Using what we call “OPM” or Others People's Money the best and really the only way to finance any of your developments, and in saying that, any of your real estate investments!
This may not be new to you, but many people are amazed and the response that is heard often goes something like this “ahh, so that is how they do it”.
Depending on where you live in the world, there are several methods that can be used to obtain financing. In the USA there are generally 3 ways.
1. Direct working relationship with the seller
2. Use options to control the property
3. 1031 exchange
The 3 method here needs sophisticated explanations and requires the services of an accountant and legal advice, therefore it will not be discussed in this article.
Working directly with the seller allows you to provide him/her with what it is that they require, you satisfy their needs! This is critical to your success when using this approach. If you satisfy their needs first in this transaction, you will get your needs satisfied. You also need to work on your personal skills and become a very good listener if you are not already. Remember, it is THEIR land you want! You must communicate very well.
So they become your partner in this deal, in the land development transaction. So if you have finance qualification issues, (which some do at the present moment I might add) the seller helps you by taking on the debt themselves and in return you the unqualified buyer is able to get the deal you were not able to get initially. In return for this “help”, the seller demands a better slice and therefore a more attractive sale price.
Concomitantly, the seller also benefits by receiving a greater after-tax profits. This occurs due to the fact that the seller is ‘carrying’ the paper, the sale amount will not be taxed instead it will be based on the instalment payments made over the years. So instead of having a hefty capital gain tax bill due to being pushed into a higher tax bracket, they may be able to stay within a lower bracket due to instalment payment being made over a period of years therefore enabling them to stay in a lower tax bracket then if they obtained the complete sale amount in one lump sum.
Controlling the Property By Using Options For Financing Land Development
What is an Option? It is a specified agreement detailing future performance in exchange for a benefit.
In laymans terms, it means that you cough up some funds, and you get to control the property!
So what you are effectively doing is obtaining control of the land by buying this control. In other word, you agree upon a price for the option to buy the land that you are to pay at an agreed upon date in the future.
This is all done legally and is very simple to have in a contract. At any period of time in the future before the expiration date of the option, you can exercise your right to close the sale and take control of the land. Legally the seller must sell when you have the funds and commit to the purchase. If you know your markets, you can also do very well from this transaction itself. By buying land a fair market value at the time of the contract, and as the market rises you are still able to obtain the agreed upon price for the land that you made at the earlier date. The seller still must sell at this agreed price even if the land value has tripled in the time period you agreed upon! This is why it is so important to be up to date with your ‘patch’ and what is happening in the market where ever you are.
A more detailed and sophisticated approach to options is the rolling option. This is generally used for large parcel land development transactions. This is quite a detailed and complex agreement, and therefore should require more knowledge and experience. Utilization of the rolling option occurs when a large amount of property it being purchased to develop master planned communities. Such as when developers are creating ‘phases’ in the development project with an absorption of dwellings usually exceeding 5 years.
What the buying typically does in utilising the rolling option, is that they control the entire tract by being able to ‘put up’ one option at a time, and after each execution of the options the buyer is able to take control of more land until they control the entire parcel of properties that was contained in the original contract.
Execution of the options must take place when they are due or the entire contract in null and void and therefore cancelled. The seller then has the right to put the property on the market again at the same time keeping the initial premium.
The buyer benefits by having a contract that if adhered to, allows them to be able plan their development for the entire property package with the knowledge of what they are to pay for the land, and this therefore allows them to create the most important pre development work, the development ROI (return on investment) calculations.
The primary benefit to the seller is that they obtain their desired and agreed upon price, and if the deal does not come to fruition, they receive the sizable option premium and the land can be sold again. If all goes well, they receive the entire agreed upon price.
If you wish to learn more ways to obtain finance, click on the link here. Every question you need to know is answered in these manuals, whether it be land, commericial or residential development!
Thursday, July 31, 2008
Tuesday, July 15, 2008
Obtaining Development Approval for your Land
If you read in my first article ‘buying land for development, the right way the first time’, you’ll know that there is a right way and a wrong way to purchase “control” land before you actually exchange the funds. This is crucial, critical to your developments success! You need to have this information to use in your feasibility study to determine the viability of the project. Once you have ‘control’ of the land, (which we will show you how to do with no risk of losing money or no money down) you need to be able to determine what you can build on this land which is determined by the appropriate governmental bodies in your area. You would already have a very good idea of this by following my guidelines for doing your market research. But unfortunately, sometimes the area size is not enough to be able to accurately determine how many ‘units’ can be build on this land. Your architect will have to accurately determine this for you. This is quite a simple process for the architect and than you will have to move onto obtaining a Development Approval. This is something True Developers do very early in the process. By doing this they are in effect minimising their risk at the earliest stage of the development.
