how to finance land

How to Finance Land.

A purchase of unused land is generally harder to finance than a parcel with an existing property, largely because most lenders find these types of loans to be too risky. While getting financing for a land purchase is certainly possible, you will need to do your homework and be able to convince the lender of your ability to repay the loan. This will require submitting a large amount of information about the property and your plans for it. Once you've gathered the information you need, you'll be able choose the type of loan that's right for you and finally purchase the land you want.

Method 1 Planning Your Land Purchase.

1. Have the land professionally surveyed. After you have chosen the right parcel of land for your purposes, you will need to have the land surveyed to determine its dimensions and property lines. A survey will also reveal any easements for access to the property, which refers to neighbor's rights to travel through the property. Right-of-way issues are often critical to open plots of land because they are important for the purposes of improving or using that land over time and may affect your ability to get a loan. For more information on having land surveyed, see how to get a land survey.

In some cases you may be able to simply ask for a recent land survey from the seller.

2. Examine the relevant zoning laws. Go to municipal offices and look through zoning records to get a better idea of how a desired plot of land could be legally used. If your intended use for the land is not allowed by zoning laws, you may be able to apply to seek a zoning change from the municipal government.

You may also wish to secure any flood or hazard warnings relevant to the land. A potential lender may ask for these documents.

3. Evaluate any improvements on the land. Improvements are any existing or planned man-made additions to the plot of land. Adding improvements to the land or detailing planned improvements for the land may help you secure financing.

It may be easier to secure financing if you plan to build structures on the land. These could be residential or commercial structures, depending on your needs and zoning laws. In order to secure financing more easily, have an architect draw up plans for whatever kind of structure you want to build. You may also wish to contact a general contractor for an estimated cost of building the structure. Note that 100% financing packages are rarely available for raw land, even those expected to be developed. Lenders will expect you to have a stake in the financing as well.

Whether a piece of land is close to water and sewer utilities may affect its value. Other types of access may also make a huge difference in valuation, and may affect a financing deal. If there are no utilities already installed on the land, contact the utility companies that service the area for an installation estimate.

Even if there is no building on the land, existing wells, trails, roads or other items may increase the perceived value of the parcel. Any perceived improvement in value will make financing easier to get.

4. Look for various ways to produce asset value on land. Perhaps the most common one for unimproved land is timber value. Sellers and buyers often identify timber value for a piece of forested land in land calculations. This value may also influence a financing deal by convincing the lender that you will be able to profit from the land.

Grazing or farming rights may be another way to earn money on a piece of land.

5. Compile your information. You'll need to put the information about the land and your plans for it together in a sort of loan application, sometimes known as a land portfolio. The more information you have, the better "story" you will be able to tell the lender and the higher your chances of securing financing. Your land portfolio should also include information about your creditworthiness (like a credit report or score).

Method 2 Financing the Land Purchase.

1. Consider hiring a lawyer. Before taking any action, especially if you are purchasing completely raw land, consider hiring professional legal help. Hiring a real estate attorney will ensure that your rights are protected during the bidding process for purchasing the land and during the financing process. A good attorney will also be able to help you with price negotiations.

2. Make an offer on the land. Before you can purchase your property, you will need to make an offer on the land and have that offer accepted by the seller. This process can be very simple, but can also follow a relatively complicated bidding process. For more information on the actual buying process for land, see How to Buy Raw Land. It may also be in your best interest to ask for an exclusive option on the property for a period of time so you can pursue financing, etc. Having an option is better than owning, since there is less money involved.

Before submitting an offer on the land, be sure that you have the proper permits and any requisite insurance. Ask your lawyer for assistance in this matter.

3. Contact potential lenders. If your offer is accepted by seller, you now will have to find a way to finance your purchase. Start by contacting potential lenders like local banks and credit unions to request a loan interview. Meet with these lenders and present your land portfolio. With enough salesmanship and good credit, along with a good land portfolio, you might be able to get a loan through one of these institutions.

