HOW TO MAKE A FORTUNEHOW TO MAKE A FORTUNEIN LAND!IN LAND!

ACQUIRE LAND AND A NEW HOME… ACQUIRE LAND AND A NEW HOME… WITH ONLY BINDER DEPOSITS!WITH ONLY BINDER DEPOSITS!

Huey C. Walsh

COPYRIGHT NOTICE

©Copyright 2001 by Huey C. Walsh

Published by The Institute for Real Estate Wealth

All rights reserved. Printed in the United States of America. Except as permittedunder the United States Copyright Act of 1976, no part of this publication may bereproduced or distributed in any form or by any means without the prior writtenpermission of the publisher.

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This publication has been designed to provide accurate and authoritativeinformation in regard to the subject matter. It is understood that neither the authornor the publisher is rendering legal, accounting or other professional advice. And itis understood that they do not assume responsibility for errors, omissions orcontradictory interpretation of the subject matter herein.

If legal advice is desired, seek the services of a professional specializing in thatarea.

The information contained may be subject to varying state or local laws orregulations that may apply to the user’s particular region. Adherence to allapplicable laws and regulations, both federal, state and local, which govern theprofessional licensing, business practices, advertising and any other aspect ofdoing business, is the sole responsibility of the purchaser or reader.

The author and publisher have used their best efforts in preparing this book andthere are no warranties of any kind, expressed or implied, with regard toexplanations and suggestions contained in this book. There are no guarantees ofyour financial success and they shall not be liable in the event of any incidental orconsequential damages in connections with the use of the materials in this book.

ABOUT THE AUTHOR

Huey Walsh has been active in many areas of real estate for 30 years, all in hisspare time, while maintaining a full time job completely unrelated to real estate.

During the 30 years he has completed remodeling, built houses and cabins,syndicated beach investments, built lakes, developed residential housingdevelopments, mobile home subdivisions, and recreational properties. He has alsoworked with foreclosures and rentals. To say the least, he has been busy.

The area that Huey has had the most success with and enjoys the most is workingwith land; from taking a parcel of land and simply dividing it into parcels with noimprovements, to a fully improved subdivision.

Over a seven-year period, he developed and sold almost 300 parcels of land. Hesold and closed on 46 individual lots in one day! And sold over $1.3 million in $10-15,000 lots in one year, all in his spare time!

One area that Mr. Walsh became very experienced in is the use of mortgages and“owner financing”, to accomplish alternative financing of land. These techniquescan be used to produce an exceptional income as well as an impressive residualincome.

His techniques for alternative financing of land are truly remarkable and could beof use for anyone desiring to produce an income or for simply desiring to have aparcel of land “free and clear” of any mortgage.

“HOW TO MAKE A FORTUNE IN LAND!” ACQUIRE LAND AND A NEW HOME...

WITH ONLY BINDER DEPOSITS!

Table of Contents

CHAPTER 1- - FIRST, THE LAND!With no Real Estate Experience and with Little CashOur Estate

CHAPTER 2 - - PART-TIME BUSINESSWhat to do?

CHAPTER 3 - - FINANCING LAND??Ads that state “Owner Financing”

CHAPTER 4 - - OWNER FINANCING & DELAYED CLOSINGSSomething Magic- - “Delayed Closings”Avoiding Interest AccrualDelayed Closing ExampleAcquiring Your Land Without Having the Down PaymentA Happy Day!Lots “Free & Clear”Getting Your Land Paid For Without Using Your MoneyWhat if the Owner Wants “Cash Only”?

CHAPTER 5 - - ONE “SECRET” TO SUCCESS- - -DISCOUNTING MORTGAGES!

DiscountingGenerating Your Down PaymentGenerating Operating Capital

CHAPTER 6 - - WOULD YOU LIKE TO GENERATE- - -“RESIDUAL INCOME”?Selling the First Payments

CHAPTER 7 - - TOOLS OF THE TRADETitle and DeedWarranty DeedBargain and Sale Deed

Quit Claim DeedClosingsLiens, Mortgages and Deeds of TrustSecondary MortgagesForeclosuresContract for DeedBuying on a ContractSelling on a ContractPurchase Money MortgageRelease ClausesWould You Like to Receive Monthly Payments?Wrap Around MortgagesBalloon MortgageTitle Insurance

CHAPTER 8 - - CONTINGENCIES AND ESCAPE CLAUSES

CHAPTER 9 - - DO I OPTION TO USE OPTIONS?

CHAPTER 10 - - HOW ABOUT AN AUCTION?Same Day Closings

CHAPTER 11 - - IS FARM LAND GOOD FOR ANYTHING EXCEPT CORN?

CHAPTER 12 - - SUBDIVIDING THE PARCELSLots Behind LotsKingsfield NorthLegal Descriptions and SurveysSurvey SystemSurvey ProblemsSheep and Hogs!Technology Advances

CHAPTER 13 - - MOBILE HOME LOTSBrookhills EstatesEasy FinancingRestrictionsDecksManufactured Housing

CHAPTER 14 - - RECREATIONAL PROPERTY SOUNDS LIKE FUNDeerlake Retreat

CHAPTER 15- -SHOULD YOU TRY A “FORMAL” DEVELOPMENT? Setting Up Your Business

Public StreetsPrivate RoadsPlanned ImprovementsRecorded and Unrecorded SubdivisionsObtaining Funds For A Formal Development Even Though You Have

Little ExperienceEnvironmental RegulationsSurveying the Lots and StreetsRetention AreasTree and Stump RemovalPaving

CHAPTER 16 - - GENERAL DEVELOPMENT INFORMATIONKeep it SimpleSacrifice the Interior AcreageDon’t Fall in Love With Any Particular Piece of LandDeed Restrictions

CHAPTER 17 - - GENERAL PREPARATIONReal Estate Attorney and CPAEngineering FirmCity and County AgenciesZoningUp the Creek!Flow Uphill?EasementsState AgenciesTrainingSeminarsLibrary

CHAPTER 18 - - AREA SELECTIONLocating Owners

Advertising Location

UtilitiesMunicipal Water CompaniesSewer LinesSeptic SystemsInstalling a Septic TankWells

CHAPTER 19 - - SHOULD WE NEGOTIATE?Silence!!What to Offer?Submitting a Written OfferSplit the DifferenceRecap of NegotiatingLot behind Lot Diagram

CHAPTER 20 - - NOW, THE HOME!Equity in Your LandTypes of HomesBuild Your Own HouseUsing Your EquityPartially Completed HousesManufactured Homes

Closing Comments

CHAPTER 1 FIRST; THE LAND!