So in the above mentioned article, I wrote how you don’t buy land first!!!! You do your research to determine the land’s ‘development capacity’ and once this is achieved as mentioned above, and you know for sure that you can development X units on this block that cost you X dollars, therefore providing yourself with the land cost per unit, you are able to set about lodging the appropriate forms with the governing body to obtain Development Approval. This is your number one aim. With out it say good bye to your development and your research and your hard work that you did to get to this position. It is important to follow the step by step process for making your development application ‘rejection proof’. There is some detail to doing this, but a briefly, you must first study the building development regulations within your ‘patch’, you must study the building development forms, you must have copies and studied your zoning maps and building height regulations, and you must know what you want to build! Once you have this under control, you must have plans detailed to lodge with your application to the local authorities stating what you plan to build. There are several item that need to be considered here as well, such as:
* Land boundaries and the relationship between them and Building set backs.
* The land area/gross building floor area ratio.
* Unit number/visitor car parks required on the land ratio.
* Car access to and from the site from the road.
And many more other issues that need to be taken into account. This is what determines how viable your project will be. So, getting back to the initial question of its viability, so if you do not know that you can build the amount of ‘units’ on the block of land you have hopefully not purchased, but have ‘control’ of, you will not know its viability and therefore you are setting yourself up for going broke!!!
You need this information to determine how much you have paid for the land per unit, as these and many more issues determine the financial feasibility of the development.
If you wish to learn the step by step processes involved in all areas of property development, from residential, commercial to land subdivision, visit the website of the only BILLION DOLLAR property developer who mentors on the web, where you will be able to obtain the required information to truely be successful in this business. If you are passionate about real estate development, or learning real estate development, this site is a must. Visit the blog for great info and link to the site from there, visit the link below. A true leader always wants to give back, and that is what you have here. A billion dollar developer who is whiling to share his knowledge with you. These products are true blue prints to success in all forms of property development, from residential to commercial to land subdivision. Visit the link
So in the above mentioned article, I wrote how you don’t buy land first!!!! You do your research to determine the land’s ‘development capacity’ and once this is achieved as mentioned above, and you know for sure that you can development X units on this block that cost you X dollars, therefore providing yourself with the land cost per unit, you are able to set about lodging the appropriate forms with the governing body to obtain Development Approval. This is your number one aim. With out it say good bye to your development and your research and your hard work that you did to get to this position. It is important to follow the step by step process for making your development application ‘rejection proof’. There is some detail to doing this, but a briefly, you must first study the building development regulations within your ‘patch’, you must study the building development forms, you must have copies and studied your zoning maps and building height regulations, and you must know what you want to build! Once you have this under control, you must have plans detailed to lodge with your application to the local authorities stating what you plan to build. There are several item that need to be considered here as well, such as:
* Land boundaries and the relationship between them and Building set backs.
* The land area/gross building floor area ratio.
* Unit number/visitor car parks required on the land ratio.
* Car access to and from the site from the road.
And many more other issues that need to be taken into account. This is what determines how viable your project will be. So, getting back to the initial question of its viability, so if you do not know that you can build the amount of ‘units’ on the block of land you have hopefully not purchased, but have ‘control’ of, you will not know its viability and therefore you are setting yourself up for going broke!!!
You need this information to determine how much you have paid for the land per unit, as these and many more issues determine the financial feasibility of the development.
If you wish to learn the step by step processes involved in all areas of property development, from residential, commercial to land subdivision, visit the website of the only BILLION DOLLAR property developer who mentors on the web, where you will be able to obtain the required information to truely be successful in this business. If you are passionate about real estate development, or learning real estate development, this site is a must. Visit the blog for great info and link to the site from there, visit the link below. A true leader always wants to give back, and that is what you have here. A billion dollar developer who is whiling to share his knowledge with you. These products are true blue prints to success in all forms of property development, from residential to commercial to land subdivision. Visit the link
What Determines the Buying Price For Land For Real Estate Development?
As mentioned in my previous article ‘obtaining development approval for your land’, I discussed the importance of market research in regard to many aspects of the development at the early stages, such as knowing whether you have purchased the land at the right price, knowing the number of ‘units’ you can ‘grow’ on the land, knowing the correct zoning and height regulations for the land just to name a few! I have written this article because I want to reinforce the importance of market research to you before you go and buy the land and before you go about throwing your money away! Most of us do this because we are passionate about real estate development, but we also do it to make a profit!!!!! And as the old saying goes ‘you don’t go broke making a profit’. And that is what developing is about. I am getting a little of track here, but I also want to reinforce the important point that you do want to make a profit, but you must also guarantee your team (eg BUILDER) is happy and makes a profit! So, getting back to market research, this is the time where you do some work. You spend some money on gas/petrol and throw on the boots and get out and about in your ‘patch’, the area you are making your own! This is another story, and something very important to your success also. That is, choosing the right patch. I will help you with that later.
As a professional developer, you will be doing this at the most fundamental level as it is essential to your success in this business! You will learn about and become very familiar with Qualitative, Quantitative research and market analysis.