4. Consider other financing options. With some land types, especially raw land parcels, it may be very difficult to secure funding from a financial institution. Luckily, there are a bevy of other financing options available. The land serves as collateral for loan; additional security might come from downpayment in place of other assets. Be aware that some financing options may be more expensive than borrowing from the bank, so consider your options before setting down any of the following paths.

One option is owner financing. This essentially allows you to gradually pay the seller of property directly, rather than going through a lending institution. This will generally require a large down payments to secure the trust of the seller. Like any bank loan, owner financing will be secured by legal documents. Contact the seller of the property to see if they are willing to do this financing option.

Another option is through a private-party loan. This will require you to find a friend or family member willing to loan you money. These loans can be secured with collateral (the lender takes possession of a house or car if you default) or unsecured.

Additionally, if the land is being purchased for a specific purpose, like for farming or commercial use, you may be able to apply for government loans. Specifically, the Small Business Administration (SBA) offers loans specifically designed for the purpose of purchasing land and the United States Department of Agriculture (USDA) offers land loans to farmers who fail to qualify for traditional loans. See their respective websites or contact your local SBA or USDA offices to learn more.

5. Compare your financing options. Estimate the total costs of each loan and compare them against each other. Generally, owner financing will be the cheapest option, unless you have great credit and are able to secure a low-interest bank loan. Also think about the durations of the loans; you don't want to take a great interest rate but be stuck paying it off for many years. Choose a loan that you can afford and, if you're utilizing your land for profit, one that will allow you to earn money in the long run.

6. Choose a loan. Select which loan works best for you and pay the down payment. Be advised that in many cases, this down payment may be as high as 20 to 50 percent of the value of the property.

November 28, 2019

How to Finance Land

How to Finance Land.

A purchase of unused land is generally harder to finance than a parcel with an existing property, largely because most lenders find these types of loans to be too risky. While getting financing for a land purchase is certainly possible, you will need to do your homework and be able to convince the lender of your ability to repay the loan. This will require submitting a large amount of information about the property and your plans for it. Once you've gathered the information you need, you'll be able choose the type of loan that's right for you and finally purchase the land you want.

Method 1 Planning Your Land Purchase.

1. Have the land professionally surveyed. After you have chosen the right parcel of land for your purposes, you will need to have the land surveyed to determine its dimensions and property lines. A survey will also reveal any easements for access to the property, which refers to neighbor's rights to travel through the property. Right-of-way issues are often critical to open plots of land because they are important for the purposes of improving or using that land over time and may affect your ability to get a loan. For more information on having land surveyed, see how to get a land survey.

In some cases you may be able to simply ask for a recent land survey from the seller.

2. Examine the relevant zoning laws. Go to municipal offices and look through zoning records to get a better idea of how a desired plot of land could be legally used. If your intended use for the land is not allowed by zoning laws, you may be able to apply to seek a zoning change from the municipal government.

You may also wish to secure any flood or hazard warnings relevant to the land. A potential lender may ask for these documents.

3. Evaluate any improvements on the land. Improvements are any existing or planned man-made additions to the plot of land. Adding improvements to the land or detailing planned improvements for the land may help you secure financing.

It may be easier to secure financing if you plan to build structures on the land. These could be residential or commercial structures, depending on your needs and zoning laws. In order to secure financing more easily, have an architect draw up plans for whatever kind of structure you want to build. You may also wish to contact a general contractor for an estimated cost of building the structure. Note that 100% financing packages are rarely available for raw land, even those expected to be developed. Lenders will expect you to have a stake in the financing as well.

Whether a piece of land is close to water and sewer utilities may affect its value. Other types of access may also make a huge difference in valuation, and may affect a financing deal. If there are no utilities already installed on the land, contact the utility companies that service the area for an installation estimate.

Even if there is no building on the land, existing wells, trails, roads or other items may increase the perceived value of the parcel. Any perceived improvement in value will make financing easier to get.

4. Look for various ways to produce asset value on land. Perhaps the most common one for unimproved land is timber value. Sellers and buyers often identify timber value for a piece of forested land in land calculations. This value may also influence a financing deal by convincing the lender that you will be able to profit from the land.

Grazing or farming rights may be another way to earn money on a piece of land.

