Looking for a way to finance Agricultural Land

[Bryan Buckingham]

New to the forum. I currently own only one home with ADU 60% equity. Ive been seeing many deals for vacant agricultural land. Full transparency, Im a builder and will build several homes on this lot in the future. Problem is, the cost of these lots are over 2 million. The ag land itself has a cash rent value that is likely negligible but the homes I build will all cashflow by over $1000 each if I can make this deal work. Please help me understand how I can afford this parcel. It would be lifechanging for my cashflow 5 years down the road. I can only pull up about 400k before maxing out our families DTI. Purchase price likely $2M. Seller will not carry a note. Ive asked.

[Henry Clark]

Land development is a high cost endeavor, or you need to own the land.  Plus doing a housing development in our economy is dangerous.  You're in Hawaii, I may be way off, but your land values are tied heavily to the Japanese investment market.  Evaluate that, even if you never sell to a Japanese investor.  Let's say you want to go down this route still:

Change the numbers to boots on the ground figures.

a.  Lot cost $2mm.

b.  Acres??  4 acres, again give us more info.

c.  Number of houses per acre, 4 per acre or 16 in total.

d.  All in cost of 16 houses, 2,000 square feet per, $230 per sqft= $7,360,000

e.  Infrastructure costs.  Say grading, roads, electric, water, sewer, engineering,etc.  $400,000

f.  Total costs $9,800,000

g.  Interest during construction and selling process. Let's take 1/2 of the above $9,800,000 at 6%.  $4,900,000 at 6%= $294,000 interest per year for 2 years.  $588,000.

h.  Total development cost of $9,800,000 plus $588,000= $10,388,000.  

i.  Let's assume no sales commission, you broker the sales.  If not add on another 7%.

j.  Since you mention cash flowing $1,000 per month, this assumes you are going to hold the properties and rent them????  Not sale them.

k.  Cash flow $1,000 per month is this before or after P/I payments and property tax/insurance/maintenance set aside and occupancy at 90%?

l.  16 houses cash flowing $1,000 per month= $16,000 before income taxes???, etc.  back out occupancy.

m.  Collateral, if the bank required you to put down 25%, then 25% of $10,388,000= Say $2,600,000  do you have that?

n.  Let's say you had the $2,600,000 to put down, now you have a mortgage loan of 7,800,000 at 6%.  What is the P/I on this?  Is it factored into your $1,000 per month cash flow?

o.  Most developments take a while to sell out.  Realize the market has been crazy with unbuilt houses selling, but does your family risk tolerance accept the risk of your development taking 5 years to get built and sold out?

Change all of the above numbers and come back and ask your question again.