50 Ways to Acquire Land
with Little or No Money
Tips for new land buyers and skilled investors alike, by B. K. Haynes
1. REFINANCE 100% OF ACQUISITION COST
Possible when land appraises higher than selling price. Assuming you can divide land into lots before closing, a subdivision can be worth more than a single parcel. And even though your lender may have a policy of loaning, say, only 80% of appraised value, he may loan you all you need, plus development costs, if you have pre-sold lots.
2. PRE-SELL IMPROVEMENTS TO RAISE DOWN PAYMENT
Assume you have a buyer for the house and five acres to be cut out of a 100 acre farm. Your lender may accept the net proceeds from this sale as your down payment and release the parcel from the first lien, crediting the sale to your loan.
3. REFINANCE WITH SELLER TAKING BACK A SECOND MORTGAGE
Seller owes $80,000 and can net $100,000 from a new loan. He is anxious to sell. You can obtain an acceptable "no strings" $80,000 loan on the place, but you do not have the required $20,000 down payment. Seller refinances, loans you $20,000, and takes back a second mortgage for that amount as security.
4. USE A NOTE FOR THE DOWN PAYMENT
Obviously you are acting in good faith. However, if, after closing, you default on a secured note, seller can foreclose, seize the security pledged for the note, and, if necessary and deemed advisable, seek a judgement against you, this if a foreclosure sale fails to yield what is owed. If the note is unsecured, seller can sue for the amount owed. If you default on a note prior to settlement, seller can sue or consider the contract null and void, depending on how the note is written.
5. REFINANCE YOUR HOME TO GET A DOWN PAYMENT
For the right deal, it may make sense to raise money through this method. You may also consider taking on a second mortgage. But remember, it is generally not wise to risk core real estate assets, such as your home, for land speculation.
6. PROVIDE SERVICES FOR THE DOWN PAYMENT
Lawyers, doctors, building trades people, surveyors, accountants, etc. all have services they can offer sellers in lieu of a cash down payment. What do you have to offer?
7. USE A REAL ESTATE COMMISSION AS YOUR DOWN PAYMENT
If you are a licensed real estate agent, you can, of course, use the commission for part or all of your down payment on a land deal. If you don't get all of the commission, and you need more cash, you can offer the other agent(s) an interest-bearing note for their share. If you're selling lots, a price discount on a choice lot may act as an incentive to grant the loan; or a lot can be traded for a commission share.
8. BROKER LOANS YOU THE DOWN PAYMENT
The real estate broker(s) handling the deal may defer his commission and loan you the money for the down payment, if he is confident of your ability to secure his loan and return a fair profit. His alternative may be a lost sale.
9. USE INSTALLMENT PLAN FOR THE DOWN PAYMENT
You may convince the seller to take the down payment over a period of months. Seller can secure these payments through a purchase money second mortgage on the land. The seller can agree to release a specified amount of acreage from the first lien when all or part of the down payment is paid. Seller could also agree to take back an unsecured personal note for the balance of the down payment. The selling broker may agree to co-sign this note to close the deal.
10. USE MULTIPLE NOTES FOR THE DOWN PAYMENT
You, and friends or partners, sign individual notes. Each note maker secures a portion of the down payment with a lien against real estate, such as their homes. As an alternative, seller could agree to secure these notes with a second mortgage on the acquired land. A default by any one partner could place all in default. The right to cure any default by a partner should be given to the buyers at large.
11. EXCHANGE REAL ESTATE FOR ALL OR PART OF PROPERTY
Laws affecting tax-free exchanges can change from time to time. And your seller may only be interested in an exchange deal. If you don't have suitable, or qualified, property for an exchange, and you desperately need the acquisition, try for an exchange agreement to gain control of the land. When the right exchange becomes available, you agree to purchase it and participate in the swap. Consult with a tax attorney when structuring exchange deals.
12. OPTION TIED TO PRIME RATE OR CONSUMER PRICE INDEX
Try this approach when you need to help sell the seller on an option. Seller is protected from inflationary pressures during the option-to-buy period. If you fail to buy the land, the seller receives a premium on your option money to compensate him for, in theory, lost value while the land was off the market.
13. GIVE REAL ESTATE FOR AN OPTION OR AS A DOWN PAYMENT
Seller may agree to take a lot, or lots, in other developments in exchange for an option to buy, or as a down payment on, his land. A year's option, for example, may be obtained by deeding to the seller a parcel of land with value to the tax assessor, but of little value to you. An offer of several lots, having questionable worth to you, could be perceived by the seller as an adequate down payment on his land.
14. USE EFFORT EQUITY AS YOUR SHARE OF THE DOWN PAYMENT
In return for putting the deal together, and possibly arranging financing, your partnership can count your effort as your share of the down payment on a land acquisition.Your effort can extend to the profitable development of the land. This activity may also be considered as an alternative contribution to equity on your part, of and by itself.
