Land investor loans to other REtipsters as a strategy

My partner and I were wondering about something like "hard money" loans or something like a peer to peer lending, but just for land investors.

I think I heard Seth talking about it before.

I have done something similar with people I know (my brother in law and my good friend) where I staked them cash to start their REtipster business and buy land, and I would get a small percentage of their profits and it seems to going well.

In those two cases I dont need a contract since its a handshake kind of thing among very close friends, but I would love to explore this as a strategy with other people.

So I guess my questions are:

1. Does anyone think it makes sense (or would be frowned upon) to seek out ReTippsters who can find the deals but need cash to make them for a reasonable percent of the profits?

2. Do contracts for that exist already, like a template that can be modified

3. Are there any suggestions about how to go about it?

I am all ears on this one...not only because I’ve considered doing the same...but also because I might be calling you if I land a whale of a deal!

I think there’s two parts to this, in my view. Secured vs unsecured lending...we can be sure that this is secured lending...how do we agree on the value of the asset to be secured? That’s the part that I’m struggling to get my head around. If I am seeing a piece to buy for $50k, and I think it sells for $100k, but you think closer to $75K, then we have differing opinions on the risk in the deal, and one of us has more exposure that risk, right? So I think there needs to be some structure to the valuation conversation (if nothing else, to document it that there was some supporting rationale).

Second one is percentages/cuts. We both have minimums and cuts we’d like to make, and for the effort of bigger parcels subdivision might be the best way to get the value back out of the parcel (especially if it’s bigger). So If I buy 40 and subdivide into 8 5 acre pieces....how do we handle paying you out? What if they’re all on terms?

Ultimately our contract would have to answer these types of questions. Otherwise, we handshake...=)

-Cory

Seth and Jaren had a guest on one of the podcasts that does exactly this if you want to get some insight into how to do it. His name is Justin and this is the episode: https://retipster.com/077-justin-sliva/

As far as legalities and paperwork, it seems like it would be a pretty straightforward contract, but I don't know where you would find a template for that sort of thing. If you are really interested in pursuing it, you might want to pay to have your own contracts drawn up.

Best of luck and maybe I'll hit you up if I need some fast cash!

I just listened to the podcast that DanielC mentioned, it was very informative!

The deals he did are structured where Justin's company is the owner of the property from the beginning.

The lender brings the deal to the table, and does the lions share, if not all the marketing, and 50% of the profits are paid to each party at closing.

Cory, you said "how do we agree on the value of the asset to be secured?"

In the podcast Daniel referenced Justin basically does his own evaluation based on his own criteria. He then comes up with a number he is good with offering, if the deal being brought to him already has a firm offer to the seller and that amount is more than the 1/3 valuation criteria, Justin will ask the client to see if he can get the seller to go down on price.

Im sure there are lots of other issues, like how long of a time frame, and what would happen in the case of x,y, and z, but it seems straightforward.

I was a bit surprised at the 50% number, but I suppose it makes sense as Justin is taking on all the risk, but still.. Thoughts? Would 50% be worth it to you?

I think I am going to do some more research and see if I can get a lawyer to draw up a template contract.

My main concern would be how to market it. For obvious reasons I would not want to spam R.E. Tippster.

I think maybe the best thing to do is start a podcast talking about land investing and go from there (I do podcasts and content creation in other fields as well).

I am super interested if anyone has any additional ideas or suggestions.

@Christopher-White, If I'm thinking of the right episode, I think you might also find the RETipster podcast episode they did about hard money lending, with Ryan Wright, very relevant to what you're talking about. While Ryan himself wasn't really working with funding land deals if I recall correctly, I believe that's the show where Jaren mentioned, somewhat off the cuff, some general lending terms for land deals that he felt were fair, at least at that time.

Before I got started flipping my own land deals several months ago, I actually looked into acting as the lender on terms like those. Depending on the right deal and parties involved (investors with some experience, etc.), I could still see myself on either side of that type of deal, lender or borrower.

Again, I hope I'm thinking of the right episode here, I'm pretty sure I am:

https://retipster.com/060-ryan...

On the other hand, I personally feel like the 50% approach that was discussed above makes a lot of sense if the borrower/investor is just starting out and, in addition to capital, would benefit from the knowledge they'd get in teaming with someone that's more experienced.

@Christopher-White, I just confirmed Episode 60 is the one I was thinking of. I remember that Ryan had a lot of good perspective about acting as a hard money lender, in general, so I'd encourage anyone who's interested to listen to the whole episode, but in particular, I just found the portion I was thinking of starting around the 39 min mark, where Jaren talks about the lack of good funding options for experienced land investors. I didn't re-listen to all of that, now, but I did just dig up the notes that I jotted down about the terms, back when I first listened to that show:

• Each loan secured by a particular property/deal
• Max. 12-month loan term
• If repayment of principal plus interest not made by 12 months (at the latest), contract promissory note concedes that lender may assume the property (essentially deed in lieu / accelerated foreclosure)
• Tiered rate structure
  • 25% of proceeds for repayment within 3 months
  • 35% of proceeds within 3 to 6 months
  • 50% of proceeds for 6 months to note due (12 months)

Now, those are my notes and not Jaren's words verbatim, so I'm not trying to put words into his mouth. In looking over those terms again, I do recognize the issue that @Cory pointed out above, in that the returns are based on a percentage of the earnings from the deal, so the lender buying into the investor's valuation model, and trusting that investor, would be really important.

