not excerise it for various reasons and the time frame ends and you do not extend it, you would have a house on your property built for cost. You maybe liable for his loan on the home if one gets attached plus any liens that subcontractors attach, but it will be far cheaper than building yourself.
Best to talk with local attorney specializing in real estate, as each state does have different laws …Other option would be placing land in a LLC or something. But I think a trust may protect you better and then placing the trust in LLC …talk to a CPA for tax reasons on this as well.
Thank you very much both for your replies. It is actually helping me a lot.
Regardless of the specific regulations since this is in a different territory not a state, I do have a good CPA, and I can include every detail in a contract, let’s stick to the concepts.
I could use many of your suggestions to end up being the sole owner. I’d like that for my project. The basic conundrum here is that neither I nor my investor want to sell the property anytime soon, since it will definitely appreciate until this last neighborhood of this trendy resort finally consolidates.
The double sword allegory is very correct, I have to put in the balance whether the business will generate enough money to compensate for appreciation. hussle of running it aside!
again… feedback?
If you want to keep the land, why not rent it to an investor who will develop it for some commercial enterprise. Give the investor a leasehold interest for the next 25 years and collect annual ground rent for the duration.
At the end of the 25 years, you might be inclined to consider selling the land based upon the then highly appreciated value of a developed property.
Well I gather we are talking about Canada here. I do not know the market there, but I do know Canadians are buying condo’s strong here in SoFl. However you seem to be betting on speculation. I feel no where in the world is speculation a good bet today. Now if you are willing to hold off on selling in 5 or 10 years then you will make some money but then you have to consider the holding cost for 5 yrs or 10 yrs and then subtract that from the profits and see if you will still have a profit,
I still think setting it up with the builder carrying the financial responsibility is a better way and getting a set price for the land. Maybe you can do the sale price in bumps, by in 2 yrs, its this price, 3 yrs it goes up, etc.
Getting tied into monthly payments and holding cost for 5 yrs or even 2 yrs can become a costly nightmare.