15. PRIVATE LOANS CAN GET YOU STARTED
If you've found a legitimate and potentially profitable project, and you have the expertise and experience, but not the capital to pull it off, a private investor(s) could come to the rescue. Sometimes an advertisement in the financial section of a major metropolitan area newspaper, or a correctly targeted offer on the Internet, could smoke out an investor(s) looking for a higher return on his money. Such an investor(s) may or may not want ownership involvement. A straight loan, properly secured, and not in violation of securities laws, may be the salvation of your land deal.
16. GET START-UP MONEY FROM FAMILY OR FRIENDS
A solid and well-timed land deal can be the the safest investment around, especially for those close to you who are confident of your abilities. If the deal is red hot, and you don't have quick, convenient, and comfortable access to conventional financing sources, an appeal to your inner circle may be your best bet.
17. USE YOUR CREDIT UNION FOR DOWN PAYMENT MONEY
Often you can come up with fast money from this source because they feel you have a secure job and, consequently, you are, in their eyes, less of a risk. Cultivate your credit union like you would a bank. They make an excellent alternative to using your bank line of credit.
18. SOFTEN THE DEAL WITH INTEREST-ONLY PAYMENTS
If the seller won't budge on price, he may bend on terms. Shoot for an interest-only second if the down payment is too high. Try for an interest-only first, with a balloon payment somewhere down the line. Structure the deal so your monthly payments are interest-only during any development period.
19. BORROW ON YOUR INSURANCE POLICY
Don't overlook this low-cost source for raising down payment money. If you've built up cash value in a life insurance policy, you'll often find it can be put to more productive use as seed money for the right land investment venture.
20. BORROW ON MORTGAGE NOTES FOR VENTURE CAPITAL
Why not turn your depreciating investments into seed money for appreciating equity investments. A banker may loan you 50% on the face value of any mortgage notes or trust deeds you hold. Even land sales contracts can be used as collateral for loans to buy into a solid and potentially profitable land deal. Usually the payments on this paper are used to amortize the new loan.
21. SELL PAPER AT A DISCOUNT TO RAISE ACQUISITION FUNDS
If the deal is too good to pass up, and you can afford to trigger taxable income, it may make sense to sacrifice some of your mortgage notes or trust deeds for potentially greater profits. Keep in mind that you will suffer a discount as well as an increased tax bite.
22. ACQUIRE LAND OWNERSHIP BY TURNING BAD DEALS AROUND
Does the seller have a development that he can't get off the ground? Maybe you have the talents or skills, such as sales and marketing savvy, to turn a loser into a winner. Structure the deal so the seller gets paid a predetermined amount as each subdivided parcel is sold. If there are existing mortgages on the property, a wraparound mortgage or assumption may be required as part of the restructuring process. A portion of each sale will likely be set aside to amortize this new debt.
23. USE TAX CREDITS TO REDUCE YOUR DOWN PAYMENT
When you acquire property at year's end, most of the tax obligation for the coming year belongs to the seller. At closing, you'll receive funds earmarked for taxes as a credit to your account. Until the tax bills are due, you have use of these funds. This stash of money could be significant enough to pave your way into a profitable land deal.
24. AVOID RISK WITH AN EFFORT OPTION
Sometimes a deal that requires extensive development plans and approvals can be a sure-fire winner, especially if you have development capital lined up. To avoid risk, try for a no-cash option period, during which you will draw up development plans and seek the required approvals. If things turn out sour, you simply turn over your plans and preliminary work to the seller and walk away with no further obligation. The seller either benefits from your work, or he gains by discovering the limitations of the property for specified ventures.
25. SELLER TAKES BACK FIRST AND SECOND; CASHES IN FIRST
If you're looking at a dream deal, but cash is a problem, try the following route: Offer the seller first and second purchase money mortgages, with the understanding that the agreement is contingent on finding a buyer for the first mortgage. Since a discount will be involved in this sale, the second mortgage can be increased to offset this loss. In lieu of an inflated second, periodic balloon payments by you to the seller, above the monthly installments, may be acceptable to the seller. If you plan an early payoff of an inflated second, remember its worth is overstated, so factor in a discount when estimating your profits.
26. ASSUME 1ST MORTGAGE; SELLER TAKES EQUITY ON 2ND
In this type of deal, the seller is usually (1) not interested in cash up front (2) satisfied with income-producing paper, and (3) convinced the property is valuable enough to support the amount of both mortgages.
27. BUY WITH NO CASH - SELLER KEEPS IMPROVEMENTS
Your first move is to split the asking price between the land value and the worth of the buildings. Next, parcel off some land with the buildings, and buy only the remaining land on a purchase money mortgage with little or no money down. A variation of this strategy is for the seller to have the home and surrounding acreage released from any new or existing first mortgage, so that he can sell and receive cash up front. You then assume the first mortgage and work out release provisions. if the seller has substantial equity in the property, you may have to negotiate a second mortgage to augment the seller's return.
