Registered: 1151200214 Posts: 332
Reply with quote #1
I have 2 lots in Utah in a decent subdivision which is beginning to see alot of building. I have a developer who would like to build a spec home on my lots. The developer does not want to buy the lot from me outright. He wants some sort of partnership.
I own the lots free & clear. How do I structure a deal this way? The developer would have to get a construction loan to build the houses. However, I don't understand how he would get a construction loan on a property that he does not own. I was told that the bank would want the loans secured by my lots. But I'm not getting the loan.
I really don't want the loan secured against my lots. If the developer leaves halfway during construction and leaves a half built home and a $70k loan with the bank, I would get stuck with either completing the home myself or paying the bank the $70k or letting the bank take my lot. Is this correct? Any ideas on how I can make this work?
Registered: 1110820057 Posts: 1,486
Reply with quote #2
I was in a similar situation in Idaho with two lots. I wanted to lease the lots to the builder. It didn't work out, but I have always wanted to
lease lots to someone who would then put a house on the land. I could then get income from the property but not have to deal with tenants or any expenses...and if they didn't pay their lease I could just kick them off the land for trespassing (and keep the house?).
Does any one know if you could do this?
__________________ The first million is the hardest...
Registered: 1146495374 Posts: 1,084
Reply with quote #3
This is done a lot in the commercial arena. Leases usually are for at least 30 years. At the end of the lease or default by the tenant, the improvements go back to the land owner. Residential lenders will lend on 30 year land leases.
PS: jeff, I think you're smarter than you let on.
Registered: 1110725223 Posts: 2,044
Reply with quote #4
I see that in Palm Srings. Typially the lease is paid to the Breau of Indian Affairs, and are with condo complexes. I pay about $1,000 a year to lease the land on a condo we have in Palm Springs.
One thing I can tell you that the lease does seem to impact the sales price. I don't have numbers to support, just observations based on monitoring the market. Most people are turned off by a land lease, and consequently our condo complex (and many others) seemed to increase later in the game when compared to others. As an example, I had a freind that had a 2/2 condo about 900 square feet and they sold for $235k, it took about 4-6 months for our condo to catch up with that price. This could be due to other factors, but who knows. __________________ ------
Registered: 1152406531 Posts: 32
Reply with quote #5
Land leases are common in retail. Most fast food pads in shopping centers are land leases. Retail land leases are typically 30 years. Land leases are uncommon but do pop up in big cities on commercial and condo projects, but with 50 to 99 year leases.
I have never heard of a 30 yr. sfr land lease (don't confuse this with HI) and I highly doubt anyone would finance it. Would you invest in a property that you knew would be confiscated in 30 years and, hence, it's value was gauranteed to drop with each passing day?
Registered: 1152406531 Posts: 32
Reply with quote #6
biophase, there is no way for you to to do any sort of deal without a certain amount of trust that the guy won't just up and leave. It's possible but unlikely that financing would be arranged without the lot as collateral. You could always just hire a reputable general contractor to build you a spec. home on a lump sum / flat fee basis. That way you'd be in control of the checkbook.
Registered: 1110728351 Posts: 382
Reply with quote #7
Consider if you will the fact that you are really LEASING the land that is under ALL your properties from Uncle Sam.
It is true. Your lease on, say, some Hawaiian land under your duplex rental from the original Hawaiian land-owner (who technically can confiscate it from you when your land lease is up) is NO different from what you are doing with your property tax "rent money" paid year to year. Leasing your land from Uncle Sam simply sounds (and feels) much safer than leasing from some guy who on any given lease-expiration day can decide to crank up lease rents under YOUR property to a future undetermined amount so that he can make his new car payments. How's this: Your PROPERTY TAXES are payment paid EACH year on YOUR home. You don't just pay property taxes ONE TIME, though, such as you may when you pay sales taxes on your car (which you really DO OWN). You pay these taxes EACH and EVERY year -- for the rest of FOREVER. If you walked up to the State of Cali (or Idaho or AZ), purchased a lot there in CASH, built your house upon it (it's paid for, right!?), and then went to live in there like a spiteful hermit for the next 40 years, Uncle Sam would be throwing you out in THREE. You are still, ALWAYS paying for the land. If you REALLY owned it, then Uncle Sam couldn't throw you out. Guess what. You don't really own it!! Mike B.
Registered: 1122212985 Posts: 1,440
Reply with quote #8
Interesting idea to compare ad valorem property taxes to land lease payments. I like new ideas. I’ll want to think about this and see if it generates some new insights for me. Thanks.
Now, let’s try to be accurate here. The property taxes that one pays are local taxes, not federal taxes, nor even state taxes. So, don’t be making out “Uncle Sam” as a taker of your property for nonpayment of taxes.
“ Guess what. you don't really own it[your property]!!”
Well, yes, you do own it. It just that with ownership there is a frequently-discussed “bundle of rights” that goes with it. And there is a corresponding “bundle of responsibilities,” this concept not really being talked about much. And paying the taxes is a responsibility of ownership. If you don’t fulfill your responsibilities, thre are consequences. Foreclosure on the tax lien.
Some other responsibilities:
You must maintain any dwelling unit in a safe and inhabitable condition. It can be condemned and torn down if you don’t.
You can not be producing environmental contamination on the property.
You can’t be running a criminal operation on the property, especially drug activity.
And so on. And there will be consquences if you don't fulfill your responsibilities.
Good Figuring It All Out**********Ron Starr**********