7 Land Financing Options For New Land Investors

In this blog post and corresponding video we’re going to talk about 7 different ways to buy land. We’ve organized this tutorial so that it caters to people in different financial situations. We’ll begin by presenting land financing solutions for those who have lots of money in the bank and then each financing option after that will target people with access to less money. The last financing option in this tutorial, will cater to those with no money whatsoever! 

So just before we jump in, I want to remind you that on Tycoon you can find many land listings that allow for creative financing options over on our site. For example, you can search for land listings that allow for owner financing, or you can search for properties under a certain price range (for example, land deals under 50K or under 10K). 

So let’s jump in and talk about the first financing option 

Lots of Money in the Bank

Okay, so let’s imagine you have a lot of money in the bank. In many ways this gives you a huge advantage. It’s worth mentioning, that even if you don’t have much money in the bank right now, this is, generally speaking, the financing end- goal for most land investors. Having money in the bank will give you a huge negotiating edge over other land investors. Because land investors with money in the bank are seen as unicorns by land sellers, it should be your end goal to position yourself as an all cash-buyer as it will open up many doors that wouldn’t be available to you otherwise. Essentially, it’s a super-power that separates you from the pack of the people who have less money.

Let’s use an example of the power of having money in the bank. 

Here, over on Tycoon you’ll notice a land listing for a 10 acre plot of land for $30,000. Let’s imagine you had the cash to buy this plot of land. You could purchase this land and split it up into two 5 acre plots and sell each for $30,000. 

Now, remember, with cash in the bank, you’re a bit of a unicorn. Just because you had the money in the account to purchase the land for cash, it doesn’t mean your buyers will once you own the land. This means that it’s likely that the buyers for your two plots of land will only be able to give you a down payment, let’s say each gives you a down payment for $5,000 and then a note for $25,000 with 10% interest amortized for 10 years. 

So this means that you’re yet to re-coup $20,000 of your purchase price. Non experienced land investors would look at this like your down $20,000. You spent $30,000 to buy the land and all you have is $10,000 in your pocket to show for it after your flip.

But experienced land investors see this as having replaced $20,000 in cash with two notes that are worth $50,000 that also earn 10% interest year after year. 

Now, in order to do this, you have to have many things aligned. First, in order to find good land deals like this, you have to have boots on the ground. You’re often looking for unlisted land, distressed land, or motivated sellers. It’s often hard to find these details and it’s a bit of a numbers game. 

At Tycoon, only about .5 to 3% of our offers are accepted by sellers. This is because we’re looking to buy land at far below market rates so the vast majority of our offers are rejected. Remember, with land investing, you don’t make money on the sell, you make money on the buy. 

One way to identify listings that are ripe for low ball offers is to look at how long a listing has been online for. If you head over to Tycoon, and you look through the listings here, you’ll notice at the bottom right corner of the listing, you’ll see the date the listing was posted. Look for listings that are older than 90 days. This is a potential signal that the owner is having a hard time selling their land and could mean that the owner will be flexible with regards to reducing the price. 

Other land buyers doing the same with access to less cash are less likely to peak the interest of these buyers than an all-cash buyer is. For example, a buyer offering an owner a low ball offer, but also asking for the seller to owner-finance the property will be a less attractive offer than that presented by a buyer who has the cash ready now and can close next week. So what the seller loses in valuation with an all-cash buyer, they gain in convenience and closing speed. 

So as a buyer with money in the bank, you’re at a big advantage for these reasons. 

But what if you don’t have a lot of money in the bank? What are your other land financing options? 

Owner Financing

Well, your next best option is likely owner financing. This is actually more common with land deals than you might think. In fact, we have many owner financing land deals over on our site. Simply head over to Tycoon and then do a search for land listings that allow for owner financing to see what pops up. 

So let’s look at the same property under an owner financing deal. A 10 acre plot of land for sale for $30,000. But let’s imagine that this time we don’t have the cash to buy the plot of land out flat. Let’s imagine we only have $5000 as a down payment. 