28. SUBDIVIDE INTO LOTS OR PARCELS BEFORE PURCHASE
Schedule a simultaneous closing between your lot buyer(s) and your seller. Use the proceeds from your sale(s) to cover your down payment and possibly part of the purchase price. This arrangement requires release provisions in the first mortgage documents and a cooperative and understanding seller. Your lot buyers should also fully understand and concur with the simultaneous closing.
29. OPTION THE LAND WITH INCOME-PRODUCING PAPER
To avoid a large cash outlay, assign a first or second mortgage note to the seller in return for an option to buy his land. Seller gets monthly income for a specified period, after which he may receive a lump sum in cash. Failure to exercise the option could mean forfeiture of the note, since the amount of monthly payments may not cover the costs of holding the land off the market without the firm possibility of a sale.
30. HELP YOURSELF WHILE HELPING SELLER AVOID A TAX BITE
Seller has agreed to finance your way into a sweetheart land deal on a contract for deed, where he is taxed only as the money comes in, and not as if he had completed the sale to you through the conveyance of a deed. He needs the tax break. But he wants $30,000 down, and you only have $10,000. You locate a shark land speculator who will loan you $20,000 at a premium rate against the land sales contract. Seller agrees that If you default, the shark lender can assume your position in buying the land, getting credit for all you've paid in against principal.
31. THE LETTER OF CREDIT AS A FORM OF OPTION
If you fail to buy the land, seller can collect on the letter of credit from your bank. Otherwise, the letter is voided when you close. Meanwhile, you have gained control over the land without putting up any cash.
32. ACQUIRE LAND USING COLLATERAL SECURITY
If you're struggling to get into a deal for no money down, and the seller is dodging you, offer other real estate owned by you as collateral to insure your performance. Offer to buy the land using a no-money-down second, held by the seller, with an agreement that the collateral real estate will be transferred to the seller if you default. Build into the agreement a provision that the collateral is to be released after you have paid down the second mortgage to a predetermined figure.
33. A WRAPAROUND CONTRACT COULD KEEP YOUR DEAL WARM
You may have a peachy deal ready to bloom, but the sellers tax problems could freeze you out. Say he's on ice because his mortgage exceeds his adjusted basis. He wants installment sale treatment, but he can't afford to take anymore payments on the mortgage without paying taxes on the entire amount of his gain. You, of course, have your own reasons for wanting to close now. A way out can be found if the seller carries a wraparound real estate contract, subject to the existing first. If you close on this basis, remember that you may have to escrow your sales of any subdivided parcels until the problem tax year has passed.
34. OPTION PROPERTY USING INCREASED PAYMENTS
If you feel you can get in and out of a project fast, but you lack funds up front, try softening the option agreement until you can build in more value through sales or improvements. Say you can be in and out in six months. Try for, say, $500 the first month; $1,000 the second; and $2,000 the third. During the option period, you may have sold most or all of all the land in subdivided lots. You can use proceeds from your first sale as a down payment on the land and activate a simultaneous closing with your seller.
35. CONSIDER BORROWING AGAINST A TRUST
If someone has set up a trust for you, and funds are not immediately forthcoming, or being doled out to you in small amounts, consider a loan against this trust. Usually the trust is extremely liquid, and often a move toward a sound real estate venture can be a wise one. This is especially true during periods of erupting inflation with the resultant scorching in value of paper money assets.
36. INCENTIVE FINANCING MAY WORK WHEN ALL ELSE FAILS
If you're long on finding underpriced property, but short on cash and net worth, try kicking in some equity above the loan rate for raw land. Say you've got good vibes on selling half your proposed subdivided parcels if only you can float the deal. Promise your hard-hearted lender a percentage of everything collected above the loan pay-back figure. Give some now. Gain more later.
37. THE COMPENSATING BALANCE TRICK
Often a lender will not O.K. financing or even consider a loan, unless you scratch his back. Often if you scratch long and hard enough he will joyfully bankroll the whole deal. Banks need to maintain their loan to deposit ratios, and if you can swing deposits and accounts their way, you'll see consistent smiles and handshakes instead of those old cold shoulders. If you're short on deposits, but long on friends and relatives with deposit money, then agree to channel third party business to the bank in return for the loan you need to tie up that pretty land deal.
38. THE LAND SALES CONTRACT-REFINANCE ROUTE
Say your seller needs cash up front but can't afford the tax bite. Suggest a refinancing arrangement, combined with a land sales contract. Seller pockets the money from the new loan, and you pick up up ownership rights on a contract basis. When seller can qualify for an installment sale, you assume the mortgage, and possibly execute a second mortgage, this after cancelling the land sales contract. A variation of this strategy can occur when seller refinances you into part of the property, while selling you the balance on a contract basis.
