All Forum Posts by: Carl Schmitt

Bill, I missed your response, sorry! But ideally, we lock up the property with 10% down, and once the end buyer has given their deposit, the lender's funds would purchase/close on the land, fund the construction, and once complete sell the house with the previously purchased land as a typical spec house. I guess the only difference is that we would have an end buyer under contract prior to completion for lender security reasons. Rather than using our own money as skin in the game, we would use the end buyer's non refundable deposit.

Will,
I appreciate your input. I thought everything looked good, just wanted a second opinion before wasting anyone's time.
As far as coming up to 325k, I'm not 100% sure. I have never spoken to them as they are my moms client. All of the numbers are word of mouth from my mom and my lawyer speaking to the builder on the phone, nothing signed yet. I will gather more exact figures and if all still looks good, we will put the land under contract, get EM from the end buyer and find a lender. Thanks for the interest, I will shoot you a pm when we get to that point.

Now, worst case scenario, Just because I like to be conservative, if every number went the wrong direction.... If build cost goes to 125/ft, or resale is only 275k, when do you walk away and not do the deal? Either as a lender or if you were doing the deal yourself.

Thanks for the response Will.
The comps are roughly 350k so we're not too concerned with it appraising at 315k. As far as red tape, one partner in the deal is a real estate attorney who handles all my mothers closings and has spec built in the past. We're hoping that will cut down on the planning
time.

As far as other costs, were planning on holding costs of course. Idealy, these costs will be low because Our goal would be for the private lender to be a silent partner and accept a percentage of the profit as payment, rather than monthly interest payments.
For house designs, my coworker is an architect who ran a custom home building company for 10 years. He's willing to draw up designs for a fraction of normal cost.

The buyers will be using a VA loan. They are not doing 0 down, though. They don't want to get into construction loans and managing contractors. They'd prefer to just purchase the final product.

When you say 70% of value, how do you determine value on a piece of raw land with no home on it yet? Would you use the end sale amount as your ARV(for lack of a better term)? If the 70% is based on 315k, that puts us at 221k. 65% would be 205k. If I'm using the correct numbers, we would be all in at roughly 65%, with no skin in the game.

What are terms like on construction loans? How about the approval process? In the past, one partner would put up the money/financing, we would handle the leg work and split the profit. Our typical money partner is basically tapped out at the moment though because he has been buying everything he can get his hands on. Even his bank is starting to cut him off on new loans, both commercial and residential. This is why we were thinking private money.

Would having an accepted contract on the land, a contract with a builder, and a contract with the end buyer before any private funds transfer make this deal any more secure to a lender? If we covered the earnest money on the land and got a large DP from the end buyer before construction, would you consider that skin in the game? If we did 10% EM on the land, and 10% EM on the end buyer contract, there would be about 36k of the 200k needed before ground is broken. The investor would fund the remaining 164k. Even if the end buyer walked when the house was complete, a lender would have 164k loaned on a house that will sell to someone else for 315k. Seems like a no brainer to me, but I also don't have 165k to lend so what do I know. Thoughts?

Sorry for the long response, and thanks in advance.

Hi everyone,
I have a potential deal that has a few different pieces involved. I'm looking for input on how(if possible) to make this deal work. Here's the situation... My mother is an RE agent and has a client looking for a home and there really isn't anything on the market in a neighborhood they like with a layout they like. These clients have a pretty good DP, great credit and are pre-approved. Here's where it gets creative. There's a neighborhood in town they love, in their price range, but the only house for sale is a colonial, they want a ranch. There is,however, a piece of land for sale on the street. Long story short, they don't want to be involved with building a house. They would love to have a brand new house, though. If we were to buy the lot, put up the house, and sell it to them, the clients would love it.

Here's the numbers:
Land cost = 50k
Build cost = $100/foot to build (from contractor who built spec houses for my lawyer)
House will be 1450 square feet
Comps are in the mid 300's, client's stated if we could do it for 315k, they'd sign a check tomorrow.
My numbers between land and build cost leaves 100k in gross profit (not counting hold costs of course).
Our plan was to put the land under contract, get a contract with the builder, and a contract with the end buyer client for 315k with a significant down payment upon signing. We would cover earnest money on the land to lock it up. Then we want to find a private lender to cover the balance of the land and the build cost.
First, is all of this legal? If so, does this look like a deal that would be attractive to a private lender? How would you compensate the lender?

I just checked my copy of Remodeling Magazine. That's the magazine I believe Jon is referring to, and they say for a wood deck replacement, the average cost(in New England, not sure about your area) is just over 10k and you should see about 70% of that recouped. I'm honestly not sure where they get their information but they're supposed to be the experts...

I like the idea. It makes you unique from all the other offers that go in.

Arktavious, that was basically my point. I don't see the benefit to buy from a wholesaler vs buying directly from the bank. Finding the leads seems to be the hardest part. With REO's, you don't have to find it. It's on the MLS for everyone to see.

Is there a benefit to anyone involved to wholesale an REO? They're listed right on the MLS for anyone to see. Maybe I'm wrong, but I would assume any investor with some experience would have access to the MLS so why would they not just make the offer directly? Am I missing something?

Jon, we use telemarketing at my day job to set leads for a home improvement company. By far, it produces the most leads. It also produces the coldest leads. The nice part is its efficient because telemarketing isn't affected by weather or people taking down your signs. You also get straight to the point. With direct mail, you wait several months to see your conversion rate. You find out instantly with telemarketing if they have even the slightest interest. I believe our cost for a raw lead(any person that agree to the appointment on the initial call) is less than 100 bucks. For confirmed appointments, it jumps to about 175. (This isn't for wholesaling, just to give you an idea)

The down side is, if you have a decent telemarketer, they'll be able to set leads with people who may not truly be interested. That makes the conversion from appointment with the homeowner to signing a contract much lower. However, you'll be able to weed the no interest people out before you make time to sit down with the owner.

If you have to opportunity to try it, I'd go for it. Let us know how it works out.

How much would you need for the loan? Wells Fargo does unsecured home improvement loans starting at 6.9%. Usually up to 25k and you need a 720 minimum.
(Not a solicitation, I use this program in my day job)