So, we want land and a new home and we want to do it without having adown payment! And we want to do it so that we have a large equity in ourproperty and consequently lower payments on our home.

First we need to acquire our land and then get most, or all of it paid for...then use that equity for the down payment for a home! It’s called using “land-in-lieu of a down payment”. (We’ll discuss this later.) So, we will discuss obtainingthe land in great detail, as there is more to that than there is to acquiring a home.

We need to be able to acquire land... no money down, right? And then weneed to get the part we want paid for without using our funds! But how in theworld can we acquire land, nothing down? There are plenty of books in thebookstores on buying houses nothing down, but there are none on buying landnothing down!

Well, now one is available and you have it in your hands! I know it may sound impossible, but as you read on, you will realize that it’s not that hard to accomplish.

You will learn how to get the land you want, nothing down, plus you willlearn other things such as producing a fast profit in land and even creating amonthly income? A retirement income!

OK, let’s start with land. How about twenty acres, free and clear of anymortgage, on which to build your “family estate”! Wouldn't that be nice? Ormaybe 30-50 acres! Whatever makes you happy!

There are a couple of things that most of us would like to have more of...property and income! Well, what if I could show you some techniques that Ideveloped, that could help you obtain more of each?

WITH NO REAL ESTATE EXPERIENCE---AND WITH VERY LITTLE UP-FRONT FUNDS!

Sounds too good to be true, right? But it's not and I am here to tell you thatthe techniques work ! With almost 30 years experience in dealing with land and

other types of real estate, it is my opinion that by far the easiest and mostlucrative area is working with land, if you keep it simple!

Some of the techniques I developed could be of benefit to anyone, I feel,whether an inexperienced individual, or and experienced real estate agent. As amatter of fact, especially, a real estate agent!

I'd like to say up front that you don't have to be full-time nor do you haveto be a real estate agent, to use my techniques to obtain property and to produceincome. I am not a real estate agent and I've always had a job totally unrelated toreal estate.

Yet working in my spare time over a seven-year period, I subdivided andsold, almost 300 parcels of land! All one to ten acres in size!

I've sold 46 lots, individually, to different owners in one day and hadtheir closings the same day!!

And I had to learn as I went! But you can take advantage of myexperiences and move much faster than I did. I can show you exactly what to doand what not to do. Also I can show you how it's possible, without going to thebank and borrowing funds, to get started with very little funds! And then torecapture those funds!

I figured out ways to obtain virtually any size parcel I wanted; even if theseller wanted "cash only”, and I didn’t have the cash. Most people think that landis hard to finance because the banks normally will only finance 50-60%. But thereare methods of obtaining the land you want and not even working with banks.Plus, as you will see, it's possible to produce a lot of income, very quickly!

I’ve subdivided and sold over $1.3 million in $10-20,000 lots in one year,in my spare time!!

And how about an explanation on how you can produce a very niceresidual income... a retirement income?? All starting with almost no money!!

And, above all else, you will learn how you can acquire land, free and clearof any mortgage, on which to build your dream home!

Have you ever dreamed about how nice it would be to have a parcel of landwith rolling hills and possibly a lake? And to have it free & clear of any mortgage?Maybe 10, 20 or even 50 acres!

OUR ESTATE

We all have visions of our own private world; our estate! For some it’smanicured gardens. For others, it’s rustic, natural, undisturbed areas. A largepercentage of us would like to have ample land to build our home and still haveenough room for play areas for the kids or grand kids. Plus have room to build ourswimming pool, detached garage, workshop, etc. And it would be nice to havenatural areas to enjoy, which also serve as buffers for privacy and noisesuppression.

Also some of us would like to have a quantity of land to establish our ownlittle “farm”, and have animals running around. A couple of Labs chasing aroundor maybe a horse or two would add personality to our “estate”.

But most of us are frustrated because we don't have enough money orresources to create our “estate”. We need more money immediately, and alsomore money monthly! The majority of us come from average backgrounds andhave average incomes. Which in today's world, doesn’t allow for creating a "reallyimpressive” estate.

So, what do we do? Most of us just resign ourselves to the fact that we canonly dream of our “palatial estate”. There are others who have long term plansfor obtaining their estates, but of course, there always seem to be occurrences,which delay or knock the plans off track.

Now, what we need is an alternative means of “getting ahead” and havingthe land and resources to build our dream home and estate. We need a programthat will allow us to accumulate resources IE, land and money, in order toaccomplish what we desire.

For most of us it will have to be a program that we can work in our sparetime and accomplish in a manner that’s enjoyable and not considered work.What’s more enjoyable than riding around looking at land and letting yourimagination run wild?

CHAPTER 2 PART-TIME BUSINESS

We need a part-time business that doesn't take a lot of our time but givesus a sense of accomplishment, in addition to income. And, of course, it has to bea business that we have the resources to accomplish. And for whatever reasonsome of us may not have a boatload of cash lying around.

Well, not to worry because we can still obtain our dream home and estate.I know you're thinking, “I don't have tons of money so how can I get 20 acres freeand clear?”

Those were my thoughts at one time. I had dreams, but no extra cash, but Idecided I was going to fulfill my dreams. Now I live in a very nice house on 10acres and have a 3 acre, spring-fed lake behind my house!

My house has a large Florida room and deck on the back, so throughoutthe day I am constantly walking out on the deck, or the Florida room, looking atmy lake. We have a beach and pier that I built and the water flows year round andis crystal clear. There normally are some of our mallards flying around or one ofour Labs swimming around. Let me tell you, it really feels good walking out on mydeck and seeing what life has to offer!

But, it wasn't always like this. I was frustrated. as I wanted a nice place butall I could afford was a small house in subdivision, with a very small yard. And Ihad two small children and very little room for them to play. Normally, when I hadtime off, we would go to a park and get away from the small back yard.

WHAT TO DO?

When I looked for land, I realized that I could not afford what I reallywanted, which was acreage with plenty of elbowroom and a new home. And, ofcourse, this also made me realize even more so that I wanted more income! So,I was in a quandary. I wanted land, a new home, and more income! Ever beenthere?

