I have a quick question regarding a lot of these new communities that are being built by different developers. i.e.: Pardee Homes.

I have heard and read about investors putting down a down payment on a house (empty lot) and then putting it on the market when it’s close to completion.

Is this true? If so, my big question is when is the first mortgage note due? Can you get locked in to keeping it as a principal property for a certain amount of time before you are able to sell it?

A lot of that is going on where I live and I would love to get in on some of that if it seems feasible.

Any info on this would be greatly appreciated.

Oh yeah… Would it be wise to use a HML for this type of transaction?

SD Newbie

Howdy SD Newbie:

My sister sells new homes in Fla and she says this happens there. The builders have gotten wise and made the buyers put up substantial deposits and get preapproved for the loans . With more to risk the gamblers are staying away.

A HML would not work as the loan to value would be too low unless you could put up the difference between the sales price and the 65 to 70% loan.

It does not hurt to ask around. You may still be able to work a deal in your area.

I have seen this work when the property is in the pre-construction phase. I have two condo units under contract now that won’t be delivered until next summer. I locked in my purchase price now, while over time the builder forces appreciation through price increases.

If I want, I could assign my contract to someone else and collect an assignment fee. Instead, I will hold both units, leasing one unit back to the builder to use as a model for the two years the project will take to complete (128 units in 16 buildings, pool goes in last). By the time the builder has completed the last unit, I am expecting a 40% increase in the value of my property. I could either sell and take my profit or keep the property in my rental portfolio.

How’s it going Dave,

Interesting info… :smiley: I figured it went like that, but what companies do you have in your area that wont force you to use the property as your “Primary place of residence” ? For example Pardee Homes, in southern California have restrictions on investors because to get on their list it states that it’s for owner-occupied, principal residences buyers only… :-\ Well that’s a drag…

How did you set up the deal to purchase and lease back to the contractors? I have heard of that being done, but I dont know anyone personally that has done it. There are some condos coming up in my area and that might be a good idea to take a stab at it. How did you fund it? I hope you dont mind the extra questions but I am new as you can tell by the name, but I am very energetic about these opportunities.

Thanks in advance for any info

SD Newbie

I don’t care to know all the intimate details behind the builder’s construction financing, but it appears that his construction draws are not dependent upon owner-occupied contracts nor is he too concerned that his buyers won’t get funded if the owner-occupied/investor ratio goes below whatever number takes a fully conforming owner-occupied loan out of the picture.

I don’t believe the issue is the builder’s but rather forced upon the builder by the lenders. For example, one lender I contacted would not make an investor loan until the project was at least 65% completed. This lender sells all their mortgage loans to Fannie/Freddie and the loans must conform to the Fannie/Freddie guidelines. Additionally, Fannie and Freddie have some underwriting guidelines that restrict making an owner-occupied loan when the number of properties owned by investors is too large (perhaps greater than 35%). I suspect that the builder, recognizing the realities of the lender’s marketplace, knows that owner occupant buyers won’t get easily funded if he sells too many properties to investors.

Remember that the owner-occupant is the builder’s target market.

Often you see builders restrict sales to owner-occupany buyers until the project has sold at least 65% of the available properties. Then, the builder may open the last available properties to investors.

Now Dave,
How do you find out who the lender for the project is going to be? Do you look on the developers site or do you have inside scoop? ;D Probably the latter…

Dave please forgive the multiple questions… I am just trying to understand…

I just ask the builder, sometimes the lead sales agent. I always tell why I want to know.

If the builder is using any of the proceeds from my purchase to pay off his construction loan, it shows on the HUD-1 anyway.