5. Compile your information. You'll need to put the information about the land and your plans for it together in a sort of loan application, sometimes known as a land portfolio. The more information you have, the better "story" you will be able to tell the lender and the higher your chances of securing financing. Your land portfolio should also include information about your creditworthiness (like a credit report or score).

Method 2 Financing the Land Purchase.

1. Consider hiring a lawyer. Before taking any action, especially if you are purchasing completely raw land, consider hiring professional legal help. Hiring a real estate attorney will ensure that your rights are protected during the bidding process for purchasing the land and during the financing process. A good attorney will also be able to help you with price negotiations.

2. Make an offer on the land. Before you can purchase your property, you will need to make an offer on the land and have that offer accepted by the seller. This process can be very simple, but can also follow a relatively complicated bidding process. For more information on the actual buying process for land, see How to Buy Raw Land. It may also be in your best interest to ask for an exclusive option on the property for a period of time so you can pursue financing, etc. Having an option is better than owning, since there is less money involved.

Before submitting an offer on the land, be sure that you have the proper permits and any requisite insurance. Ask your lawyer for assistance in this matter.

3. Contact potential lenders. If your offer is accepted by seller, you now will have to find a way to finance your purchase. Start by contacting potential lenders like local banks and credit unions to request a loan interview. Meet with these lenders and present your land portfolio. With enough salesmanship and good credit, along with a good land portfolio, you might be able to get a loan through one of these institutions.

4. Consider other financing options. With some land types, especially raw land parcels, it may be very difficult to secure funding from a financial institution. Luckily, there are a bevy of other financing options available. The land serves as collateral for loan; additional security might come from downpayment in place of other assets. Be aware that some financing options may be more expensive than borrowing from the bank, so consider your options before setting down any of the following paths.

One option is owner financing. This essentially allows you to gradually pay the seller of property directly, rather than going through a lending institution. This will generally require a large down payments to secure the trust of the seller. Like any bank loan, owner financing will be secured by legal documents. Contact the seller of the property to see if they are willing to do this financing option.

Another option is through a private-party loan. This will require you to find a friend or family member willing to loan you money. These loans can be secured with collateral (the lender takes possession of a house or car if you default) or unsecured.

Additionally, if the land is being purchased for a specific purpose, like for farming or commercial use, you may be able to apply for government loans. Specifically, the Small Business Administration (SBA) offers loans specifically designed for the purpose of purchasing land and the United States Department of Agriculture (USDA) offers land loans to farmers who fail to qualify for traditional loans. See their respective websites or contact your local SBA or USDA offices to learn more.

5. Compare your financing options. Estimate the total costs of each loan and compare them against each other. Generally, owner financing will be the cheapest option, unless you have great credit and are able to secure a low-interest bank loan. Also think about the durations of the loans; you don't want to take a great interest rate but be stuck paying it off for many years. Choose a loan that you can afford and, if you're utilizing your land for profit, one that will allow you to earn money in the long run.

6. Choose a loan. Select which loan works best for you and pay the down payment. Be advised that in many cases, this down payment may be as high as 20 to 50 percent of the value of the property.

November 28, 2019

How to Build a Diversified Portfolio

How to Create a Profitable Property Portfolio.

You've been thinking about investing in property. Although investing in real estate can be an overwhelming thought for some people, it can also bring great rewards. You may want to consider investing as a way to create cash flow or build a nice nest egg. Becoming profitable in investing requires a certain degree of skill and know-how, but once you stick your toe in the water, you may become hooked.

