I skip the the captain. And if any of you remember or had kids that watched this show called The Suite Life of Zack and Cody.
Because we kind of feel like we’re living that life, we’ve been here for seven days and looks like we’re going to be here for eight, so we feel like we’re living the sweet life of Mike and Shana.
Good. And the topic we are discussing right now is how to structure a land deal.
And this question was asked to us by a by an agent was to real estate. So thank you for asking that, Kimberly. Kimberly Miller, actually. So thank you for that shout out, Kimberly.
So Kim has a client, and it kind of brought this to my attention that I think we have several clients now that are our residential properties are in high demand and it’s very competitive.
How to Structure a Land Deal
We’re starting to see people go in search for lots of vacant land who they can build their own their own home if they have the time. It’s a good idea. So there’s a lot of aspects to, you know, that type of transaction. OK, so you can have a a property that has lots of land or you can just have them buy individual lots.
Now, in the master plan communities, typically all of the lots are purchased by a builder and you’re kind of you’re kind of bound. If you want a specific lot, then you have to go with that builder. But I wanted to make sure that everyone knew how to search for, you know, raw land.
So in your Ntreis and you go under search, there’s residential properties, farm and ranch land, you know, various different categories that you can search. So you go in there and you can look for land. I would select land and farm and ranch, you know, if if they’re looking for acreage and see what comes up. And then once you find something, you know, you can add that to a client search and they can kind of say, OK, well, you know, I’m not finding any residential properties. I’m going to add just lots and see what comes up. And you would be surprised there are lots available.
So they may have to go outside of the of the suburban area just to hear. Not much, but I think it’s a good way for you to maybe have that conversation with your client and give them that suggestion, OK, if they’re becoming very frustrated with not being able to find a home and then add them into the mix and try that. So we want to talk about a couple of things that may be different when you are doing a lot or raw land deal versus a residential property, right?
Yeah. So you’re asking here some of the notes we would talk about is where to search for the lot. So we covered that. What contract to use diligence and financing options for what?
Ok, so your contract is in your if you’re opposed to real estate, part of the Acquisto Real Estate family, your zip forms template will be vacant lot, and that’s the contract that you would use.
So you have a template set up for that already. So it is an unimproved property contract. Yes. So basically it’s the same as residential. You’re just taking away the structure and improvements. OK, so it’s pretty simple, but you need to do a little bit more due diligence for your client.
So if they’re going to buy a lot, there’s several things that you need to know. OK, what are the deed restrictions? What restrictions are there in this development? Is there an way or what kind of you know, are there covenants or what what do they want to do with this property? And then you need to make sure that they can do that. So maybe they want to build a home and a guest home.
OK, well, you need to find out if they’re allowed to do two different structures. So you need to ask the question of your client, what are your plans for this property? OK, and you need to also make sure that utilities are brought to the property. If not, it’s very expensive. Right. The location, I think, is the most important. You need to know where this property is located.
Make sure that you map it out and do all those things just as you would do in a typical residential property. But know where that lot is. Are there any underlying factors that in the future could be problematic when you go to sell? That’s a really good price or more build.
You’re talking about like power lines, easement access points, what’s behind you? Right. Is there some new sense that’s coming in? Is there an open space that’s going to become townhouses, a Wal-Mart or a storage unit or something?
And I would dump environmental hazards such as, well, natural hazard. Stu, is it in a flood zone? Is it on a fault line, is it is.
We have our natural resources there, we’re currently dealing. Yeah, yeah, Sub-surface, you know what type of you know, there’s so many things and then the taxes.
Right. Is there an opportunity to have any type of exemption as far as ag exemptions or, you know, any type of tax savings that maybe they could take advantage of? So there’s oodles and oodles of things that you need to ask when
you’re starting. You’re so you’re taking it a step back and starting really from scratch.
So often you can secure this piece of property and in total, it’s probably going to be more expensive.
So if you’re asking me directly, hey, what if I buy my own lot? Well, the reason the person selling it to you is because they want to make a profit. And what if I bring in my own builder, probably more expensive than the builder making a little bit of money on the lot and purchasing them. Put it all together. So you’re probably going to be paying a premium in short. But if you want it, then you can get it.