But what to do about it? I started looking at all the real estate magazinesand scanning the real estate section of the newspaper to try to find a “steal”. Well,it never worked. Everyone wanted top dollar. I noticed that the parcels of land thatI felt I could possibly afford were too small. Everything that I wanted was too

expensive!

So I started thinking that I might be able to obtain a larger piece, cut it upand sell some and keep some. Maybe I could do it that way. Maybe I could sellenough to pay for the mortgage off the entire piece and have what was left over,free and clear! Generating an equity!

I had noticed that people with small parcels for sale, (1-2 acres, in ourarea), were selling their land very well, as I visited several projects and saw thatthey were indeed selling. It seems that some people only want one-half acre ormaybe one acre, or maybe they don't feel that they can afford anymore. Forwhatever reason, the smaller parcels were selling. So my thoughts were that alarge parcel might be the way to do it. But, how do you “do it”?

I felt that I had come up with a concept that would work, I just had to figureout how to accomplish it, as I knew I had limited resources and I knew it was hardto get land financed.

So, my concept was; “Get control of a large piece of land and sellenough of it to have the portion I wanted to keep, remaining with nomortgage on it!” Now I just had to do it!

CHAPTER 3 FINANCING LAND??

As I became more interested in obtaining acreage I decided to investigatethe financing available for land. I went to a bank and asked if they provided suchloans and they said, “yes, we do but you will have to qualify and we will only loan50% of the value of the land!” “50%”, I said. “What is wrong? You can borrow100% on a house, that could burn down, but only 50% on land, that can't get upand walk away!”

But that was all they would do. I visited another lending institution, andanother, and another. I finally found some that would go 70% on land and even acredit union that would go 80%. But you had to qualify first, and then come upwith a large down payment and start making payments! That didn’t sound toogood!

I felt that my idea of getting a large parcel and selling some and keepingsome was a good one I just had to overcome a simple problem; how to financeit! I knew that if I borrowed the down payment and financed the balance, I wouldhave two monthly payments in addition to the ones I already had, so that was outof the question.

ADS THAT STATE “OWNER FINANCING”

One thing that I had noticed that had really sparked my interest had beenany ad that stated “owner financing”. That always got my attention. But Iassumed that you had to have owned the land 100 years, or had it given to you, inorder to have it free and clear of any mortgage so that you could advertise it withowner financing. I didn’t realize at the time that my thinking was all wrong as thereare several ways to be able to provide “owner financing” without owning theproperty clear of a mortgage. And as I was to learn later on, owner financing isa major key to selling a great deal of land!

My interest in obtaining acreage increased and I checked out a couple ofbooks at a local library on real estate principles. These books helped me a greatdeal as I started learning more about basic principles such as deeds, surveys,mortgages, etc.

One thing that particularly got my attention was information on mortgagesand deeds and how land is bought and sold. My discovery was that there is anentire world out there of transactions conducted on contract for deeds, purchasemoney mortgages, etc. Then I started to realize how a person could advertise landfor sale with owner financing even though they don't own the land free and clear.

Boy, did that bring on some ideas! Now I was starting to realize how I mightbe able to make my concept work! What if I found a large piece of land, arrangedowner financing and sold some parcels on a contract for deed or a purchasemoney mortgage... and kept what was left? Which would eventually be free andclear! And what if I generated some income in the process?

It was starting to sound good! So I continued to learn as much as possibleof the principles of real estate as I started looking for acreage that I liked. It didn’ttake long to find a parcel of land that met my criterion and I was on my way!

CHAPTER 4 OWNER FINANCING & DELAYED CLOSINGS

I became somewhat educated on Contract for Deeds and Purchase MoneyMortgages, which will be discussed in detail in a later chapter, and decided I hadto figure out how to use them. But how was I going to come up with the money toget my first piece of land to get started?

I started looking for large tracts of land, 20-100 acres. Every time I ranacross a piece, I would first ask the seller about the financing, before I ever gotinterested in the land. Sometimes I would talk to the owner and sometimes I wouldtalk to a real estate agent. I would ask them if they would provide owner financingfor the entire tract. Some would say “yes” and some would say “no”.

So, I kept looking and talking until I found some acreage with road frontagein an area that I liked, that the owners would agree to a payment plan rather thancash. And to a delayed closing! And I was able to get started selling lots!

SOMETHING MAGIC- - -DELAYED CLOSINGS

My concern had been about a large down payment. But I finally resolvedthat problem AND THIS ONE TECHNIQUE IS WORTH THE PRICE OF THISBOOK. A FOUR TO SIX MONTH, DELAYED CLOSING!! Pause and think about that one!

I asked the owner of the land if he had to have his entire down paymentimmediately and he said, “No, not right now.” So, I said, “How about a six monthclosing?” He said, “What, I've never heard of a closing that long off.” So I toldhim that I would pay his asking price, so long as I could delay the closingsomewhat. And he agreed.

So, for a $500 deposit, I got a piece of land with road frontage, with a sixmonth closing! And I got him to agree that I had the right to enter the property andmake improvements such as cleaning up, surveying and erecting signs. Almostimmediately, I was advertising lots for sale with “Owner Financing"!

Every time a lot was shown, the prospects were told that the closing would

not occur for a while, not until my six month closing date. Most of them liked thisas it gave them more time to arrange their down payment. But it caused some tolose interest.

The sales were set up on contract for deeds and by the time my six-monthclosing date rolled around every piece of it was sold, that I wanted sold! It sold fastbecause I kept the prices reasonable and provided owner financing.

The closings were all the same day and everyone’s down payment providedmy down payment, and then some!!

Everyone's monthly payments covered the monthly payments to the originalowner, with excess remaining, plus the land that was not sold was getting paid for!FREE & CLEAR!

Folks, I'm here to tell you that if you will keep the prices reasonable andprovide “owner financing”, you can sell a bunch of land!

Now, of course, my techniques may not work in downtown New York orChicago, but if you live in just about any city that you can drive to the outskirts ofyour town, you should be able to make them work! But as a matter of fact, a sixmonth, delayed closing might come in handy with just about any type real estatetransaction! Even if you’re dealing in houses or apartments.

AVOIDING INTEREST ACCRUAL

There are other considerations of delayed closings, which might help you.One advantage of the delayed closing, even 2-4 months, is that any research orpreparation that you feel you need to accomplish can be done before you actuallybuy the land, that is, before you actually complete the closing, which starts theinterest clock!! This is a very important reason to arrange a delayed closing,as no interest accrues until the closing!