Realistically, if there is an all cash buyer in the market, that buyer will be more attractive to the seller. But if there is no whale hovering over this listing, the seller might be open to the next best offer. Because there is no all-cash buyer, who either buys the property with their own money or the bank’s money,  the next best option is to entertain offers from buyers looking for owner financing. 

Negotiating owner financed land deals will be harder in most cases than negotiating all cash deals. So you’ll have to be more patient and accept the reality that you’ll lose a lot of deals. The reason for this is that you’re not a unicorn anymore. While there are very few people who can put down $30,000 in cash next week, there are many people who can put down $5000. So in the eyes of the seller, you’re not a unicorn, you’re a regular farm horse. 

So your job here is to stand out from the other ordinary horses by making yourself the most attractive horse in the group. 

There are a few things you can do here to make your owner financing offer more attractive. 

First, of all, focus on making the seller’s life as easy as possible. Be fast, open and honest with your communication. 

Securing owner financing deals often requires that you educate the seller on the benefits of owner financing. Some of those benefits include things like: 

1. Your ability to offer balloon payments. For example, you could offer to balloon payments over the course of 2 or 3 years. This means that you can make monthly payments for a short period of time and at the end of the balloon payment period you could make one large lump sum payment for the remainder of the land value. This is often attractive to land sellers because they get a lump sum payment up front, then generate some monthly cash flow before the final payment, and at the end of the loan, which isn’t’ that far into the future, they get a final lump payment. This can be an attractive offer to many land sellers. 
   
   
2. Next, an offer like this could also have tax advantages to the seller. 
   
   
3. Third, the land seller could actually get a higher price for their land if they chose to sell this way. For example, rather than selling the land for $30,000, they could sell the land for $35,000. 
   
   
4. Fourth, they will also be making 10% interest for delaying gratification and accepting monthly payments. 
   
   
5. Also, if you as the buyer default and stop making payments, the owner can repossess the land and resell it. This might cost the buyer a few thousand dollars in legal fees, but they could use your down payment for that and still make a profit by selling the land twice essentially. This might be a bit of a pain, but you can communicate to the land seller that they have no risk of being out financially. 

So here, you put $5000 down on a $30,000 piece of land. You might have had to spend $2000 on legal fees, $1000 on fixing up the land and let’s say you’ve spent about $1000 on making the monthly payments over the course of say 4 months. So in total you spent $9000. 

You’re also on the hook for a large lump sum balloon payment in 2 to 3 years time. But not to worry, because you’re a land flipper and your plan this entire time was to break up this 10 acre plot into two 5 acre plots and sell each one for $30,000. 

If you could successfully pull off a deal like this, you would have enough money for your next land deal to transform yourself from a horse into a unicorn because the sale price if you sold both of these properties would be $60,000. This gives you enough to remove yourself from this large competitive group of owner-financing buyers, and move yourself into this less competitive group of all-cash buyers. 

But coming up with $5000 to $9000 is still a lot of money for most people. What if you don’t have that much money to do an owner financed deal like this? What are other practical land financing options? 

Land Financing Partner

Well your next best option might be to bring in a partner. This could be a friend or a family member who wouldn’t mind sharing in the work as well as reward with you. Let’s say you only had $2500 to $3000 to invest in a land deal. If you could find someone else who has $2500 to $3000 to invest with you, you might be able to pull off an owner financing deal like the one we discussed previously. You might have less money for things like land improvements, but you could still make something work. 

But what if you don’t know anyone who is interested in land deals or has $2500 sitting around?

Hard Money or Private Money Lenders

In that case you could still access owner financing deals by putting up a bit of your own money and then getting the remainder from a money lender. These loans often carry high interest, meaning you’ll want to flip the property as quickly as possible in order to ensure those interest payments don’t hurt you. 

I even know people who use credit cards to help them make the down payment on a land purchase. For example, they might put $2500 of their own money down and then put the other $2500 on a credit card. 

But let’s imagine that you have almost no money, let’s say you only have $1000 or $2000  sitting in your account and let’s imagine that you have no access to credit. Land sellers won’t look at you like a unicorn or even a horse, To them, these buyers look more like donkeys. To put it bluntly, a buyer with $1000, looking to buy a $30,000 piece of property, is not an attractive looking buyer in the eyes of most sellers. 

