Hi,
I'm looking for some advice and opinions regarding a strategy i'm currently considering.
The strategy is to approach home owners with large properties and ascertain whether they would be interested in selling off part of their land (e.g. the end of their garden.) In return for the home owner agreeing to an option on the purchase of this parcel of their land, i would then manage the subdivision process and get a DA approved on it. Following this I would either sell the option or develop the land myself.
At all stages i'd be upfront with the home owner regarding what my intentions were and that a new home (or homes) would be built on this land.
Specifically, the questions i have are:
– Does the land have to be subdivided before an option can be signed on it?
– If yes, would i need another legal agreement with the land owner (e.g. a letter of intent) to ensure the owner didn't back out of it once the sub-division had gone through (and before the option was signed?)
– If no, how do you structure an option for a deal like this?
– Are there any particular pitfalls i need to be aware of?I realise that there are all of the intricacies re: minimum subdividable areas, what can be developed on the land, frontage, title searches, the agreed price etc…. However i believe that this could be a way to create developable pieces of land.
Eagerly awaiting your comment and advice!
Bobbajob
Hi Bob,
Just my opinions but some answers below:
Specifically, the questions i have are:
– Does the land have to be subdivided before an option can be signed on it? I WOULD HAVE THOUGHT S YOU AGREE THAT THE SUBDIVISION/RECONFIGURATION OF A LOT WAS PART OF THE OPTION AGREEMENT. DEPENDS ON STATE LAW, TALK TO A SOLICITOR PRIOR.
– If yes, would i need another legal agreement with the land owner (e.g. a letter of intent) to ensure the owner didn't back out of it once the sub-division had gone through (and before the option was signed?) THAT'D BE SOMETHING YOU'D PUT INTO THE OPTION AGREEMENT, AS IN A CALL AND PUT, OR CALL ONLY SO YOU COULD CALL THEM ON IT BUT THEY CAN'T PUT IT TO YOU SO TO SPEAK. IT'D BE ONE OF PROBABLY MANY CONDITIONS AND CLAUSES.
– If no, how do you structure an option for a deal like this? FIND A GOOD SOLICITOR WHO DEALS IN PROPERTY, NOT YOUR AVERAGE JOE BUT SOMEONE WHO KNOWS THIS STUFF WELL. THEY CAN BE COMPLEX DOCUMENTS IF NOT PROPERLY STRUCTURED. AN EXAMPLE MAY BE 18 MONTH CALL OPTION TO PURCHASE X SQ METERS ON SUCH AND SUCH A DATE FOR SUCH AND SUCH A PRICE, WITH THE CONDITIONS OF OPTION SETTLEMENT BEING…..WHATEVER IT IS YOU WANT TO PUT IN.
– Are there any particular pitfalls i need to be aware of? NOT HAVING ENOUGH TIME FOR A DA, NOT BEING ABLE TO FIND AN END BUYER, NOT BEING ABLE TO FINANCE THE PURCHASE AND BUILD, ENVIRONMENTAL FACTORS, MARKET FACTORS, VENDORS WANTINT BIG NON REFUNDABLE DEPOSITS, NOT HAVING AN OPTION FEE….THE LIST GOES ON..not sure if that helps or not, but I hope so!
Cheers
MattThanks Matt, appreciate the advice.
Hi Bobba,
I've come across many different variations on this theme, and the permutations are many and complex, and I'm sure the deals could also be profitable. There are many "what ifs" and "sunsets" that need to be built into these sort of arrangements.
I would, however, make one suggestion. Have you thought about turning around the sourcing aspect and trying to attract land owners that may be of a mind to enter into this sort of arrangement? Perhaps there are people out there who are looking for someone to "facilitate" this sort of deal and share the rewards?
I commend the initiative and wish you good luck.
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