Then again, if it would help move past the valuation issue at all, on the investor side of things I'd probably be just as happy to have the same or similar structure as above, but with the percentages based on principal borrowed, rather than the profit on the deal.

One other thing I wanted to point out, that I've often thought about, is buying or lending against investors' notes/land contracts, for those doing seller-financing. I think there was a website trying to create a marketplace for that type of thing at one point (tlfolio, I think?), and I tried contacting an investor who posted there a while back, but it just looked to me like the site never caught on for some reason.

Really dreaming here, but I think that something like a Groundfloor for land investing would be awesome - a marketplace for non-accredited investors to do fractional investments on both acquisitions and seller-financed notes. If anyone had the web skills and inclination to pull something like that together, I'd be interested in teaming up. Of course, maybe there's a reason that that other site I mentioned didn't make it.

Great topic. I am interested also in lending so this post is relevant to me. If it's structuring a win-win and with "reasonable percent of the profits," I believe it's a great way to help others and also put money to work. I have also done this with close friends but with a carefully constructed contract that outlines what happens for most contingencies, especially the unforeseen, negative ones that can destroy friendships. What might be interesting is to formalize it with a small lending syndication where a pool of community investors work together to spread out the financial risk and also lean on each other's experience. It's been my experience that new investors are working their tails off to find deals and need a quick, reliable source of funds. I have a friend/colleague with vast experience with financing and contracts. I am going to engage him in this process and see what ideas he has. He created an entire meet-up group/investing club to source new borrowers. Inevitably, someone is going to run across a big acquisition and will need some additional financial backing. Having a pool of investors willing to lend is a benefit, in my opinion. Moving forward, I plan to look into the contractual issues you mentioned.

Great info David and Wyoming

The tiered rate structure is an interesting idea. I love the concept of incentives for quick tunraround.

My initial idea with this was to create a website. Something like Lending Tree. A site that would bring lenders and borrowers in the land investing niche together.

Its the kind of business idea that I normally would jump on and run with without hesitation, as it checks a lot of boxes.

My concern is not so much the development side, I am just finishing up a fairly massive, feature rich web development project and I feel confident in that aspect.

I think the real issue would be all the red tape. There would need to be lots of lawyers and tax professionals, and other consultants involved.

None of that is a deal breaker either. At the end of the day the reason I have balked at the idea is because of two factors, the first is that I am spread too thin at the moment and this project seems like it would require a lot of attention in the early stages.

The second reason is that I am unsure about the future of the country and the world.

Im sort of in consolidation mode at the moment, and as a result Im trying not to take on new long term risk. But I am certainly open to being a part of something like this, or something like what Wyoming was talking about.

There are A LOT of people running their land business with investors. Also deal sharing/funding is very common. Some guys will even partner up with others when they are in a buy cicle, ie they have sold out of inventory and are starting to mail again, in order to keep their capital moving.

Many simply Joint venture on the deals, and sign a promissory note.

I have not done this in the land space, but with rental and rehab houses I have. I did a deal last year with an investor that put up about 30% of the cash on a flip deal. It was like a hard money loan, with a set interest rate. In the end I kept the property as a rental, and renegotiated to pay this off with a two year period and extended (lower) interest rate.

Many of the guys doing land deals are simply percentage partnering. Take title in both names. Other bigger guys that are guru/teacher types will buy the deal that the student brings to them and let the student markey and sell and they do a profit sharing.

I have also been trying to figure out how to help land investors with funding. I listened to that podcast 77 with Justin Silva with great interest as he obviously has a system that is working well. I've heard it mentioned on other podcast episodes that a 50/50 split on profits in land is typical - so almost more of a joint venture than a loan. I already do some of this for note investors and the expectation is the same. Since Justin's company owns the land in these deals the risk seems low from the funder's perspective, but there must be a good amount of trust and/or a solid agreement in place for the investor who found the property. In any case, I am working on finding land investors who need funding for their deals. It is too bad a site like what Christopher envisions doesn't exist to match up those who need money with those who can help, but I will continue to figure something out. This is a great topic, and I am interested to hear other ideas and opinions.

This is something i have been interested in as well, but as the money partner. Looking for something that is a true win/win, but I focus on larger deals. I have cash I need to put to work between now and the end of the year.

In case you all missed it, we just had a great conversation with @Reid-Kurtenbach about this subject. You can see it here: https://retipster.com/107/

@christopher-white start Crowdfundland.com?

Hey, I’m new to the site and want to contribute to this topic with my experience. I’ve funded a handful of land flips this year and charged a “funding fee” or “points” with a loan secured by a deed of trust. These were all closed through a title company and included lender’s title insurance. Amounts ranged from $5k to $70k per deal and I ran comps to make sure there was significant equity. Made about $25k on those deals and all went pretty smoothly.

Found these opportunities on a couple of FB real estate groups where people mentioned they were looking for funding or partners to do deals. After seeing their deals I’m starting to market for land myself and getting into the business. Anyway, hope that’s helpful!