I’m wondering if anyone here has ever bought a parcel of land and built a house on it to sell for profit or to rent it out? There was a vacent lot near a rental of mine that I had inquired about, about a year ago. I had contacted the owner of the land to see if it was for sale and if it was how much he wanted for it. Well to make a long story short he never contacted me and now there is a house being built on it. The lot had been empty for years. Anyone do any of these type of projects on this board or know of some good books or articles on how to do this type of deal successfully.
Those are called “spec” loans. What you would do is get an interim loan for the construction phase of the project; then after the house is complete you market it for sale or refinance it into your name using any of the multitude of programs available. Typically a bank will loan 75-80% of final appraised value or 100% of construction cost including land. At closing they pay of the land and the builder takes out “draws” as the construction phases are completed. The borrower pay interest only on the money that is drawn out of the construction account. There are other construction loans available, the interim is just my favorite.
Thanks for the info Christopher. I haven’t done much research into this yet but I have seen quite a few empty lots in neighboorhoods around town that might be perfect for this type of deal. Most of the houses in the neighboorhoods that I’m thinking about go for around 250,000 when I check up on my rental. How much cash do you or anyone else who knows about these deals think you need to have on hand for a transaction like this. Have you done any of these? If so what type of profit do you look for and what are some of the major pitfalls to look out for. Thanks