You must determine the different locations in your town/city eg ‘richville’, ‘poorsville’, ‘mediocresville’ and so on. You see what I am getting at? This is the start of your market segmentation! Can you put boundaries on this information? What about boundaries on the areas you wish to start your development career in? Do you know how much you should be buying land for in your patch, not an estimate, exact figures? You need to, this is what I will show you how to do. This is what Real Estate Development Market Research is all about! So basically what I am getting at here is, you need to know the exact price you should be buying your land at!!!!! Not a guess price because Mrs Jones told you that Bob down the road sold for $X so that block your looking at is on the corner so you would have to pay at least $X more! Stuff that is tangible, and also not stuff you have bought from an online real estate marketing site that gives you prices of the latest sales in the area, or what they claim to be the latest sales, that is the problem, because we talk about ‘real time’ market research and in this game that is the ONLY thing that counts. Developers who rely on this information are off the mark and have missed the boat. Markets change and to obtain research that is 3,6, 9 or 12 months old is exactly that, OLD! You need yesterdays prices and todays prices, I hear you asking how do I get that? Through learning the right way! How do I learn the right way? By learning from someone who has done it over and over again successfully, by choosing the right mentor and following a system that works no questions asked!
As the media continue to push down our necks all the negative garbage that is happening in the property arena, and you see more and more property developers not doing well, you must obviously ask the question, why are they doing so bad? What did they do wrong? The fundamental question to your answer is in the above! If they had done their market research and if they had been vigilant, there would not be so many of them in the predicament they are in now. Eg Florida, their research would have told them that ‘units’ (residential dwellings) were starting to stock pile and developments would have been put on hold. New markets analysed and a lot of money saved! Remember, after expansion always comes recession, and after recession always comes expansion and this will not change! So you ask the question, how then do I know when the change between recession and expansion will start? DO YOUR MARKET RESEARCH HOW I SHOW YOU AND YOU WILL KNOW. You will be ahead of the game!
If you wish to learn the step by step processes involved in all areas of property development, from residential, commercial to land subdivision, visit the website of the only BILLION DOLLAR property developer who mentors on the web, where you will be able to obtain the required information to truely be successful in this business. If you are passionate about real estate development, or learning real estate development, this site is a must. Visit the blog for great info and link to the site from there, visit the link below. A true leader always wants to give back, and that is what you have here. A billion dollar developer who is whiling to share his knowledge with you. These products are true blue prints to success in all forms of property development, from residential to commercial to land subdivision. Visit the link
As a professional developer, you will be doing this at the most fundamental level as it is essential to your success in this business! You will learn about and become very familiar with Qualitative, Quantitative research and market analysis.
You must determine the different locations in your town/city eg ‘richville’, ‘poorsville’, ‘mediocresville’ and so on. You see what I am getting at? This is the start of your market segmentation! Can you put boundaries on this information? What about boundaries on the areas you wish to start your development career in? Do you know how much you should be buying land for in your patch, not an estimate, exact figures? You need to, this is what I will show you how to do. This is what Real Estate Development Market Research is all about! So basically what I am getting at here is, you need to know the exact price you should be buying your land at!!!!! Not a guess price because Mrs Jones told you that Bob down the road sold for $X so that block your looking at is on the corner so you would have to pay at least $X more! Stuff that is tangible, and also not stuff you have bought from an online real estate marketing site that gives you prices of the latest sales in the area, or what they claim to be the latest sales, that is the problem, because we talk about ‘real time’ market research and in this game that is the ONLY thing that counts. Developers who rely on this information are off the mark and have missed the boat. Markets change and to obtain research that is 3,6, 9 or 12 months old is exactly that, OLD! You need yesterdays prices and todays prices, I hear you asking how do I get that? Through learning the right way! How do I learn the right way? By learning from someone who has done it over and over again successfully, by choosing the right mentor and following a system that works no questions asked!
As the media continue to push down our necks all the negative garbage that is happening in the property arena, and you see more and more property developers not doing well, you must obviously ask the question, why are they doing so bad? What did they do wrong? The fundamental question to your answer is in the above! If they had done their market research and if they had been vigilant, there would not be so many of them in the predicament they are in now. Eg Florida, their research would have told them that ‘units’ (residential dwellings) were starting to stock pile and developments would have been put on hold. New markets analysed and a lot of money saved! Remember, after expansion always comes recession, and after recession always comes expansion and this will not change! So you ask the question, how then do I know when the change between recession and expansion will start? DO YOUR MARKET RESEARCH HOW I SHOW YOU AND YOU WILL KNOW. You will be ahead of the game!
If you wish to learn the step by step processes involved in all areas of property development, from residential, commercial to land subdivision, visit the website of the only BILLION DOLLAR property developer who mentors on the web, where you will be able to obtain the required information to truely be successful in this business. If you are passionate about real estate development, or learning real estate development, this site is a must. Visit the blog for great info and link to the site from there, visit the link below. A true leader always wants to give back, and that is what you have here. A billion dollar developer who is whiling to share his knowledge with you. These products are true blue prints to success in all forms of property development, from residential to commercial to land subdivision. Visit the link
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