39. THE LAND SALES CONTRACT-EXISTING MORTGAGE ROUTE
Again, the seller needs cash but wants to deny the tax collector his pound of flesh. Seller may agree to take a small down payment and monthly installments from you under a land sales contract. The deal may include a balloon payment during the second calendar year and retirement of the contract altogether when the problem tax year has passed. During the interim, the existing mortgage is held in place.
40. THE LAND SALES CONTRACT AS A QUICK OUT FOR SELLER
Often the seller wants out in a hurry, and he doesn't want to hang back for a contingency, such as the sale of a home. He may agree to an immediate sale on a land contract. An agreement can be reached to retire the contract when you sell your home or other real estate.
41. THE LAND SALES CONTRACT AS A QUICK IN FOR BUYER
Maybe you're overextended in your acquisitions, yet don't want to pass up the deal of a lifetime. Rather than make the humiliating rounds with lenders, you offer to buy the property on a land sales contract, this after making a token down payment. If the seller goes for this pitch, you should make sure you'll be permitted to assume any mortgages when you're ready to develop the property.
42. PROMISE HIM ANYTHING...
Say you don't have the required down payment on a can't lose deal. Maybe you've got 10% and collateral other than real estate, such as stocks, bonds, livestock, or personal property. If the seller is hung up on security, an assignment of these assets could make the deal fly.
43. GIVING THE SELLER A LIFE ESTATE
Say you have your eyes on a hot property, but the owner is sentimentally glued to the place and won't sell. Negotiation through a sensitive broker can often bring positive results to to both parties. The owner is given a life estate in the home and a few acres, while you pick up the remainder interest in the balance of the property. The most obvious advantage to the seller is that he stays on, while gaining immediate income he can use during his lifetime. Sentiment can be stronger than financial reward. A compassionate blending of the two is often the answer to your acquisition problems.
44. TRANSFER THE MORTGAGE TO GAIN LAND FREE AND CLEAR
As a general rule, lenders are more interested in improved property than vacant land. Say you're dealing with a mortgagee who will not agree to release subdivided parcels from the whole unless he is paid in full. One possible solution is to offer a transfer of his lien to an in-town property, such as a home, building, or improved commercial land. Even if you have to increase the amount of the mortgage or hike the interest rate, the basic economics of the deal may make these cost spikes a minor sufferance for you.
45. SELL NATURAL RESOURCES TO COVER YOUR DOWN PAYMENT
Selective cutting of mature trees, and the capture of sand and gravel deposits may not detract significantly from the value of the property. If you've located a property with saleable natural resources, you may be able to quickly recover your down payment by selling off these assets. But you may have to haggle with your lender to consummate the sale.
46. GIVE IN ON THE INTEREST TO GAIN ON PRICE AND TERMS
If the seller is hung up on high returns for his money, offer him a higher rate if he'll accept a token down payment. You'll find less buyer resistance to higher interest rates on any of your subdivided parcels than on the property as a whole. Your competitors for the acquisition may decline to spike the interest rate, especially if they plan to sit on the property for a few years. The rate hike may gain you the deal.
47. A RENTAL - OPTION AGREEMENT MAY BE THE WAY TO GO
Say the owner of a hot farm is planning to sell within the year, and he's playing games with potential buyers. Meanwhile, his fields are shot, his fences are falling apart, and his cattle are spilling onto roadways and into neighboring pastures. You appear on the scene with an offer to rent his grazing land and to keep up the fencing. As part of the deal you want the first option to buy the farm when it comes up for sale.
48. USE GROWING CROPS TO OFFSET DOWN PAYMENT AND TAXES
Seller benefits from the capital gains treatment he gets by including growing crops in the per acre sales price. You gain because the income you receive from crop harvests can offset all of your down payment; plus you can deduct from your current year's income that amount of money you spend for the purchased crops.
49. LENDER BUYS LAND AND LEASES IT TO YOU
Maybe you've found some hot land that you want to put on the back burner. You're sweltering with acquisitions, but this deal is giving you land fever. The seller, however, wants a quick shotgun marriage - a firm deal. You locate an investor who agrees to buy the property and lease the land to you until you can shake loose the coins to cover your bet. You'll probably have to pay through the nose for the lease, but the end result could be a stack of chips in your favor.
50. OFFER TO BUY WITH GOLD
Assume you're buying land, and closing will not occur for six months. If you are convinced that gold will rise dramatically within that period, then offer to escrow the entire down payment in the form of gold coins. Should the value of gold rise as you predict, seller agrees to credit your down payment. If gold drops in price, you agree to offset the loss by paying more for the land, but no more money is required down.