Put yourself in the seller’s shoes, wouldn’t you rather sell to someone who will give you $30,000 cash next week? And if that buyer doesn’t exist, wouldn’t you rather sell to someone who will give you $5000 up front, consistent monthly payments and then a final lump sum payment in 2 to 3 years? 

So why would a seller even entertain the idea of selling to someone with only $1000 or $2000 cash? 

Land Purchase Options

Well this is where options come in. Essentially a land purchase option allows you to put down a small amount of money in order to acquire the exclusive right I(or “option”) to buy the property at some time in the future, without being obligated to do so. During the duration of this contract, the seller cannot sell the land to another buyer.

So let’s imagine that you’ve optioned this $30,000 10 acre property for $1000 and within the contract the option expires in 3 months, that means you have to come up with the money to buy the land within 3 months. But remember, you have the exclusive right to buy the land, but not an obligation. So let’s imagine  3 months passed and you couldn’t find the financing or a buyer for the land. This means you’ll lose your $1000, but you’ll be off the hook for the purchase of the property as long as everything was spelled out correctly in your contract. 

Again, this should go without saying, but always remember to get a real estate lawyer involved, who knows your local laws, with the drafting of your land purchase or land option contracts. 

What some of the best land buyers do who work in the world of purchase options, is they often have a list of potential buyers lined up before they put their deposit down. 

This works because, let’s say the owner is a farmer, who is really unconnected in the world of land investment. You, on the other hand, are well connected to land investors, because you get involved in local meetups, investor groups and so on. So when you see a deal that you know your network would be interested in, you can jump on it with very little risk. 

So again let’s use the same example. We have a 10 acre plot of land. We put $1000 down to secure the land while we get the financing together. We go to our group of potential land buyers and tell them we have two 5 acre plots of land available for $30,000 each. 

Let’s say one of the buyers can pay the full price up front. So we have secured our $30,000 to pay the price of the land we’ve purchased. The second buyer we find, cant pay the entire $30,000 up front. But they can pay us $5000 down and then monthly payments over 10 years. 

So with these two lump sum payments, you’ve made $5000 profit in you first month and you’ve created a small busy steady stream of monthly passive income for yourself which is just icing on the cake.

This can be an ideal setup for those of you who don’t have a lot of money in the bank, but are creative and hard working enough to build up your network of potential buyers.

But what about those who don’t have any money in the bank? Can people who are currently broke get involved in land investing? The short answer is yes. However, I’m not going to sugar coat it. What you lack in finances, you’re going to have to make up for with sheer grit, determination, intelligence, people skills and creativity. 

You’re going to have to be harder working than pretty much every other person in this list, because in a seller’s eyes, you won’t be a unicorn, a horse or a donkey… you’ll be seen as a farm pest. 

No Money at All

One of your best options, if you have no money at all, is to try to come up with a little bit of money, so that you can get involved in the world of purchase options. If you could come up with even just $1000, through your own savings, friends, family, hard money lenders or even credit cards, you could potentially use that money to get involved in the world of land purchase options. 

However, in your case, it will be incredibly important that you don’t lose your purchase option payment. This means, it’s smart to have multiple buyers lined up before you start looking for land deals. 

Many investors just don’t have the time or desire to be the “boots on the ground” looking for the best unlisted deals. 

So if you hit the ground finding these deals and then organizing your findings in an organized way you can make money this way too.

Remember, there is inherent value in a good land deal. Good land deals can be hard to find, but land investors are often willing to buy purchase options or give finders fees to people who can find them deals that they couldn’t otherwise find themselves. 

Again, you’ll need to look into your local laws regarding finders fees, but in many places is a legit way to make money in land if you don’t have any money to invest. 

Land Financing Conclusion

So that’s a short list of financing options for land investors. Again, remember if you’re serious about getting access to the best land deals on the internet, sign up for the Tycoon land insiders group to get access to the best owner financed land deals 7 days before they are publicly posted on our site.

Thanks for stopping by today!