Method 1 Planning and Researching.
1. Know why you’re buying. Before you buy an investment property, you need to consider your investment strategy. Put some thought into what type of investment interests you and meets your needs. Perhaps you would like to diversify your holdings besides stocks and bonds. Maybe you would just like to build your wealth or improve your cash flow. Whatever your reasons are for wanting to invest, it is good to be clear on them before you start. A few common reasons for investing in real estate include the following:
You want to increase your current income. Getting a monthly rent check, for example, can give your income a boost.
You're interested in capital gain — buying a property and later profiting from its sale.
You want to take advantage of the tax write-offs that come with real estate investments.
2. Learn about the various types of real estate investments. Ask yourself how much time you are willing to invest in managing the property, and whether you have the necessary skills to manage the property. Different types of investments have different risks and rewards, so it's important to consider which type of investment best meets your needs. Consider these investment choices:
Raw land investments. Raw land requires little management and has the potential for big appreciation if it's in an area that becomes attractive to developers. However, there is limited cash flow from this investment through leasing to farmers/ranchers short term, mineral royalties if included in purchase, or appreciation. Also, government restrictions on how the land may be used can impact its value.
Residential real estate investments. Fixing up a residence and "flipping" it is a popular type of investment. The profitability of this type of investment is dependent on the state of the local housing market; location is very important.
Commercial real estate investments. Investing in commercial real estate, such as an apartment building, office building, or retail building, can yield a steady flow of cash, since you'll be getting a regular rent check from your tenants. However, the property requires significant upkeep to make sure it's up to code. You also run the risk of getting bad tenants who damage the property or do not pay rent on time.
3. Decide whether to flip or hold the property. "Flipping" generally applies to residential properties that are purchased, improved, and sold for higher price. Most real estate requires long term holding, and is not conducive to short-term trading. When considering what type of investment to make, determine which situation works best for you.
Consider whether you need additional income now or in the future.
Review your short- and long-term financial goals and if bringing in income now makes sense for you.
Factor in your income tax bracket and how that could be adversely affected by bringing in more income.
Consider the real estate market and if it is rising or falling at this time.
Evaluate your financial situation and see if you have other income that you can tap into if your rental properties become vacant.
Think about your available time and capabilities to manage or improve properties. Using third parties for such services may decrease expected return.
4. Obtain statistics on the town in which you are considering investing. Check the local state government website about the area you are targeting to see how it compares to other locations. It is important to have as much information and knowledge as possible on property investing before you dive in.
Find out the local median income.
Research the population growth of the area.
See what the unemployment statistics are in the area.
Check to see if the community is continuing to grow.
Find out what the real estate taxes are compared to nearby towns.
See if there is a supply and demand of rentals in the area.
Check out the schools to see how good they are.
5. Research online or take a course. A lot of research can be done online, but you may also check your local directory and sign up for a reputable real estate investment course or seminar. Make sure you bring some paper and a pen so you can jot down notes as you listen to the experts speak.
6. Work with a local realtor, property investor, or developer who also invests in real estate. Someone who has been investing on his own will know the pitfalls from his own first hand experience. A realtor with substantial knowledge in investing can teach you as you go along and help make you feel more comfortable with the process. However, remember the money you are investing is yours, not the realtors, so trust your intuition.

Method 2 Pinpointing your Property Needs.
1. Decide on your location. When you are searching for your investment area, look for a place that has clear signs of growth and economic stability. If you aren’t familiar with the area, take a drive around the town or city and get to know it. Check to see if there is adequate shopping and amenities close by. If you like the area and what it has to offer, chances are your renters will too.
2. Pick the right property. See if the properties you are interested in have desirable features, like a great view or ample parking. If so, take that into consideration. There are other issues to consider when picking your property, as well.
If you're deciding between investing in a house or an apartment, keep in mind that houses seem to have a better capital growth rate and apartments tend to have a better rental yield.
Also, the quality of the neighborhood in which you buy will most likely influence the type of tenants you attract. For example, if you buy near a college, you may be renting to students. There is a possibility of vacancies in the summer when the students return home.
Make sure you find out what the property taxes are. Take into consideration that high property taxes may not be such a bad thing if the property is in an excellent area and suited for long-term tenants.
Check to see if the area has any criminal activity. Go to the local police department to learn about the specific area you are interested in. Things to ask about might include vandalism, gang activity or any recent serious crimes. You have a better chance of finding out the facts from the police department, than from the person selling you the property.
Make sure the property isn't in a natural disaster zone. The insurance on the property can get pricey if you are in a questionable area so it is worth checking into. Many property owners are underinsured for natural disasters which can lead to devastating property loss in the event of a major storm or earthquake.
3. Have your property inspected by a professional inspector. You want to make sure the property is in good shape and has up-to-date repairs. You are looking for a property that, with a few minor repairs, will attract tenants who are willing to pay higher rents. In addition, find a contractor who you trust to give you the right advice on any repairs that may be required, especially for older properties. There are some things that you can check yourself, however.
Check the drains to make sure there are no problems with flooding.
Open and close all the windows to make sure they are in working order.
Turn on all the faucets to make sure they are working.
Light a fire in the fireplace to see if it's working.
Flush the toilets to make sure they flush properly.
Open the electrical panel and make sure there are no loose wires.
Turn on the heat and air conditioning to see if they work.
Make sure there is no basement moisture as this can be a sign that there is a more serious problem.
Pull the carpet back to see if there are hardwood floors underneath.
4. Know your target tenant. If you're investing in commercial real estate, your choice of tenant should influence the type of property you buy and where you decide to buy it. For example, families with children will potentially be interested in different amenities than young, single people.
See if the property is near any schools.
Check to see if there are any parks in the neighborhood.
See if the shops and cafes are within walking distance.
Find out how close the transportation options are.