So your research and organizational efforts can be accomplished prior tothe closing. Your research might disclose something that would cause you to backout on the transaction. You will be able to back out because you will have some“escape clauses” in your contract. Escape clauses are just contingencies that youput in your contract and your purchase is contingent on those conditions beingmet. More discussion on those later.

Delayed closings of 4-6 months can help you tremendously to becomesuccessful in this activity as you can operate with only small deposits, (which canbe recaptured)!!

With a delayed closing arrangement, all you have to come up with at thesigning of the contract is the binder deposit, and you feel comfortable signing thecontract because you have escape clauses in it. If you had bought the land andclosed on it immediately, it would be yours and the interest would start to accrue.Also, after you have closed, it’s yours and it's too late to change your mind andback out. A delayed closing can provide breathing room.

Let me mention at this time, that you should be very familiar with thecounty requirements for the county in which you are interested. Somecounties require a lengthy process to get approval to divide land and this wouldgreatly affect your using a delayed closing in that county.

As you will see later, I advocate finding land which has frontage on a county road and then subdividing it without building new streets. Subdividing land which has county road frontage is usually a simple process without a lengthy approval process.

Before you start your activities, go to the county engineer’s officeand ask about the requirements for subdividing land on a county road aswell as with new interior streets, or visit a real estate attorney. Somecounties are quite restrictive, while the county right next door may have hardlyany requirements! Each county is different!!

You don’t want to buy a tract of land with the thought in mind of subdividingit to later find out that you can’t chop it up. I would suggest only working with landwhich has county road frontage to keep your life uncomplicated.

And make sure your title company will conduct simultaneous closing foryou! If one won’t, talk to another!

Also be aware that some counties require a minimum size building lot inorder to utilize a septic system. You need to know this before you start makingplans on how you would divide a tract!

DELAYED CLOSING EXAMPLE

The following is an example of how a delayed closing could be used. Let'ssay that you have found 10 acres that you really like and it has quite a bit of roadfrontage. You can subdivide the parcel into 14 lots simply by slicing it up, withoutany other development costs. Your only expense would be the binder, somepreliminary surveying and signs and you would have 14 lots for sale.

Advertisement can be done very reasonably and will be explained in moredetail in a later chapter. Also, information on how to select your property will bepresented later.

The owner wants $50,000 for the 10 acres, or $5,000 per acre, and it hasbeen on the market a good while. You try to get him to reduce his price and hewon't budge. But he will provide owner financing with a $500 binder, 20% downpayment, ($10,000), and a six-month closing. His financing terms are ten-yearamortization at 12% interest, with a lot release computed at $7,500 per acre.

The lot release means that he will give a free and clear deed to each acre,or part of an acre at the rate of $7,500 per acre. The lot release is normallycomputed at the rate of 150% of the price per acre cost. However, lower releasescan sometimes be arranged and you should always attempt to get the bestpossible terms in the negotiations prior to signing the contract for purchase.

A closing “to occur on or about six months, at buyers preference”, isperfect because no interest expense is incurred until the closing, but the propertyis tied up for the six months. Let's say that it is now January 1st and the closing isset for June 30th. Your contract states that you have the right to enter theproperty and make improvements such as surveying, doing clean up work anderecting signs. You have the survey company complete some preliminarysurveying, have someone accomplish any clean up, and erect your signs. Nowyou have property for sale!

The lots could be advertised for $9,900 each for approximately three-quarters of an acre, which sounds reasonable and is a sum most families lookingfor land can come up with, as this time you won't be providing owner financing.

When you have a sale, the new lot buyer is told that the closing on their lotis contingent on your closing on the ten acres. You also put this in their contract,and state that the closing will occur on or before June 30th. This makes most ofthem happy because it gives time to come up with their purchase money, but asmentioned earlier, some buyers will back out.

ACQUIRING YOUR LAND WITHOUT HAVING THE DOWN PAYMENT!!

When your engineer divided the 10 acres into 14 lots, the lots becameabout 3/4 acre each, (.71 acre), and you have them priced at only $9,900 each. With a $7,500 per acre release from the original owner, upon each sale of .71acres, $5,325 is required to get the parcel released. ($7,500 x .71=$5,325). Withthe lots selling for $9,900 each, minus $5,325 release, leaves $4,575 for operatingcapital on each sale, which could go towards your down payment or operatingcapital!

So you can see that before your six months closing, and you need $10,000

for your down payment, you only need to pre-sell three lots to generate yourdown payment and reduce your mortgage by $15,975! Plus have $3,725 ofoperating capital left over!

Or you could sell just one lot if you apply all the proceeds and got theseller to agree that the lot release of $5,325 could be considered as part of the$10,000 down payment.

A HAPPY DAY!

You could pre-sell enough lots to completely pay the ten acres off, at the sixmonths closing! You set everyone's closing for the same day, June 30th, andhave simultaneous closings, and come out of the title company with quite a bit ofmoney in your pocket!

Let's assume that you have sold all 14 of the lots, so at the closing themoney would look like this; 14 x $9,900 = $138,600 minus $50,000 leaves youwith $88,600 minus your expenses! At only $9,900 per lot!

LOTS “FREE & CLEAR”

If you wanted one or two of the lots for yourself, you could get them “freeand clear”, by simply not selling the ones you like and let the other sales pay theentire mortgage off. In this case you would complete the subdivision with lessprofit but would have your lots "free and clear".

GETTING YOUR LAND PAID FOR WITHOUT USING YOUR MONEY!

You can get land paid for without using your funds by acquiring a largetract and then selling enough of it in small parcels to have what is left completely

paid for! Without using your funds!

WHAT IF THE OWNER WANTS “CASH ONLY”?

The delayed closing arrangement can also be done to cover a purchasewhen the seller won't provide financing and only wants "cash". If in the aboveexample, the seller would not go along with owner financing and would not agreeto a lot release, just arrange a delayed closing, and pre-sale enough lots to coverthe purchase price, $50,000, or five lots!

And if you weren't successful in pre-selling five lots, you would haveescape clauses in the contract with the original seller to get out of your contract. And you could back out of your contract with the person you bought the tract fromas you will have put “escape clauses” in your original purchase contract.

And you have escape clauses in the contracts you signed with yourbuyers, to get out of those. (Escape clauses will be discussed later.) Thispresents some thoughts to consider in regards to delayed closings andgenerating your down payment. I feel that delayed closings can be terriblyimportant in any area of real estate and you may come up with many more usesfor them than I have.

