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#4755826 - 05/13/18 11:32 AM How to pay for undeveloped land?
Mantooth Offline


Registered: 07/26/15
Posts: 506
Loc: Southern Indiana
Wife and I are about to purchase some raw land located near us. We currently live in what most people would consider "out in the country." Open land in my area is mostly used for farming with a couple of small, scattered neighborhoods. We can see the land from our backyard and we know the people we are buying the land from. The purchase price has already been set and we are beginning to plan for a closing.

My question is: what is the method to pay for it? We are probably going to build on it within the next two years so refinancing everything to one loan would be something I'd like to do. I've talked to a few loan officers and it seems banks aren't overly thrilled about financing undeveloped land.

My second idea, which is how I figured we would proceed, is to borrow the cash from myself. I planned on withdrawing the money from one of my retirement plans and paying myself back over 5 years. Problem is I would be stuck with a $1,000/mth payment to myself. That is a little less than what I contribute to that account monthly so essentially I would stop contributing and just pay the loan to myself for the next 5 years. The interest rate would be around 6%. Is it worth turning my contribution into a loan payment and sacrificing any potential growth for the account? Trade-off (in my mind) would be having real estate paid for in 5 years.

Any bank type person(s) out there who could offer any sound input? Financially speaking, is there another way to proceed with the purchase that would be a better option?
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#4755832 - 05/13/18 11:45 AM Re: How to pay for undeveloped land? [Re: Mantooth]
SVTCobra Offline


Registered: 12/11/09
Posts: 727
Loc: Battle Creek, MI
I would go to a local credit union or an agricultural bank. When I was looking to build last year I had no problem getting a loan on undeveloped land, but they require 30% down and will charge a higher interest rate since the loan can't be resold to the government.

When you build you can get a separate construction loan and use the equity already in the land to make the 20% down payment of a single loan that will your new house and land.
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#4755875 - 05/13/18 12:15 PM Re: How to pay for undeveloped land? [Re: Mantooth]
JohnnyJohnson Offline


Registered: 10/22/09
Posts: 3022
Loc: Wet side WA
Unless the land owner is willing to carry the contract its going to be difficult.
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#4755876 - 05/13/18 12:16 PM Re: How to pay for undeveloped land? [Re: Mantooth]
Mr Nice Offline


Registered: 09/12/04
Posts: 21521
Loc: Orlando, FL
Wolf should have expert advice on this questions.

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#4755878 - 05/13/18 12:18 PM Re: How to pay for undeveloped land? [Re: Mantooth]
Danno Offline


Registered: 10/07/12
Posts: 2050
Loc: Northern Ontario, Canada
Line of credit at prime +1 % might be an option?
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#4755879 - 05/13/18 12:18 PM Re: How to pay for undeveloped land? [Re: Mantooth]
ArrestMeRedZ Offline


Registered: 11/11/08
Posts: 952
Loc: Las Vegas
I take it the sellers aren't interested in taking back a note? You could be creative, depending on their needs. If you were planning on refinancing it in conjunction with building on it in 2 years, you could negotiate an interest only, or say a 10 year ammortized loan with a balloon due in 4 years (giving you an extra 2 year grace period in case of delays).

Most of my raw land purchases involved seller financing as did some of my sales. The idea is to structure a deal that meets the needs of both parties. Based upon personal experience I'm not a big fan of purchasing land if it means significantly reducing your retirement fund contributions. It seems like that is what you are looking at regardless of your financing source.

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#4755934 - 05/13/18 01:19 PM Re: How to pay for undeveloped land? [Re: Mantooth]
zvm77us Offline


Registered: 09/01/09
Posts: 171
Loc: USA
Are you over 59.5 years old? I ask because if your money in in an ira account you might be penalized if you are under 59.5

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#4755966 - 05/13/18 02:07 PM Re: How to pay for undeveloped land? [Re: Mantooth]
ridgerunner Offline


Registered: 01/14/09
Posts: 819
Loc: PA
U know what they say... land, they ainít making any more of it so get it while U can, however U can.

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#4755989 - 05/13/18 02:34 PM Re: How to pay for undeveloped land? [Re: Mantooth]
BrocLuno Offline


Registered: 09/06/15
Posts: 5695
Loc: Kalifornia Kollective
Try for owner finance. If they need the money ASAP< they can sell the note on ... If not, they are making the principal and the interest smile

Next best is a line of credit on your existing. You'll be selling it, or renting it out, so that can re-structured at that time.

Family loan from a relative, so they can carry a note and make P&I on their $$, vs less on their other investments...
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#4755996 - 05/13/18 02:42 PM Re: How to pay for undeveloped land? [Re: Mantooth]
nickaluch Offline


Registered: 10/04/08
Posts: 385
Loc: Long Island,nassau county NY
Owner finance, give them 10% down then pay them monthly. I'm guessing if you don't buy it might not be much interest in it.
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#4756170 - 05/13/18 06:27 PM Re: How to pay for undeveloped land? [Re: SVTCobra]
Mantooth Offline


Registered: 07/26/15
Posts: 506
Loc: Southern Indiana
I
Originally Posted By: SVTCobra
I would go to a local credit union or an agricultural bank. When I was looking to build last year I had no problem getting a loan on undeveloped land, but they require 30% down and will charge a higher interest rate since the loan can't be resold to the government.

