I apologize in advance if I sound naive on this message. I have been pounding the streets and screening MLS listings for months to finally come across what appears to be potentially my first deal - or last mistake. I was surprised to get a call from a realtor earlier today who informed me that a seller wanted to hear an offer from me when he is already in contract with someone else. The lot of land I had called the day before about had just been listed on MLS 3 days before and I also found it earlier while driving around my area of investment interest. I had been disappointed when I was told the land was already under contract but if I wanted further answers, to speak to the realtor who did the deal. I did call back to talk to this realtor (out of curiosity really - it was listed for $99,900 - around the corner from two reputable colleges and a hospital - great location and great price). He informed me that it was actually under contract since Feb and it was sold at $75,000. Needless to say, I was disappointed but I told the realtor that I was an investor and this type of deal is what I am looking for to build student housing in the local area and asked him to keep me in mind if similar deals came across his desk. He then told me that the hold up was a result of the title being in the wrong name but the owner was taking care of this (yes, questionable.) So today, I was called and asked what I would be willing to pay… Mind you, I could build in a historical area without zoning requirements - no liens…up to four stories - where students could walk to Medical School. It is an empty lot so it is not rehab - it is all construction (I prefer to call it rejuvenation;)). I do not even have a set attorney or loyal contractor - but I could buy this land outright and the location is really good. The lot is 25’x92’. I told this realtor I would get back to him with a number within 48 hours. I am calling him tomorrow for any further info he can offer me such as pro-forma in the area, taxes, insurance - contractors - ect. I am going to find out why it is also the only vacant lot on a beautiful street and if I may have a contract with contingencies should I become able to make an offer. I am truly perplexed by this situation. ANY guidance here would be greatly appreciated. Again, my apologies for naivety - we all start somewhere, right? Thanks
Would this be your first foray into REI? Do you have any experience in RE development, say as a contractor, or home builder, or the like?
Thank you for reaching out to me. No, I have no prior REI experience - this is the first deal. Yes, it is probably too big for a newbie but hear me out. I have been doing my due diligence in RE courses and seminars for over three years. I belong to an investment group in NYC as well as 2 in my state of NJ. I also have a mentoring coach who has been very successful in Philly, Pa with 22 properties and admits that it is a big deal for a new person but it could work.
The geography I am focused in on is not a safe one in general -other than this neighborhood - it has great Universities and Medical facilities within walking distance. I am hesitant about the deal bc the name on the title is in question as well as the integrity of the seller already in contract with someone else since Feb (aside from all the other big concerns a newbie has).
This being said - I know I will not find a deal close to this here. If I go a half mile further away (shady), I am looking at a$100k in front of this price with no guarantee of acquiring students or even reputable tenants. It is big. I am intimidated. Yet it is exactly what I am looking for.
My contract would be with contingencies and a closing within 30 days and paid in full. I would approach my local Commercial banks with a request for A. Acquired value B. Construction Cost C. ARV. The contractors I am setting up (without a contract set bc they can see the vacant lot without need for any entery) would be those whose applications I approve (of course also liscenced bc I trust no one yet) and their estimates would include all costs broken down, necessary pictures - follow up on references and a signed document. This would come to the bank with me.
The sale may not happen. If it does - I am more concerned about the contracting. I live less than a 1/2 hr away so I would be annul enough to be on site each morning. I have a brother who lives across the country who is a mason by trade for 20 years and his own company is successful. I was weary of sharing my plan with him as I thought he might deter me from the risk. It was just the opposite. He owns two properties outside his home and he knows the ins and outs of contractors. He knew the risk was high yet the deal was good. That is the first support I have so far. My mentor says it is a great deal but as a newbie - this is not starting small. I would rather take this “learning curve” with one property though. One investment I can keep my eye on.
Am I crazy or should I go smaller - deal with a few headaches with little cash flow - and learn. I know I am new and I have alot to learn. If this deal opens though - I can’t imagine walking away from it.
Again, Thank you for responding. I appreciate any and all advice you can offer.