Method 3 Examining the Finances.
1. Check into your credit history. Make a plan to get your credit in better shape if necessary. Having a good credit score will help you secure a loan with better terms. If your credit is compromised, check your local listings for agencies or nonprofit organizations that can help you clean it up.
2. Decide how you will finance your property. There are several ways to begin investing in your property portfolio. You may consider selling an asset or refinancing a property to get the funds. If you're investing in raw land, it's common to get financing from the seller. You may also choose to take out bank loans to finance your property.
If you have the money, you can pay all cash, or you can put down a percentage and get a loan for the remaining amount.
There are different loan requirements depending on the bank and your financial history.
3. Visit with a mortgage broker or your bank. Find out how much money you can afford to borrow responsibly for your investment. The quickest way to find out if you can afford a loan is to ask the bank. If you get a "no" from your bank, then consider trying another one as each bank is different in their approach. You may also consider looking into a credit union or a smaller bank to get your loan through.
4. Find properties that produce positive cash flow. Unless the property has good cash flow, there is really no reason to consider purchasing it. Examine the financials on the property to make sure it is supplying a good source of income. The rent you receive from your tenants should be enough to pay all of your expenses, including your mortgage payment, utilities, property taxes, and insurance.
This excludes raw land investments, which generally yield no income unless leased for farming or another purpose.
5. Examine your investment expenses. A common mistake first time investors make is underestimating their expenses. Rental buildings are always needing touch ups and repairs. There are several areas of expense to factor in when considering your purchase. The amounts will vary depending on the property.
Water and sewer, Garbage, Utilities, Legal fees and accounting, Evictions, Vacancies, Scheduled maintenance.
6. Consider hiring a property manager. You may want to factor in a salary for a property manager if you don’t have the personality, skills, and availability to manage your own property. There are many benefits to hiring a property manager.
The manager advertises and rents for you and will show your property when vacancies arise.
The manager meets with prospective tenants and handles all of your lease agreements.
The manager collects the rent from the tenants and performs the move-in and move-out inspections.
The manager deals with all the tenants complaints.
The manager serves legal notices in the case of a dispute and starts the eviction process if necessary.
The manager usually has a list of reliable contractors that he or she has used before.

FAQ.

Question : How would I stay up to date on pertinent laws, regulations, and real estate terminology?
Answer : Become a member of an apartment owners association. If they are very large, they will send you magazines that have all the new problems that laws are causing for home owners and what they need to do to avoid these problems.

Tips.
Take your time doing the research. Rushing into a property purchase without significant knowledge may bring unwanted results.
If you are considering buying with a partner, make sure you have a proper partnership or joint venture agreement.
Don’t be afraid to walk away if the deal isn't working out.
Stay up to date with pertinent laws, regulations and real estate terminology.
Understand the risk you are taking when becoming a real estate investor. Success is not always guaranteed.
Find a mentor, lawyer or a supportive friend that has experience in investing to bounce your ideas off of.

April 01, 2020