Okay, I am thinking of getting into new constrution, and the one of the first homes that i am planning to possibly build will be mine. Not my dream home, but my custom home, in the perfect location. I plan on handling all of my new constructions through my company, meaning I will have to buy the house from my company (which is an LLC). I will be using hard money for all of my new constructions to start, I guess. I plan on working with a turnkey company, that spits them out fast. This is my thing, I am wondering if I should get a regular mortgage, which I don’t want to do because as soon as it is completed I want it off the company books, and we all know how long a traditional lender can take (as long as they want). And I want to move in asap, but with hard money the home would be in a way owner occupied, and I am not trying to make my lender mad. So I was thinking of a note, followed by a refi. It would go like this.
As soon as project is completed, I sign a contract as a buyer with my company.
I then close with my company, at which they create a note.
At closing that note is bought by a note buyer.
Then I can call it home, and apply for a conventional refi, and not worry about how long they take.
That sounds good, except, it seems shady. I mean I am not trying to get over, but how can a company that I own possibly sell, and write a note for a house that I will own personally, and then sell that note? It really has me scratching my head. I mean the plan that I have laid out, I think is my best course of action, especially since I want to get out of my current place asap, but it just seems weird. As the owner of my compny I would sign the contract for my company and myself, then I would close acting as a seller, and buyer in the same transaction, and on top of that I would sell a note that I just created for myself. Let me know what ya’ll think, if ya’ll have any other ideas I am open, please let me know something.
.....but it just seems weird
Bizarre might be a better word. There are so many things wrong with this plan that it would be hard to list them all.
First, if you are buying a house for yourself, then just buy it yourself. It would be crazy to buy it with an LLC and then sell it to yourself. While we’re speaking of crazy, using a hard money lender to buy a personal residense IS crazy. Why would you pay several points and loan shark rates to buy your own personal residence? If you just have extra money to throw away, please send it to me. I will be very grateful and promise to put it to good use. Hard money lenders don’t normally lend more than about 60% to 70%, so you’ll need a significant down payment.
Now let’s talk about note buyers (I am one). Note buyers buy notes AT A DISCOUNT. They do not pay retail (if they want to stay in business). In fact, a notebuyer bases what he will pay for a note on several factors including the creditworthiness of the mortgagor (you), the payment history on the mortgage (none), interest rate on the note, and the note buyers appraisal of the property. I never pay more than 70% of the value of a note. So, if your house was worth $100,000, I might buy your note for $70,000 and you would still owe me the $100,000 principal plus interest. Again, if you’ve got money to just throw away…
At any rate, your plan is terrible. I’d rethink the whole thing!!!
Mike
Thanks for the reply. Sure I could get a construction to perm, and have that be that, but I want to go in with equity. That is the reason I would be building through my business, and in turn the need for the hard money. When I sell to myself from my business, I would sell at cost, not appraisal, which means I’ll have built in equity, my equity would take a hit with a note buyer I know, but I will have equity nonetheless. I should have explained before, that my business will sell to me wholesale, not retail. And when I refi, cash out a little, but leave some equity. I guess I’ll go back for the real need of hard money, I want to start construction now. My original idea, as to start three projects on some land that I have a contract for with an out of town seller, who inherited that land in like '79. I am getting it really, and I mean really cheap especially for the area. The land is enough for about four projects but I wanted to start with three. My husband and I toured the subdivision, and decided we wanted to live their. It is nice and quiet, and great for kids, so my game plan changed. iI still ant to do three projects but one will be mine. Even if I decide to do a construction to perm for the properyt that will be mine, I still will have to buy if from my company. Anyway, I decided that it would be easier, to do all three projects at once within my company, and with hard money. This whole situation is complicated. I can’t even think about this anymore, I’ll be back later.
I agree with Mike, there’s so many issues that it’s not worth even getting into. Basically there’s lots of costs involved and going back and forth with an LLC, taxes etc., you’d lose a ton.
The standard way to go is with a contruction loan with a one time close program. Basically you get a construction loan and then once it’s done, it converts into a regular mortgage and you only pay closings costs once. Typically only available to owner occupied which is what you’re doing on this one.
IM,
If your going to have a builder build the house you will be getting it below retail which is the draw of building your own house vs. buying a re-sale. So, what is the difference of you or your business building it? either way you will get the equity. Also, if you are going to build it through your company, can your company qualify for a loan? Ok, so you say you want to use HM…ok, have you looked into how much they will lend you on NEW construction? Are you going to try to roll the land costs into it as well? I looked into this last year they would only lend me 70% of the ACTUAL costs to build not 70% of the appraised value. So basically you will have to build the house for about $30/sf. and that was not including any builder fees. I am a builder in Austin and I was going to have it supervised by a superintedant who did not want to get paid, he only wanted me to cut him a deal on buying the house. So, again, while HM is a very seductive, and seamingly easy way to go…you will pay so much more in interest and holding costs. You can probably figure on building time of atleast 6 months from the time the builder starts. How soon can your builder get started? How many other projects does their superintendant have going at the same time? How much time will he be able to, honestly, dedicate to your project?
I’m just touching on the building part here. The whole company buys/ builds it and flips it to the comapny owner, etc, etc just does not sound all above table. Why do you need to own it? Create another company that holds the property, or a trust or something to flip/ sell the property to. Anyway I would check with a RE attorney before you move forward.
Good Luck.