Real Estate: Financial Considerations $$$

Raw land as opposed to improved property is much more difficult to finance through traditional lenders. The main reasons are that it generates very little income, development costs can be expensive, there are no buildings or improvements that can be used as collateral, and it is often considered speculative.

For those reasons mentioned we find that sellers are often our first choice regarding financing. It is typical for a seller of raw land to accept 10 percent down and the rest to be paid over time at a specified (below market) interest rate. This would be an example of an installment land contract. Other forms are contract for deed, mortgage and note and purchase money mortgages. In these cases, a real estate attorney usually drafts these contracts and a bank will act as an escrow agent to facilitate verifiable records of payments received. The seller often retains the deed until the property is paid for in full.

If you want to investigate bank financing, then you may start out by offering 30 percent down with a seven-year mortgage, with the bank getting an extra percentage point over and above the current interest rates for standard loans. This may not be accepted, but it does give you a starting point to see just what they may be willing to do.

If you plan on building on your land, then having a development plan with an appraised set of blue prints for the project will help the lender in justifying your loan. If you can use equity from other property, then paying substantial down payments may also be an option.

Final words of caution here are to know values and don't overpay. Always offer less when possible and research recent sales of comparable properties. The larger a parcel is, the cheaper it tends to get per acre. Ask an agent what an acre of land tends to go for in the area that you are considering; try to buy more than one acre.

When buying residential lots, builders try to keep raw land costs down to 10 percent of the overall value of the project. If streets and utilities are already in place, then they will use 25 percent as their guideline. If you can combine or assemble parcels or achieve zoning changes with property, you have a good chance of immediately 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's potential to satisfy your objectives. Happy Hunting and buy the high grounds!

About The Author

By Dan Auito, mailto:magicbullets@alaska.com, a real estate investor for the past fifteen years & has bought, sold, and rented seventeen properties to date, totaling more than $1.3 million - all on a blue-collar salary before the age of forty. Grab your free tip sheets & more at: http://www.magicbullets.com/home.php

MORE RESOURCES:

ERA Pacesetter closes real estate business - Bizjournals.com

Learn to Profit from Real Estate - Even in Tough Markets - MarketWatch

Tokyo Replaces Shanghai as Best Asian City to Buy Real Estate - Bloomberg

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Nokomis Real Estate Ventures LLC files bankruptcy petition - Bizjournals.com

Citigroup Said to Cut Most of Asia Real Estate Team After Slump - Bloomberg

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Neuberger Berman Real Estate Securities Income Fund Inc. Announces ... - MarketWatch

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UPDATE 2-Sibir market value halves on real estate buy - Forbes

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Icahn Sues Real Estate Company Over Debt - New York Times

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://news.google.com/news/url?sa=Tct=us/7-0fd=Rurl=http://www.nytimes.com/2008/12/03/business/03realogy.html%3Fref%3Dbusinesscid=1276968847ei=Pxc3SavKMZjI9AS_3LmnDwusg=AFQjCNGsO7PrSCzJaxKuwBruPo_6buV5GQIcahn Sues bReal Estate/b Company Over Debt/abrfont size=-1font color=#6f6f6fNew York Times,nbsp;United Statesnbsp;-/font nobr23 hours ago/nobr/fontbrfont size=-1Mr. Icahn’s investment firm filed a lawsuit last Wednesday against a breal estate/b company controlled by Leon D. Black, a prominent Wall Street buyout b.../b/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/7-1fd=Rurl=http://www.reuters.com/article/ousiv/idUSTRE4B27IQ20081203cid=1276968847ei=Pxc3SavKMZjI9AS_3LmnDwusg=AFQjCNGzl0DcPNCOkqOTM8x2x0fhTLaPEgIcahn sues Realogy over debt deal/a font size=-1 color=#6f6f6fnobrReuters/nobr/font/fontbrfont class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1276968847hl=ennobrall 21 news articles/nobr/a/font/div/font/td/tr/table

Whitehall Funds Lose Their Luster - Wall Street Journal

table border=0 width= valign=top cellpadding=2 cellspacing=7trtd valign=top class=jfont style=font-size:85%;font-family:arial,sans-serifbrdiv style=padding-top:0.8em;img alt= height=1 width=1/divdiv class=lha href=http://news.google.com/news/url?sa=Tct=us/8-0fd=Rurl=http://online.wsj.com/article/SB122826598899374457.html%3Fmod%3Dgooglenews_wsjcid=1277094278ei=Pxc3SavKMZjI9AS_3LmnDwusg=AFQjCNGJAah9AXaBvOH-ZOzZX9JusVUtYAWhitehall Funds Lose Their Luster/abrfont size=-1font color=#6f6f6fWall Street Journalnbsp;-/font nobr18 hours ago/nobr/fontbrfont size=-1By ANTON TROIANOVSKI and LINGLING WEI Goldman Sachs Group Inc.#39;s Whitehall family of breal-estate/b funds is struggling with weak performance and potentially b.../b/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/8-1fd=Rurl=http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSN0351371720081203cid=1277094278ei=Pxc3SavKMZjI9AS_3LmnDwusg=AFQjCNFBXM3dak1Q6w5064rT_IUX_lm1ewGoldman Whitehall head warned of firm#39;s exposure/a font size=-1 color=#6f6f6fnobrReuters/nobr/font/fontbrfont size=-1a href=http://news.google.com/news/url?sa=Tct=us/8-2fd=Rurl=http://www.reuters.com/article/marketsNews/idUSBNG24933320081203cid=1277094278ei=Pxc3SavKMZjI9AS_3LmnDwusg=AFQjCNGyzrBQkLrBFMeYq-nKalmYlMiqWwGoldman Whitehall funds hit by property slump-WSJ/a font size=-1 color=#6f6f6fnobrReuters/nobr/font/fontbrfont class=p size=-1a class=p href=http://news.google.com/news?sourceid=navclientie=ISO-8859-1rls=GGLG,GGLG:2005-22,GGLG:enncl=1277094278hl=ennobrall 12 news articles/nobr/a/font/div/font/td/tr/table

Freedom Interactive Launches New Real Estate Vertical - Destin Log and Walton Log

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