I recently got a call from an old client who said.........we need to sell one of our land banked projects by August 30, 2010. Please see what you can do........
I was stoked! These people are sitting on large tracts of land. Some of them have Tentative Tract Map approval. They clearly spelled out to me that they would be VERY flexible on selling price.....I was thrilled!
I contacted a developer friend of mine who was very interested. We caravaned and started doing homework on this one particular site. Here is what took place.....
I showed a 37 unit tentatively approved map to my developer friend. His comments were that unless he could get the land cheap enough, the deal doesn't pay. He further stated that getting a construction loan is near impossible (today) and that he would have to land bank the deal for at least a couple of years. He investigated private money sources who want 12% and 3-4 points to even consider any part of this deal. By contrast, he is picking up small fully approved projects that the bank has foreclosed on that he can break ground on immediately. He sells a few, pays off the loans and repeats the process. Anything big right now is too risky.
NOTE: Fees imposed on the developers by the different agencies continue to be high and controversial. This recession has cities being cash starved which may encourage modification of fees to jump-start activity.
However, all the public big boys know that you have to stay ahead of the industry so that once things pick-up, you are building and making money and not trying to find land. So, there is an interest....
So that I maximize the deal and help it mature, I came up with three plans to proceed by.........
Plan A....straight out purchase at deal or steal figures. Seller gets cashed out and buyer takes and assumes all risks. Build out in 1-2 years.
Plan B.....Buyer supplies architect and engineering costs out of his pocket to finalize the map and both the buyer and the seller split the proceeds of the build-out 50/50. Build-out in 1-2 years
Plan C....Buyer does all of plan B, but throws in an additional 50-100k to steady the deal to be released to the seller. Build-out in 1-2 years
While both seller and buyer appreciate agents bringing them deals, agents now more than ever have to support and strategize on how it can all come together and work as demonstrated by the three plans.
In addition...I have reduced my commissions so that they do not interfere with the happening of the deal. A couple of things take place because of this...
1. It shows I am willing to take risks like they are. It makes me part of the team.
2. I have a shot of being the exclusive agent to move the final product even though it may be 1,2, or even 3 years away.
Wrap-up....
1. Product under $300k will move and developers will build them a few at a time, sell and then repeat until gone. Market in my area has proven results for this.
2. Payments for owning and renting are about the same. Retirement buyers who pay all cash and first time buyers are all still very much active.
3. As an agent, I am open to helping and making anything happen whether it be now or later.
I LOVE THIS BUSINESS!
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