I am thinking buying some lots (1/2 acre to 2 acres) in a new subdivision coming up from a developer and flipping it in a year. Price range 125 to 200K depending on the lot. Came to know that a builder sold two of his lots to another builder at 20K profit in a year.
Wondering what do I need to know in order to do this? Is it even a good idea. I am Newbie and please tell me honestly if I am over my head
Where and at what interest rate can I get the money for this?
Buying vacant lots is gambling that the value will go up more than your holding costs. If you buy them make sure you have the income or reserves to make the payments and the taxes.
The seller is the best source for financing and at a rate of 6 to 7% would be fare in todays world. Ask for %5 in your offer and you may get it.
A $200K lot at 6% interest will costs you $12K over a year plus the taxes of say another $2K and closing costs of another $1K. The lot will have to appreciate at least $15K just to break even. Plus you will want a return on your investment of at least 10% per year on you down payment ( opportunity costs).
Another way to approach this may be by buying an option on the lots for 1 year. You may be able to get an option for the same or less than your actually costs and he may even add most of the option fee on the end.
An example of a deal here would be you agree to pay $210K for the $200K lot and give him $2500 of the option fee up front and $7500 when you close in a year. With a deal like that you may even do 4 or 5 of them. Make sure you will be able to solve any problems that arise if the seller is unable to make his payments to his lender for instance. Again it is all a gamble betting on future appreciation with negative cash flow always is.
Thanks a lot on your advice. I did not know that anything like option actually existed.
Now, I am buying it from the actual developer on a lottery system. Option seems like that the developer is selling a lot for some more money with closing to be done after a year. Do you think that he will do that? While there are others wanting to buy with closing in 60 days?
If I approach the developer for this, what do I tell him that I want to do ?
Also, would love to hear your opinion on what Donna Bauer talks about
The lottery system means that you have more buyers than lots and no the developer will not be interested in any of my creative ideas when they have buyers wanting to pay cash in 30 to 60 days. I have never been in a bidding war like that before.
I have bought some notes and done well and bought some any lost the money. You need to make sure who you are dealing with and know the property. There is also a lot of competition for discounted notes.
Not a note. It is an office warehouse owned by a 346 year old trust that is managed by a bank. The trustor set it up about 5 years ago for the benefit of every American where we will receive $1M trust when this trust matures. At 6% compounded interest the plan was to take 346 years once the trust reaches $15M. I tried to get my family’s share by getting the property for free but it was no go. I had to pay the $165K for the 30,000 SF building. It was for sale for a while with no takers. I saw it on Loopnet on Thursday AM a few weeks ago and had it under contract by Friday noon. I could have even gotten 50% of the commission but was too excited. I can not wait 346 years for my million and this will get me a long way there.
I understand only like 5% of what you said though.
Here is something I wanna run by you though. Really need expert’s advice on this one.
I am looking at a lot of 15 acres here in powell OH. Listed at 1.25 Million but will probable get it at 1.1 million.
This 15 acre is on rolling hill in a very desirable neighborhood.Not much like it left around here. Everything is developed allready.
Met with a developer who thinks it will take approx 350K to develop it and put 12 lots on it. He is thinking that we can sell lots at an average of 250K a pop, brininging 3 million in revenue.
If I borrow money at 15% for 2 years then we are looking at 405K in interest etc. I put in another 95K for the Misc and say 50 in interest and Misc.
We can still take home 1.15 Mill in 18 to 24 months.
I am calling around to see what will be the realistic price of the lot. i do feel that 180K is minium for a lot in there as I see lots selling for that price in lot less desirable place close by.
Even at 180K we take home 310.
Here are my variables/ Questions.
I gotta make sure that we can put 12 homes on it. How do I verify that. Developer I spoke to says that we can get confirmation from Zoning commission etc on that. How do I make sure that we can “actually” do that ?
How do I determine the actual cost of development on the lot?
FINANCES: I called one mortgage banker this morning to see what will I get in money. What kind of loans can i get for this?
I am probably mid 600’s in score and can put 5% down. Should I go stated?
Are there any kind of loan products or private money lenders out there which will fund this with option of tacking the interest payment at the end of the say 2 year loan period so i can have zero negative cash flow after we bought the land ?
Any other suggestions, do’s and do not’s will be very very helpfull. HELP please