And I would understand their budget. OK, so there’s a couple of things to that. Financing, financing, different. There’s different options available. Sometimes it’s difficult to get a loan just on a lot of the. So you need to find out what their financing situation is and if they have their own builder or if they need to find a builder and maybe you can incorporate it all into a construction loan. I mean, there’s just there’s many variables to that that you want to be careful with and then they’re going to start talking about financing will be super important because of that.
And then the construction financing and it to term or is it a take out loan? And there’s a lot of things with financing in general. Some it can be built in the home. Think I’m putting a bunch of money down and if they’re like, oh, I want one hundred percent financing, I want to do all that on my own.
Maybe Paris and Stacy brought up square footage.
There’s a property, Gunnar, Gunar, not Guntur people it’s gonner but in gonner that they require the home to be a specific size. Right. So just when you go to do that, let’s talk about it.
Let’s make sure that we don’t you know, that we we properly care for our client and ask the right questions and take care of them. Could be new for them. The other thing I was going to mention earlier is there’s kind of a rule of thumb of your lot when you’re paying for a lot and then you make the improvements on it.
What percentage of the what is the value of the lot in the overall project? And that kind of keeps you in check so you don’t over improve or do something kind of crazy if somebody is selling the lot and all of a sudden it’s triple the amount of what it should be and then you put your improvements on it, you can really be over the top for that particular community. Anything about that?
Yes. And then there’s a couple of other factors. So for land, it’s supposed to be the valuation in a typical situation in a normal subdivision, like if everything’s perfect, the land is supposed to be 20 percent or one fifth to twenty five percent or a fourth of it.
So whatever amount you pay for the land, so assume that you pay one hundred thousand dollars for the land, then the improvements upon that land should be four hundred thousand dollars ish and then you should come to five hundred thousand total for the total value of the property. If you find yourself going outside, then it’s not a traditional setting it inside a traditional setting, then you’re probably over improving that. If the property happens to have something like a tremendous amount of lake frontage and maybe you don’t have comps.
But if you have something that’s highly desirable, that’s kind of rare and sought after, then then you might be OK to go up just a little bit.
Yeah. So I’m looking at fifty fifty if you want to buy a lake and come on out to the Rock and Star Ranch and we will help you out. We have premium like lots available for you and we will do a premium premium property. But just know that you’re going to be at about 50 percent, half of the land and half a home. And that’s because the views are spectacular.
And you have water and you have access and you have privacy. And in those particular situations, you will pay more for the land because of the uniqueness in the scarcity of land. Did you know they’re not making any more land? What? You know, that’s a no. It’s a scarcity thing. There’s no more of it being made. In fact, there’s actually less of it now than there was just a while ago because of conservation.
They’re not making there’s not more time to be made. So, yeah, there is.
You can get a time machine. A personal time machine. What’s that? A plane. A plane. You buy your own plane and that’s a time machine. I would love to have my own plane. Well, maybe my next life. Well, we’ll get there. We’re
working on it for your wife. All right. So. Anyways, those are all different factors in buying your own lot, and that’s specifically about a lot. Then from there it would get larger. So you would go from a lot to a to more land it maybe like a farm and ranch.
So there’s a different contract for that. Right. If it goes to so many acres, if it’s 10, 10 acres is kind of the pivoting point. Anything up to ten, you can get a typical loan.
Anything above 10 acres. Then it becomes a little more challenging and different type of what we have to go kind of a farm, farm and land company.
And then we ran into a couple of issues with our property out in McKinney because it is technically unincorporated. So there are certain banks that don’t want to lend there because it is operated and it doesn’t have certain things. So it does have sewer. And no, it does have water and gas and electricity, but not sewer. So it does have its own septic system and that’s totally fine. But there are certain lenders that are out and they want it to be an unincorporated area and part of a city in which we are not. We are part of the county.
So certain lenders benefits. So not only does the restrictions are, you know, so there’s no building plans, restrictions, but on the flip side, you’re paying for it.
Yes. So those are some real things if it’s not in certain areas for loans, and then sometimes they want the land to be a certain size. So we have a challenge because that property in particular is just about seven acres. So it’s seven acres. The home the land value is a certain amount of the property man. So it’s tough to show certain things. And some people don’t want to lend on so much land, but want to lend on more like 11 acres than it would be a little bit easier. So how do you solve that, señor?
You just buy more land. I don’t just buy it all, we once heard that from a very inspirational individual and let’s call them Arien. So you said just buy it online and you won’t have to worry about that, OK? And with that, I think we are good.