Financing the Dream

I have an idea based on a very positive experience that we had with the man who built our home. We did not have the credit to buy a home, but had the income to pay for it (no down), so I approached a builder and asked him if he would build the house that my wife had designed, and then lease it to us until we could qualify to buy it. Well, long story longer, he agreed to do it and we moved in November, 2004 and purchased it May of 2007! It worked out great for everyone. I would like to pay it forward. I would like to find 4-5 people per year with the income to afford payments, but for one reason or another the inability to qualify for a mortgage. I would build them a house, lease it to them for 2-5 years, and sell it to them for a pre-arranged price.

I would make my money in 3 ways.
1- as the contractor on the build (I am getting my license in Michigan)
2- as the landlord (rent would be the estimated payment based on the agreed on sale price of the home including taxes and insurance) so that we know they can afford to finish the purchase.
3-profit on the final sale. (my builder made $48,000 just on this part).

My question is: can you help me figure out how to finance this dream of ours, my wife and I want to build homes.
Credit about 620
not enought equity in my home to use it.

Thanks in advance for your help!

If you want to be a builder you need to speak with local banks in your area. They will help you get started with construction financing. The next part is where it gets a bit more complicated. You will have to refinance the properties into your name which is going to be more complicated because as the builder you will have received the building funds directly meaning that most conventional lenders will view this as a cash-out. Lenders are getting very picky about which files they will approve and unfortunately you could get stuck with properties that you can’t sell or refinance in a short period of time. You would be better off buying rental properties at .50-.55 on the dollar and then selling them as lease purchases.

Thanks Christopher,

What if I formed 2 companies, a construction company, and a separate company to own the rental properties? Would I be able to have have the property company contract with the construction company to build rentals?

What i would suggest is that you take your business plan to a local bank. You will probably need to speak to the commercial banker. Tell them you want short term construction funds and then you want to roll the properties into long term financing. I would suggest you putting together a serious business plan. With the way banks are predicted to fail many of the local banks in my area have tightened up considerably.