When you build you can get a separate construction loan and use the equity already in the land to make the 20% down payment of a single loan that will your new house and land.

I had not thought of contacting an AG bank. Checked with the Google machine and found on 30 minutes away in my county. I'll call them tomorrow and see they can offer. Thx.
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#4756179 - 05/13/18 06:38 PM Re: How to pay for undeveloped land? [Re: ArrestMeRedZ]
Mantooth Offline


Registered: 07/26/15
Posts: 506
Loc: Southern Indiana
Originally Posted By: ArrestMeRedZ
I take it the sellers aren't interested in taking back a note? You could be creative, depending on their needs. If you were planning on refinancing it in conjunction with building on it in 2 years, you could negotiate an interest only, or say a 10 year ammortized loan with a balloon due in 4 years (giving you an extra 2 year grace period in case of delays).

Most of my raw land purchases involved seller financing as did some of my sales. The idea is to structure a deal that meets the needs of both parties. Based upon personal experience I'm not a big fan of purchasing land if it means significantly reducing your retirement fund contributions. It seems like that is what you are looking at regardless of your financing source.


Probably should have mentioned this in my OP...the land is several acres and the current owners are elderly with one of them in failing health. They are no longer able to care for the property and are ready to be free from it. I've never mentioned any type of seller financing but I would guess they would not be interested. THX. Tooth.
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'14 Durango AWD 3.6,(mine) Hav ProDS 5w30/Napa Gold
'15 Journey AWD 3.6, (wife's) Napa Syn 5w20/Napa Gold
'01 F250 4x4 7.3PSD, 126k, M1 TDT 5w40/MC


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#4756181 - 05/13/18 06:41 PM Re: How to pay for undeveloped land? [Re: zvm77us]
Mantooth Offline


Registered: 07/26/15
Posts: 506
Loc: Southern Indiana
Originally Posted By: zvm77us
Are you over 59.5 years old? I ask because if your money in in an ira account you might be penalized if you are under 59.5


The retirement account I am planning on loaning from is a 457 deferred comp account. I would get taxed if I didn't repay the loan. If that happened, it would be considered a withdrawal and then yes, I would be penalized.

Oh, and I'm not 59.5 yrs old or older. I have 14.5 years before that happens. grin
_________________________
'14 Durango AWD 3.6,(mine) Hav ProDS 5w30/Napa Gold
'15 Journey AWD 3.6, (wife's) Napa Syn 5w20/Napa Gold
'01 F250 4x4 7.3PSD, 126k, M1 TDT 5w40/MC


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#4756193 - 05/13/18 06:55 PM Re: How to pay for undeveloped land? [Re: Mr Nice]
Wolf359 Offline


Registered: 04/27/12
Posts: 5039
Loc: MA
Originally Posted By: Mr Nice
Wolf should have expert advice on this questions.


Sorry no real advice. It's hard to get financing for land. Which is why most people pay cash. Someone already mentioned getting an equity line of credit, but that assumes you already own a home and have equity in it to tap. What's the purchase price? Other option is to roll it into a credit card and do the 1% intro rate and keep rolling it when it expires after a year. I think those intro rates are typically 0%, but carry a 2-3% fee and if they're 12-14 months, you're effectively paying 2-3% instead of 6% on a loan to yourself.

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#4756313 - 05/13/18 08:55 PM Re: How to pay for undeveloped land? [Re: Mantooth]
JimPghPA Offline


Registered: 08/22/09
Posts: 3879
Loc: Pittsburgh,PA U.S.A.
Does the new to you land have an existing public water line near enough to it that you could run a line to the section of property you plan to build on? If not, it would be a really good idea to make an agreement with the current landowner(s) that would lock in the sale to you at an agreed price for up to an agreed upon time limit depending on the outcome of a search for water, that would also allow you to pay for and bring in a well driller to find a source of water that produces at least the minimum required flowability before a bank will agree to finance a mortgage. Years ago I worked with someone who wanted to build on some land he had. If I remember correctly before a bank would finance the mortgage he had to have a well that had a flow rate of at least 7 gallons per minute. The well driller he hired drilled several holes with no significant water. After several dry holes, the well driller talked him into allowing him to water witch for the area where he should drill. He drilled there and found some water but not 7 gallons per minute. He drilled a second well in the area that the water witching indicated and found a second well that produced some water but not enough to produce 7 gallons per minute. However, tieing the two wells together produced more than 7 gallons per minute and he was then able to get the loan to build.

You should know that the property has water before you buy to build.

One other alternative to a well is a sistren which is supplied with water that is trucked in.

Any way you look at it, you would be wise to know in advance what you will be doing to supply water to the building before you buy the land.
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