The internet is full of strategies on how to invest in raw land and why its so important. Seldom do I see n author breakdown a simple strategy of how to exit land holdings to upgrade to an real estate income or growth opportunity. Here’s the conundrum: after paying off all your debts early in life you were finally able to save. A family member tells you about a great land investment opportunity so you need to act now! The land is cheap, taxes are minimal, and maintenance nearly nonexistent. Then a decade goes by. “What’s happening with your land” your family member asks. Nothing. It’s sitting there doing nothing. Sure maybe it appreciated . . . a little. So what now? You decide you would like sell or exchange the land to get a better return on your money. But how? It’s not worth much. HERE’S a solution most experienced investors have shared with me. Think of your land holding like a checkbook. But your not done there. Instead they say, go for the 3 Times Trade. Here’s what that means. Let’s say your land property has a value of $25,000. Next, you find a list of houses selling for $100,000. Three times the value of the land. Next, make offers to sellers till you find one that will accept your land as a down payment for the house. Next, bring your purchase and sale agreement to your banker, mortgage broker or private lender. Request a mortgage for $75,000 to close on the remaining deal. Why would the lender be willing to make this loan? Because the seller is already giving you credit for the land as a $25,000 down payment! The house is only 75% mortgaged leaving 25% of the house in the clear. You just turned the land into $25,000 of equity!
Another way of using this formula if you want a less expensive house si to go for the 2 Times Trade. In this example your land is worth $25,000. Next, you make a list of houses worth $50,000. Next, you find a seller that will accept your land as a down payment. Next, you bring the purchase and sale agreement to your lender and request a $25,000 mortgage to close on the house. The first $25,000 represents half down in this transaction which means you are turning the land into . . . $25,000 of equity! Why would the lender do this? Because you are only mortgaging the house by 50%. Most lenders will see this as a great deal because when you close you will have 50% equity in the house!
New possibilities now become available with the house that weren’t available with the land. Renting, house-flipping, Air B&B, home squatting just to name a few! These are two quick examples of how to exit out of land and step up to another asset class of real estate.
If you know of someone sitting on a piece of land and they aren’t sure what to do Share this article with them!