As you grow and gain more experience in this area, plus accumulatefinancial resources, you may use shorter and shorter closing dates and providethe down payments. If you have the resources and complete confidence in anarea, you could continue to the closing without a delay and would not need asmany escape clauses in your purchase agreement. However I personally wouldnot buy any property with less than a 60-90 day closing.

Now if you’re thinking, “What do you do if the seller will not go along with adelayed closing or escape clauses?” Just forget that piece of property and golook for another! Or use an option, which we will discuss later.

CHAPTER 5 ONE “SECRET” TO SUCCESS- - -

DISCOUNTING MORTGAGES!

One way to arrange to sell your parcels with “owner financing” even thoughyou don’t own the property free and clear, is to sell your parcels, take backpurchase money mortgages and then discount and sell them. A later chapter willcover the tools of the trade such as deeds, mortgages, releases, etc.

Let's say that you have bought a large tract of land and have anarrangement with the owner that he will finance it and will release each lot whenyou pay him a certain amount of money. Simply sell your mortgage at a discounteach time you have a sale and pay the original owner the amount previouslyagreed upon for the lot release. Arrangements can be made beforehand todiscount the mortgages to an investor or an institution, so that it is donesimultaneously with your closing.

When you begin your activities in this area, you need to shop around andfind investors or companies that will buy mortgages, and there are plenty that will.If you have taken back a mortgage, they will buy the entire mortgage for adiscounted value, or will just buy a certain number of payments.

Companies that will purchase your mortgages can be found in the yellowpages or from advertisements in newspapers. Or talk to title companies or CPA'sand locate investors in your area. I suggest that you locate several investors, asyou may need them as you develop your business.

As you confer with an investor or company about buying your mortgages,or “paper”, an agreement can be reached as to what the discount rate will be. Ifthe discount rate is only, say, 60%of the value of the mortgage, then go to anothersource. When you find a company or individual that will give you a rate of 70% orbetter, then you can make your plans.

DISCOUNTING MORTGAGES

Let's say that you put a binder deposit on a 60 acre tract with an impressiveamount of road frontage, at a good purchase price of $300,000. The owner wants

10% down and the balance computed at 9% for 20 years with a 7 year balloon,(balance will be due at the end of seven years), and has agreed to a six monthclosing.

The payments would be $2,429 per month if you closed on the purchase

and had no prior sales arranged. The owner has agreed to a $5,000 per acre lotrelease and he also agreed to consider the $5,000 reduction as two monthlypayments.

You have the lots laid off by just slicing them up on the road frontage orperhaps using a lot behind a lot concept, which will be explained later. Now youhave lots that you can start advertising for sale. The price of your lots is $12,900,with “owner financing”, 10% down or $1,290, and 7 year financing at 11%. Thebuyer’s payments on the $11,610 will be $198.79 per month.

A lot sells for $12,900 and you receive $1,290 down payment and take

back a mortgage for $11,610. The company you have an arrangement with willgive you 70% or $8,127 for your $11,610 mortgage. Arrangements are made sothat at the closing the finance company buys your mortgage for $8,127 and thetitle company will pay $5,000 to the original owner for your lot release. Theremainder, $3,127 plus the down payment of $1,290, or $4,417, is your profit oroperating capital.

GENERATING YOUR DOWN PAYMENT

In the above example, your agreement with the original owner is a 10%down payment of $30,000, due at the closing in six months. And of course, youhave put escape clauses in your contract. But, you will have to pre-sell enoughlots in six months to cover the $30,000 down payment. With each sale that youmake, which will close on the same day that you will close on the 60 acres, $5,000will go to the seller, as per the lot release, and $4,417 to yourself, as explainedearlier.

With this arrangement you will need to sell six lots during the six monthsand at the closing $30,000 will go to the seller and $26,502 to yourself! Or, if youwant to use your $4,417 operating capital towards your $30,000 down payment,then $5,000 and $4,417 or $9,417 would go towards your down payment, on eachsale you make. This way you would only have to sell four lots to cover your$30,000 down payment, and would have an excess of $7,668 at the closing!

GENERATING OPERATING CAPITAL

After the closing, if you just sold one lot per month for $12,900 anddiscounted the mortgage for $8,127, you would reduce your mortgage by $5,000and generate $4,417 operating capital! Two sales would reduce your mortgage by$10,000 and generate $8,834 each month! And believe me, if you have one acrelots at 10% down with owner financing, you should be able to sell two or moreeach month!

Since there is money lost in the discounting process, the price of the lots will have to be adjusted upward. You could have one price for the lots you sold with “owner financing” and another, “discount for cash” price.

I found that if you are generating your own operating capital, discountingmortgages is extremely useful. Discounting mortgages can play a big roll in yourroad to success and you should become as knowledgeable as possible about thisactivity. There are books and seminars on buying and selling mortgages and Irecommend that you put forth the effort to become fully educated on the subject.

CHAPTER 6 GENERATE - - -“RESIDUAL” INCOME

Now let's talk about residual income! A retirement income!

There are ways to produce a residual income with the Contract for Deed and the Purchase Money Mortgage. The following unique method is possible asyou work with the mortgages you take back.

SELLING THE FIRST PAYMENTS Let's take the example in the previous chapter and only sell the finance

company a portion of your payments! This can be an important technique!!

Let's assume you generated your down payment and closed on thepurchase mentioned in the previous chapter. You sell a lot with $1,290 down andthe balance of $11,610 financed at 11% for 7 years or 84 months, at $198.70monthly. You ask the finance company or investor, how many payments theywould buy in order for you to receive $5,000 for the lot release and they say, 40,or so. They will adjust their computations in order to produce a yield that they arehappy with, and tell you how many payments it would be.

Now let's say that they will buy the first 40 of your payments for $5,000providing for the lot release. Then the first 40 payments the new buyer makes goto the finance company or investor and you don't receive anything. But after 40payments to the company, you start receiving payments and receive 44 paymentsof $198.79 or a total of $8,746.76!

Quite a residual income! Especially if you have 20, or 50, or 100 lotssold like this! Let’s assume you only have 20 lots sold in this manner, that wouldresult in a monthly income, (after the first 40 payments), of 20 x 198.79 or$3,975.80 for 44 months! Or a total of $174,935.20! Try 50 lots!

