Using what we call “OPM” or Others Money, the best and really the only way to finance any of your developments, and with that being said, any of your real estate investments!
This may not be new to you, but many people are surprised and the response often heard is something along the lines of “ahh, that’s how they do it.”

Depending on where you live in the world, there are several methods that can be used to obtain financing. In the US, there are generally 3 ways.

1. Direct employment relationship with the seller
2. Use options to control ownership
3. 1031 Exchange

Method 3 here needs sophisticated explanations and requires the services of an accountant and legal advice, therefore it will not be discussed in this article.

Working directly with the seller allows you to give him what he requires, you satisfy his needs! This is critical to your success using this approach. If you get your needs met first in this transaction, you’ll get yours met. You also need to work on your personal skills and become a very good listener if you’re not already. Remember, it’s YOUR land you want! You must communicate very well.

So they become your partner in this deal, in the land development transaction. So if you have financial qualification issues (which some do right now, I might add), the seller helps you out by taking on the debt, and in return, the unqualified buyer can get the deal they couldn’t get initially. . In exchange for this “help”, the seller demands a better cut and therefore a more attractive sale price.

At the same time, the seller also benefits by receiving higher after-tax profits. This occurs due to the fact that the seller is ‘carrying’ the paper, the amount of the sale will not be taxable, but will be based on installment payments made over the years. So instead of having a hefty capital gains tax bill due to being pushed into a higher tax bracket, they may be able to stay in a lower bracket due to the installment payment being made. over a period of years, allowing them to remain in a lower tax bracket. So if they got the full amount of the sale in a lump sum.

Ownership control through the use of options to finance land development.
What is an option? It is a specific agreement that details future performance in exchange for a benefit.

In simple terms, it means that you spend some funds and you can control the property!
So what you are effectively doing is gaining control of the land by buying this control. In other words, you agree to a price for the option to purchase the land that you must pay at an agreed date in the future.

This is all done legally and is very easy to have in a contract. At any time in the future before the expiration date of the option, you can exercise your right to close the sale and take control of the land. Legally the seller must sell when he has the funds and commit to the purchase. If you know your markets, you can also do very well with this transaction itself. By buying land at fair market value at the time of the contract, and as the market rises, you can still get the agreed price for the land you made on the earlier date. The seller must still sell at this agreed price even if the value of the land has tripled in the agreed period of time! That’s why it’s so important to stay up to date with your ‘patch’ and what’s happening in the market wherever you are.

A more detailed and sophisticated approach to options is the mobile option. This is generally used for large parcel development transactions. This is quite a detailed and complex agreement, and therefore should require more knowledge and experience. The use of the mobile option occurs when a large amount of property is purchased to develop master planned communities. For example, when developers are creating ‘phases’ in the development project with a take-over of homes that is generally in excess of 5 years.

What the buyer typically does when using the rolling option is that they control all of the land by being able to “offer” one option at a time, and after each option exercise the buyer can take control of more land until they control all of the land. the parcel of property that was listed in the original lease.

The execution of the options must take place when they expire or the entire contract is without effect and therefore terminated. The seller then has the right to put the property back on the market while maintaining the initial premium.

The buyer benefits from having a contract which, if fulfilled, allows them to plan their development for the entire package of property with the knowledge of what they are to pay for the land and thus allows them to create the most important pre-development . development work, ROI (return on investment) calculations.

The main benefit to the seller is that he gets the desired and agreed price, and if the deal does not come to fruition, he receives the substantial option premium and the land can be sold again. If all goes well, they receive the full agreed price.