Using Seller-Financed Land as Collateral to cover 20% DP for Construction Loan...?

[Earl Burl III]

Hello BP Family,

I am looking to acquire land in Houston for first multifamily development project. I would like to know if I can preserve some/all of my liquid capital by avoiding an all cash deal for the lot/land.

My thought process is... Acquire the land through a seller-financed deal for the deed to the land and use it for collateral to cover the 20% down payment needed for the construction loan.

Once construction is completed and cash-out refinance complete I will pay off the seller I financed the land from.

Is this feasible?

[Earl Burl III]

Quote from @Brian Burke:

I agree with Robert here, this is a very unlikely scenario.  The way this is more commonly done is to partner with the seller where they contribute the land to an entity that you manage (and the seller becomes a member).  Then the entity can borrow and use the property as equity.  You'll most likely still have to bring some cash to the deal for reserves and perhaps some soft costs, and any gap between loan amount and construction costs.  Then, when the construction is completed and the property sells, the land seller gets paid the value of the lot and typically some split of the profits in the deal.

 Brian, thank you for this insightful answer! Very creative way to get the deal done. Definitely adding this to my notes/toolbelt

I appreciate your "how can this work" mindset instead of only stating why it won't work.