You could sell some lots with a total discount of the mortgages to helpgenerate your down payment, then sell some with just selling part of the payments.Using the discounting of mortgages in this manner is an excellent way to buy

property with little or no money down by generating your own down payment,covering your lot releases and getting the land paid free and clear. Andgenerating a fast income, or a residual income!

As mentioned earlier, to find someone to discount your mortgages to, lookin the yellow pages or newspapers or talk to CPA’s. Ask them if they know anyinvestors that you might talk with. They will know several but won't give you theirnames or phone numbers but might possibly give your information to them. Andanother good place to find investors is to talk to the title company you are using.They know who closes loans and discounts mortgages at their business and couldget your information to them.

As you grow and accumulate operating capital, you will arrive at the pointthat you can provide owner financing with your lots having been paid for, thusavoiding the discount expense. In this case you would keep your mortgages andreceive interest income as well as the profit on the sale of the lots.

Let’s look at the above example of 60 acres for $300,00 and let’s assumethat the land has been paid for and that we have 50 lots. With the monthlypayments of $198.79 principal and interest for a single lot that would total$16,698.36 over a seven year period, for each lot. And with 50 lots that would be$834,918 plus the down payments of $1,290 per lot, for a total payout of$899,418! That minus the $300,000 purchase price leaves $599,418, minusexpenses, which were minor as the subdivision was on a public road!

With only two sales per month, the sell out period would be 25 months withalmost a $600,000 profit!

Can you find a piece of land that large that can be subdivided easily? Ihave! As I describe elsewhere, I stumbled onto a large tract that had county roadfrontage on three sides, with a six-inch water line surrounding it!

But, you have to get off the couch!

CHAPTER 7TOOLS OF THE TRADE

At this point we will discuss ownership of real estate. Throughout the book Ihave refrained from making it a book of real estate “principles” but rather one thatcontains as many “techniques” as possible, however some explanations arenecessary at this time.

TITLE AND DEED

Title represents ownership while a deed is the instrument used to transferthe title of real property from one person to another. A person holding the deed toa parcel of land holds the title as specified by the writing in the deed.

Don’t confuse a deed with a deed of trust which we will discuss later. Adeed transfers the title of real property while a deed of trust is a means offinancing a land purchase.

Different types of deeds are used in the United States such as theWarranty Deed, Bargain and Sale Deed and the Quitclaim Deed. TheWarranty Deed is sometimes called the Full Covenant and Warranty Deed orGeneral Warranty Deed.

WARRANTY DEED

The advantage of the Warranty Deed is that when the title is transferred,specific warranties are included. The seller warrants that he or she is the feesimple owner and has the right to sell the property. And that there are nomortgages, liens, easements or encumbrances on the property other than those inthe public records. The seller guarantees the statements and is liable in court ifthe buyer finds otherwise.

The seller also warrants quiet enjoyment to the buyer. Should a problemarise such as a previous owner with a claim, the seller will work with the titlecompany to take care of the problem. The seller will do whatever is necessary toprovide the buyer with the title promised in the deed.

A Warranty Deed basically means that any information provided by the

seller to get you to buy the property has to be true or else you have legalrecourse.

BARGAIN AND SALE DEED

A Bargain and Sale Deed transfers title and establishes that some form ofconsideration has been transferred. The consideration can be money orsomething else with value. The seller warrants that they do in fact own the propertyand that they have done nothing to encumber it. For the best protection whenbuying a property with this type deed, ask for a Bargain and Sale Deed withCovenant Against Grantor’s Act.

Even with this, the seller is liable only if he or she has caused a problemwith the title, such as an encumbrance, but not the activities of previous owners.With a Warranty Deed the seller is liable for any encumbrances on the title. So,the Bargain and Sale Deed is called a Special or Limited Warranty Deed.

QUITCLAIM DEED

A Quitclaim Deed is an instrument normally used to transfer an interest ina property from one person to another and includes no warranties or covenants. Itsimply transfers any interest a person may have in a property and ensures thatthe person granting the Quitclaim Deed has no further interest in the property. Anexample would one spouse releasing or transferring any interest to the otherspouse during a divorce. Or in the case of a dispute over a parcel of land, whichhappened to me once, one owner quit claims the land to the other.

Since a Quitclaim Deed comes with no warranties or guarantees, neveraccept such a deed when buying property.

A deed needs to be recorded at the county courthouse to prevent thepossibility of the title being given to someone else. This is normally accomplishedat the deed room or recorder’s office. The date on which an item is recorded canbe very important, as the first one to record a deed to a property, is the owner.

CLOSINGS

The closing or settlement occurs to transfer ownership or title of aproperty to the new buyer and is usually conducted at title insurance and abstractcompanies, escrow companies or an attorney’s office. The process is startedwhen two or more parties agree on the price and terms and conditions of the sale

of a property, sign a contract of sale and exchange an earnest money deposit,which is normally held in escrow by the closing agent. The contract includes thelegal description of the property to be transferred and any conditions. Once thetitle has been researched and perhaps title insurance written, and the conditionsaddressed, the closing can occur.

When the closing is scheduled, the buyers provide the balance of the fundsdue in the form of a cashier’s check, or from funds obtained through a loan froma lending institution. The closing agent will have assembled the necessarypaperwork to complete the transfer of ownership and also to put into effect a newmortgage, if required.

There are numerous documents requiring signatures at a typical closing,especially if a new mortgage and its associated paperwork are involved. Theseller’s share is small compared to the buyer’s portion, should a mortgage beincluded. Both parties are present at many closings although separate closingsmay be scheduled. Whether buying or selling make certain the conditions of thesale which were spelled out in the contract are correct.

Closing costs are a big part of any real estate closing and are normallyconsidered during the negotiation stage of the transaction. The settlementstatement will be prepared a day or so in advance of the closing and spells out thecosts and who is to pay them.

Examples of closing costs are fees for a title search, premium for titleinsurance, recording fees, survey, attorney fees, and real estate agentcommissions. The buyer will have assorted costs associated with putting a newmortgage in place if that is the case, such as a credit report, an appraisal, pointsto the lender, and state mortgage tax. Plus first payment of the proration of anyinsurance premium required on a house or the proration of property taxes.

As these costs can involved several thousand dollars, there should be aclear understanding who will pay what. During negotiations on the sale price of theproperty, remember to include a discussion on the closing costs.

