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    7 Replies Latest reply on Dec 21, 2008 8:05 PM by NoBullFunding

    Buying land?

    MetroGal Adventurer

      Is purchasing land like purchasing a house? The reason why I am asking is because my sister suggested that we all pull our funds together to buy land in an up and coming area that is currently on the fringe of new housing development. Certainly there are so many things to consider - such as do I really want to mix family & business, not to mention the risk of investment even if our funds are pulled (I have three other sisters). Anyway, my question is: Is buying land different than buying a house? Any advice?
        • Re: Buying land?
          Lighthouse24 Ranger

          It sounds as though you are considering the purchase of the land as an investment (to let it sit and increase in value), rather than planning to develop it yourself (which involves a much more complex financing arrangement). I'd determine how the land is currently zoned or what its future use might be (residential or commercial), and then contact a broker with that area of expertise to represent and advise you (sure, he or she gets a commission, but if you haven't done this before, the guidance and knowledge you'll receive is worth it).

          There aren't nearly as many financing programs for land as there are for homes -- it's all pretty straightforward and very conservative. If the land is not being developed or built on right away, the financing options are very limited and the "rules" haven't changed much in years.

          Even though a tract is vacant, there are still some costs of owning it -- and again, an experienced broker could provide details. You'd probably want to have the broker or an attorney draft a joint venture agreement for you and your sisters to sign that spells out how costs and profits would be shared, and how decisions would be made.

          Hope this helps. Merry Christmas.
            • Re: Buying land?
              DomainDiva Ranger
              I feel eminently qualified to answer because:

              My husband and I own a 3 acre tract in North Arlington three miles away from the new Cowboys stadium. he bought it 22 years ago (cash) and has paid the taxes on it and kept it mowed. This year we decided to develop it. We have paid over 30,000 so far in engineering costs, city fees, tree survey, brush clearing, survery you name it we have paid it. The final plat is approved by the City and we expect to break ground next year with homes in the 600,000 to 1M range for a total of 8 homes in an exclusive gated community. Bottom line....DIY is expensive...we are fortunate that my husband knew WHO TO CALL to get the job done right the first time....so even though it has been expensive...we have not had to go back and 'retool' the plan.

              That being said....location location location; and whether ot not a bank is going to lend money on raw land. Chances are that a bank will not loan money on land to individual investors with no development experience.

              If it were me, I would go to the city and get a look at the 'master plan' that the city has...this will show you where the planned developments will be as much as 20 years out. If you are intent on purchasing the land....try to get an investment group together...make a contract and get going. Also contact the highest end realtor in your area...they will be able to guide you through the maze. This realtor also knows all the builders and who gets things done...but like I said only contact the high end producers that would have an interest in your planned price range.
            • Re: Buying land?
              LUCKIEST Guide
              Metro, You received two great answers from Lighthouse and Domain Diva.
              There was a post recently about mixing "family and business". You can check it out.
              Have you and or your sisters developed a Business and Marketing Plan??
              You will need an Accountant, and a Lawyer and maybe an Insurance Broker.
              Yes buying land is a little different than buying a house, but the same rules apply, as both Lighthouse
              and Domain Diva illustrated. Be careful, LUCKIEST
              • Re: Buying land?
                MDF2008 Wayfarer

                Hello,

                Yes buying land can be a great business investment if you have a business plan and
                you understand the market factors and changing conditions etc.

                Over 50% of real estate people have gone out of business because they could not
                pay for thier land investmnet and or house investments. "The meltdown."

                Along with the fact that Mortgage Brokerage industry is not that well standardized as
                we see the meltdown continue at high rate and trickle effect:bad loans.

                 


                I have met several real estate people who have lost thier homes and land because they
                all thought they could flip it. They were not realistic about their investments land or home
                inventment and market conditions. This is old news but a fact of life.
                Buyer beware of your investment thinking and mindset!

                All the Best. MDF2008

                 

                 

                 


                • Re: Buying land?
                  CEO Space Scout
                  All the previous answers are very good. The only thing I would add is about something you already
                  eluded to and that is mixing business with family.

                  That has always been one of the worst things I've had to deal with and even just last week, have another situation with a friend having just such a problem, because things didn't go as planned. (They almost never do, btw.)

                  When things are in the planning stage and everything seems bright, everyone feels like they agree.

                  Then if things go wrong, all the finger pointing and "he said, she said" starts. And when money gets involved, it really gets emotional.

                  So some of my basic guidelines to investors in joint ventures with family or anyone:

                  Never invest money that all parties cannot afford to lose. I mean if it was all gone tomorrow, no one would be harmed in their day to day living.

                  Never borrow money to invest.

                  Get every single agreement down to the smallest detail in writing and make sure all parties read it, understand it, sign it and get a copy of it.

                  Include in the agreement and discussion what you would do if all the worse case scenarios were to happen.

                  Include in the agreement that if things go wrong, there will be mediation and that all parties waive the right to sue. (Doesn't hold up always, but at least stops some hot headed people from running to a lawyers screaming scam or "they cheated me" at the drop of a hat.)

                  Get a good lawyer who specializes in this type of thing and make sure you are doing everything legally.
                  Structure it properly.

                  I've gone over this with people in the past and then the person decided against investing. They knew themselves and knew that if they lost that much money it would make them terribly upset and depressed.

                  That is good. And the best for all involved. Not everyone is cut out to be an investor.

                  Good Luck.

                  Kathy
                  • Re: Buying land?
                    Canadian2 Wayfarer
                    I am selling investment land, and the way it is set up, you either make 100% plus profit, or you may ask for your original investment back. The land is located in one of the best places in North America fo investment, as rated by analysts. It is secure,and 100% of the profits go to you on future sale of the land. Ay this point in time we believe it to be one of the best investments to be in. For all the information, photos, time line, Principal Protection, and all things related, e-mail: james@yorktongroup.com
                    • Re: Buying land?
                      NoBullFunding Scout
                      From a banking presepctive, most banks limit the LTV because there are fewer buyers looking to purchase raw land as opposed to improved land. Off the top of my head, I recall that we used to limit land deals to a 65% LTV. Obviously this means you'll have to come up with a good chunk of cash to make it happen. Aside from that, the process is pretty similar to buying a house:

                      1) The land needs to appraise for what you are buying it for (or else you'll need to come up with more cash)
                      2) You'll need good credit
                      3) You'll need to cumulatively demonstrate the ability to repay the loan
                      4) You'll need to have title insurance (bank will require it to ensure title is clear)

                      Good luck!