I think you may be in for a rude awakening when you (with no REI experience) approach a bank to fund your land acquisition / construction project. What kind of money do you have to put into this deal? How much in addition to that will you have for carrying costs? You’re going to be making loan payments on the land while the building is being constructed. How long will it take to get the building inhabitable? What is on each side of this very narrow lot? You’re going to be very limited how you can make a building work on a lot like that. What about parking? What kind of need is there for more housing in this area? Are there lots of other places for rent in the area? How would the market rent for the building you’re trying to construct compare to the land and construction costs? Trying to build on a vacant lot seems a little daunting for your first rodeo.
Thank you for reaching out to me. I agree with a possible rude awaking - reason for the title of my post. I have discussed this deal with other RE Investors as well as other people with $ not doing much in their IRA’s and the market for potential funds. My mentor who has 22 properties and eight more in contract wanted to hear about pro-formas and quotes to potentially join in. I have three general contracting companies coming out to give free estimates this week for the potential of four story place (possibly a necessary brownstone due to the historical area - - despite what the realtor told me). Yes, no experience here. If I can get the square footage down to $84 - I am looking at an approxiamate $750k cost.
This being said; it is in a historical area (probably zoning - the realtor failed to share with me). This can be a benefit to me and my team if I can work with the municipality). I am also thinking with the elections recently finished (today), I won’t receive back any sense of urgency from the mayor’s office or who ever else I should reach out to in request for information in helping in refurbishing a depressed city. I do have two local REI’s also interested in the #s for either interest or potential partnering and bringing this to anyone and everyone’s attention could potentially be a win-win situation. I also plan to reach out to the Universities in hopes my plan for over needed student housing might get some sort of direction.
Remember, I am looking at a deal that is already under contract as a result of the wrong name on the title. Although this concerns me, it also makes me realize that no one else is looking at this land. I did additional homework and found that this property was sold (dirt then also) for $26k back in 97. It is contract for $75k untouched twelve years later.
Despite stellar credit (922 - I was shocked myself) - I have no debt and I realize I could get this loan alone - I don’t want this stress alone!haha The regular zoning laws have not been changed in almost 60 years as a result of an impoverished city. The 2 mile zone I have focused on is the only area I would invest in within this city. It has two reputable Universities and two hospitals within this area and is the only area with any rejuvenation thus far. Again - a newbie. I do not want to fail but I also do not want to walk away from something that requires more stress and sweat up front rather than little deals spread out. The property is 92’x25’ and all brownstones are beautiful and wall to wall on the street. The one across the street sold for $250k two years ago.
922 is an amazing credit score indeed, considering the highest the FICO range goes is 850. there is an alternative system called Vantage score that goes as high as 990, but I don’t really know anybody that practically uses that scoring system. where did you come up with a number of 922, you may want to check that again…?
I didn’t know it went that high either. My first step in preparing for investing was discovering my true credit score. I signed up at Myfico.com and received a score of 795 from a company called annualcreditreport.com in early April. I noticed this was only a score from TransUnion. I disputed three marks where I had been a co-signer and debts were paid in full. One was removed and they sent me a report for a score of 922 the first week of May. This is only TransUnion though so I have requested scores from the other two companies as well. I do not have past debts other than a car payment that I put under a two year contract vs the normal three to potentially increase credit ten years ago. I was told this would hurt me so I was equally surprised by this score.
My apologies, upon some further research I did discover that TransUnion goes up to 934, and if your FICO is really 795, then D*MN! you should be able to get approved for almost ANYTHING with that score!
Hey how are you doing on that project? If you need help I have venture partners that can advise you. Let me know how I can help
It is not uncommon to take back-up offers on a property, so the situation is not strange.
You make your offer contingient upon your verifying that the city will allow you to build on the property and that you will be able to obtain financing.
You purchase title insurance and that will guarantee that the real owner of the property is selling it to you.
Have your own buyer’s agent and insist that your earnest money deposit be deposited in your own agent’s escrow account (in case there is some fraud with the wrong seller’s name).
Then, while it is in escrow, you let the agents straighten out the title, while you go around to the city and verify that you will be allowed to build.
The banks will accept your equity in the land as counting toward your down payment on the loan amount. What you are looking for is a construction loan. It will help a lot if the land is fully paid for.
For a first deal this is a very large jump. But if you are comfortable with the #s that everyone can win then I say go for it. Keep looking at the final projected cash flow and the final value of the property when finished. Be absolutely sure that your projections are right, then your job is to make it work just like you planned, no prisoners.