After the closing is completed, the documents are recorded at the countyrecorder’s office and made a part of the public record. Recording the documentsprotects everyone, as there is no question concerning proper ownership of anyproperty.

LIENS, MORTGAGES AND DEEDS OF TRUST

A lien is a claim against a property which is used as collateral for a debtand the most common ones are; Mortgages, Deeds of Trust, Property Taxes andJudgments.

Frequently when a person buys real estate, they go to a lending institutionand obtain a loan. In some states, they are required to sign a Mortgage and aPromissory Note. In others, they are required to sign a Deed of Trust and a Deedof Trust Promissory Note.

A Mortgage is an instrument used by which the buyer pledges the propertyto the lending institution as collateral for loan and describes the terms andconditions of ownership. It also contains the rights of the lender in the event of adefault.

A Promissory Note holds the borrower personally responsible for the loanand spells out the loan amount and terms of repayment.

A Deed of Trust is sometimes called a Trust Deed or a Trust and is similarto a Mortgage except for the rights it offers the lender during a foreclosure. ADeed of Trust pledges property as collateral and there are three parties involved.The Trustor is the buyer who grants the trust and the Beneficiary is the lender.The Trustee is an independent party who holds title to the property on behalf of thelender. The Trustee either releases the title as the loan is paid off or institutes aforeclosure if there is a default.

A Deed of Trust Note accompanies the Deed of Trust and spells out theterms of the loan repayment.

The Mortgage or Deed of Trust describe and specify the security for theloan, while the Promissory Note and the Deed of Trust Note specify the loanamount and the repayment schedule.

Since Mortgages are used in my area, I will refer to Mortgages during mydiscussions and if you are in a Deed of Trust state, just consider I am referring tothe same thing.

SECONDARY MORTGAGES On occasion there may be more than one mortgage on a certain property,

IE, a 2nd, 3rd or even 4th mortgage. The priority of the liens is determined by the

order in which the liens or mortgages were recorded at the county recorder’soffice, IE, the dates of the filings. The first one recorded becomes the seniormortgage and the others become junior. Should a foreclosure occur, the primarymortgage is paid and if there are funds remaining, they go to the juniormortgages.

There is an exception to the above order of priority and that is a PropertyTax Lien, which goes to top priority regardless of filing date.

FORECLOSURES

Judicial Foreclosures are used in the states which use Mortgages, andrequire court action which can be quite lengthy. The process involves the defaultwhich results in the foreclosure action.

A default occurs when a person does not make their monthly paymentbefore or during the grace period. The lender sends notification of the latepayment and when the second or third payment is missed, turns the account overto their collections department. If the collection department can not get theaccount current a foreclosure is initiated.

An attorney for the lender files a LIS PENDENS or, action pending, to givenotice to the public that foreclosure action has begun. Once court approval tobegin foreclosure is received, the notification process begins. A Notice of Defaultis filed and the notice is sent by certified mail to the mortgagor and any juniormortgage holders who have requested notification. It indicates the amount that hasto be paid to bring the account current and stipulates a date.

Following the Reinstatement Period, if the default is not cured, a Notice ofSale is advertised. Most states allow the owner to cure the default and stop thesale up until the day of the sale. If it is not cured, however, a public auction isconducted on the court house steps and the property sold. The previous ownersmust vacate the property and most do so voluntarily, but if they don’t, the newowner must resort to eviction.

Non-Judicial Foreclosures are used with Deeds of Trust foreclosure action.The Deed of Trust contains the power of sale clause which enables the Trustee tobegin foreclosure without having to go to court. The Trustee issues a notice ofdefault and notifies the borrower, then proceeds with notice of sale, beginsadvertising, and conducts the sale.

CONTRACT FOR DEED

Let’s now discuss some of the instruments that can be used to providefinancing either for buying or selling land. A Contract for Deed is exactly what itsounds like. It is a contract to get a deed at some point in time. In some areas it isreferred to as a Land Contract or Installment Sale Contract.

A person buying a parcel of land on a contract for deed has theunderstanding with the seller that as the buyer pays for the land, they willeventually receive a free and clear deed. The person buying the land can occupyand use the land but there is no title transfer until the agreed amount of moneyhas been paid.

Real estate could be sold on a Contract for Deed regardless of whether it isheld free and clear of a mortgage or not. If the parcel has a master mortgage, thebuyer makes a down payment (unless a no down payment arrangement has beennegotiated) and then makes monthly payments of principal and interest. The sellermust take the monthly payments and apply them to his/her master mortgage.When a certain amount is paid, the seller’s mortgage holder, either an institutionor an individual, will release the parcel free and clear. At that time, he/she canconvey title and give the buyer a Warranty Deed.

BUYING ON A CONTRACT

Buying on a Contract for Deed is a means of buying land with poor creditor even with no credit check as the owner still owns the land and you only have acontract. You make a down payment, if one is required, and then make paymentsto the owner.

A disadvantage of buying on a contract is that the seller may not apply themonthly payments to his mortgage holder and it could result in a foreclosure. Ifthe land is foreclosed on, the buyers would probably loose their investment. Thesame situation would result if the seller were to file for bankruptcy.

If you were to buy property on a Contract for Deed, have the contractwritten so that the monthly payments go to a third party, a “Trustee”. A trusteewould ensure that the payments were forwarded to the master mortgage holder,and pay the necessary taxes each year. Any excess funds could be forwarded tothe seller. You could also require the seller place the title to the property in trustwith the trustee until you pay the required funds.

Also, have the Contract for Deed recorded at the county recorder’s office. You may hear, “we don’t normally record Contracts for Deeds”, but insist that it berecorded because it tells the public that you have bought the land and the sellerwill not be able to resell it or put another mortgage on it. The contract shouldspecify that the seller is forbidden from placing another mortgage on the property.

A disadvantage of buying on a Contract for Deed is that you will not be ableto obtain a mortgage to build a home until you have a deed.

Should you desire to build a house before your land is paid for, it will benecessary to arrange for a deed to the land. Perhaps you would have paidenough by this time that if you requested it, the original owner would issue a deed.Or you would have to pay the land off by arranging the funds in another mannersuch as a signature loan.

One avenue could be to obtain a loan which covers the cost of the newhouse plus the remaining debt on the land, combining the two. In any case theoriginal owner of the land would be paid and would issue a deed, which could beassigned to a lender in order to obtain a mortgage to build a home.

