Turning Raw Land into Equity

raw-land

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!

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California Assoc. Of Realtors EXPO2016!

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