Real Estate: Financial Considerations $$$

You have permission to publish this article electronicallyor in print, free of charge, as long as the bylines areincluded. A courtesy copy of your publication would beappreciated - send to: magicbullets@alaska.comReal Estate: Financial Considerations $$$Raw land as opposed to improved property is much more difficultto finance through traditional lenders. The main reasons are thatit generates very little income, development costs can beexpensive, there are no buildings or improvements that can beused as collateral, and it is often considered speculative.For those reasons mentioned we find that sellers are often ourfirst choice regarding financing. It is typical for a seller ofraw land to accept 10 percent down and the rest to be paid over time ata specified (below market) interest rate. This would be anexample of an installment land contract. Other forms are contractfor deed, mortgage and note and purchase money mortgages. Inthese cases, a real estate attorney usually drafts thesecontracts and a bank will act as an escrow agent to facilitateverifiable records of payments received. The seller often retainsthe deed until the property is paid for in full.If you want to investigate bank financing, then you may start outby offering 30 percent down with a seven-year mortgage, with the bankgetting an extra percentage point over and above the currentinterest rates for standard loans. This may not be accepted, butit does give you a starting point to see just what they may bewilling to do.If you plan on building on your land, then having a developmentplan with an appraised set of blue prints for the project willhelp the lender in justifying your loan. If you can use equityfrom other property, then paying substantial down payments mayalso be an option.Final words of caution here are to know values and don’toverpay. Always offer less when possible and research recentsales of comparable properties. The larger a parcel is, thecheaper it tends to get per acre. Ask an agent what an acre ofland tends to go for in the area that you are considering; try tobuy more than one acre.When buying residential lots, builders try to keep raw land costsdown to 10 percent of the overall value of the project. If streets andutilities are already in place, then they will use 25 percent as theirguideline. If you can combine or assemble parcels or achievezoning changes with property, you have a good chance ofimmediately increasing its value. Always physically inspect the property and do your research before obligating yourself to buy it. And try using contracts with contingencies put in to protect yourself. In essence, these are really options that let you control the deal while you investigate and research the land’spotential to satisfy your objectives. Happy Hunting and buy thehigh grounds!