What are the flaws with this plan for land

Question

I am also looking for investors who might have solutions as well.

Example: The land that I am currently looking at is 40 Acres for $80,000 and is zoned for either Commercial or Industrial

My FLAWED plan is with questions:

1- Find Land to buy (where at?) What would you offer to buy it for? I am thinking about starting at 15% of Asking.

2- Send a non-binding letter of intent, that explains what I am doing also send it with a proof of funds letter from a transactional funding source (Who do you use)

3- Negotiate a price

4- Write up and $10 Option contract

5- Run over to a Title/Escrow office to record it, so the Seller doesn't try to sell it from under me (Is that the right way to protect me?)

6- Due diligence (What sort of information do I need for land sales? And where are free places to get that information?)

7 Find a REAL End Buyer (Where at?) that will place a non-refundable deposit in to Title/Escrow (What is a good amount to ask for $$$)

8- Notify the Transactional Funding site about both my Seller and End Buyer and that the End Buyer has cash in the Title/Escrow Account (Don't know if this is the right step?)

8- Close and get paid

9 -REPEAT

Thanks for any Help

Steven-Utah

Daniel Chang · Answer

Steven,

I think I just listened to the same podcast as you did.  (I don't know if that's where you got this idea from, and I won't mention which podcast, but the guy pitched exactly what you want to do, including "$10 option contract" and 15% of market value).  If that's where you got it from, I think he was mentioning that he runs an "educational seminar" on how to do this (with heavy emphasis on the quotes).

It's always possible that I'm missing an unbelievable opportunity, but think it through:

1) Why would a seller not investigate how much their land is worth, and and let you lock it up for 15 cents on the dollar?

2) Even if they are desperate to sell, why would they allow a $10 option contract?

3) Even if you manage to get by #1 and #2, why would your seller, after discovering you are flipping the land, not just wait until your option expires and purchase it for 15 cents on the dollar himself.  Of they let the owner know they'll do it for 20 cents on the dollar and squeeze you out.

Anyways, it smelled too much of get rich quick scheme and I avoid all those myself.  You might find an opportunity that you can do this once or twice, but it's not a sustainable business plan.  My 2 cents.

Best of luck to you.

Jay Hinrichs · Answer

@Steven Long

two   words   Pipe Dream

@Daniel Chang

the most common profit deals for land were you can make huge spreads is in Timber.  IE the seller does not realize what the value of the timber is and sells the land for land value only.   THis is common when they have a non industrial size property with a  home on it and a RE agent just comps it like its a home. and has no clue to the timber value.

The other way you make spreads in raw land is conversion of use.. IE rezone or up zone.

Or path of progress.. or to pay cash then sell on terms.. Also buying at TAx sales this is were land in the semi boonies can be bought on the cheap.. there are a few on this site that specialize in this industry.. it was a huge industry in the 50s and 60s

Daniel Chang · Answer

@Steven Long

I still do not understand your business plan.

If I were the owner, and the land is worth $80K.  Sure I'd entertain an offer to sell at $160K in 1 year.  However, to keep it honest, and make sure someone's not locking up my land where they can just get out of the option at $10, I would want $8000 option.  This way, if the option expires without execution, I make sure I get at least 10% return on the value of the land.

If the land is worth $80K, how in the world are you planning to flip it for $500K?  The only time this happens if there's minerals on the land that the owner doesn't know about (for instance).

Just think it through.  If you were the owner of the land, would you have someone else lock it up on a $10 option?  And if you were the end buyer, would you buy a piece of land with a high premium, knowing you can just get it from the owner at a fraction?  If you can't answer these 2 questions, I don't think you really have a business plan.

Martin Z. · Answer

"15% of Asking"  = LOL = SHREDDER

David Wurzel · Answer

@Daniel Chang

Great response!  You hit the nail right on the head!

@Steven Long

If you really want to learn about land check out @Seth Williams

Seth is the man when it comes to land deals and how to get them.  I am sure if you search for his posts or check out his blog it will lay out a much better business plan.

James Reynante · Answer

I have been investing in raw land in AZ, CA, CO, and NV for a while.  I have found that I could offer 15% of market value for a piece of land all day long, but there were very few sellers willing to accept. I send out 1000's of direct mail pieces (postcards & blind offers) every month, and my best responses come from offers that are more like 18%-25%.  When I offered less than 18%, my ROI was very low... the number of actual deals I could get and then successfully wholesale didn't make a lot of sense for amount of time, energy, and money that I put into marketing, etc.

Steven Long · Answer

Thanks for the replies

What if I got the $10 Option Contract for a year, but... lets say the land was worth $80,000, and I offered to buy it in one year for $160,000 (if I find an End Buyer, that is willing to pay ... Say $500,000)

Would you wait a year to sell your land for $160,000??? If you don't know who the End Buyer is.

What are the flaws with this plan for land

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