Buying land on a contract may be a means of making a purchase if youhave credit problems, as a credit check is not normally done and there is notransfer of title. Since there is no transfer of title, it could make it easier tonegotiate a no down payment arrangement.

SELLING ON A CONTRACT

Buying on a contract may not be the best way to buy land but it’s not a badway to sell it! You could provide “owner financing” even though you don’t havethe property paid for! You could produce a residual income! When your buyerspay you each month, you could pay your obligation and any amount remainingwould be your income. Of course that would increase considerable as you getyour obligation satisfied. As mentioned earlier, providing “owner financing” is one“secret” to selling a great deal of land!

On a Contract for Deed sale, you can sell the land with little or no downpayment and no credit check, because it is normally easier to regain possessionof the land in the event of a default.

Under the strict foreclosure action, if the buyers are not making thepayments as agreed and are in default, simply tell them to leave. There has been

no transfer of title and you may not have to go through the normal foreclosureprocedures. You get the land back, plus the money you have been paid.

If the buyers won’t vacate the property, you will probably have to gothrough foreclosure proceedings.

It is best to require a reasonable down payment even with a Contract forDeed as you can feel comfortable that the buyers are serious about theirpurchase and won’t default.

A default could cause you to need to resell the land quickly to keep yourcash flow moving. A reasonable down payment could also provide operatingcapital.

Selling land on contracts for deed can be a means of generating operatingcapital. If you have several people paying each month and the amount of theirpayments is such that you can meet your obligations and have money left over,then it can be used as operating capital!

Contracts for Deed are normally used when the seller has a mortgage onthe property, but can be used even if the seller has the land free and clear. If anowner sold a property which has no mortgage on it, and provides owner financing,he or she could give the buyer a Warranty Deed anytime they felt comfortablewith the amount of money invested by the buyer.

PURCHASE MONEY MORTGAGE

The Purchase Money Mortgage is another means of providing "ownerfinancing". The Purchase Money Mortgage differs from the Contract for Deed orLand Contract in that title is transferred. A seller receives a mortgage or deed oftrust and the buyer receives a title. The seller is providing financing and though hedoes not loan the money, he allows the land to be paid for on a monthly basis. Thearrangement is set up so that after a down payment, the seller provides “ownerfinancing” with the property providing the security for the loan.

Security for the Purchase Money Mortgage is the land which protects theseller in case of a default. The new owner will make monthly payments of principaland interest to the seller. If there is an underlying or master mortgage on the land,the seller will have to make payments to the institution or individual that holds themortgage to keep it current. Should a buyer default on a purchase, theforeclosure proceedings are required.

So, if you have “bought” a tract of land and have a mortgage in place anddesire to sell portions of it, you can advertise that you will provide owner financingand use the Purchase Money Mortgage. As you are being paid monthly for thelots you’ve sold, you will in turn pay the required funds to your mortgage holder.At some point, you would be able to obtain a release of the parcels from yourmortgage holder, due to the lot release clause in your contract. Then your buyerswould receive a deed free and clear of any mortgage.

RELEASE CLAUSES

Arranging for lot releases when negotiating the terms of any purchase isterribly important. A lot release allows for a certain area of land to be releasedfrom the mortgage upon the payment of a predetermined sum of money. Thisamount is negotiated and is usually 100-150% of the cost of the land, on anacreage basis. Let’s assume that you paid $4,000 per acre for a tract and therelease is computed at a $6,000 per acre basis.

Let’s say that you sold an acre lot for $10,900 with a down payment of$2,000, all or part of which could be paid to your mortgage holder. Then as youmade payments totaling $6,000, your mortgage holder would give you a release ofthat acre of land. At that point, you would be in a position to give the buyer a freeand clear deed. Also then, the payments that were still owed to you by the buyercould be used to cover your obligations each month or used as operating capital.

With the lot release set up on a 150% basis of the land cost, you aregetting the land paid off fast. When three-fourths of your lots are sold, yourmaster mortgage will be paid off. Then you can either keep the remainder of theland, which is now free and clear, or continue to sell parcels to generate cash.

As mentioned, the release schedule at most lending institutions is at a rateof 150% of the per acre cost, but it can be to your advantage to obtain alower rate if possible. I would recommend that during negotiations you requestwhat the lot release would be and let them answer, then request a lowerpercentage.

WOULD YOU LIKE TO RECEIVE MONTHLY PAYMENTS?

Should you sub-divide a tract of land and sell it on a Contract for Deed, ora Purchase Money Mortgage, one of the inconveniences is collecting the monthlypayments! What a problem! It’s usually not a problem and receiving payments

each month is fun!

However if you don’t want to bother with collecting funds, some banks willcollect them for you each month for a small fee. The bank will also dun the buyersif they are late. So when you get to the point that you are selling many parcels,you will probably have a bank handle the collection of the monthly payments foryou.

Who knows, you might do like I did. I started slowly and continued to learnand grow and over a period of time, subdivided and sold almost 300 parcels ofland, in my spare time!

So when I indicated that you might grow to the point that you need a bankto collect your monthly payments, you certainly may!

Wouldn't it be nice to have 100 people sending you $200 each month, or$20,000, and for your monthly payments to be less than half that! It can be done! And starting with very little up-front capital.

This example, and the statement of my experience, is for those who want tomake a business out of it, like I did, and produce a very nice income. However, aperson can use the techniques presented in this book and obtain a very nicepiece of land for themselves, free and clear of any mortgage, and then stop!Whatever your thoughts, the ideas and techniques enclosed should help youaccomplish your goal.

WRAP-AROUND MORTGAGE

There is another instrument that should be discussed before we leave thissection and that is the Wrap-Around Mortgage. A Wrap-Around Mortgage wrapsaround, or includes the present mortgage or mortgages, without paying them offor assuming them. You are buying the land subject to the loans already in placerather than assuming them.

Let’s say that a seller has a 1st mortgage on a property with a $40,000balance remaining and a 2nd for $5,000. You agree to purchase the land for$80,000 with $10,000 down and a wrap around mortgage for $70,000. So hismortgage of $70,000 becomes a 3rd mortgage. When you make your payments tothe seller, he must make the payment to his first and second mortgage holdersand then can keep the remainder.

One reason a seller might want to take a Wrap Around Mortgage is that heor she expects to charge a higher interest rate on the wrap around than the ratethat is on the present mortgage, and increase their yield on their equity. Anotherreason might be that the seller is hopeful you may go into foreclosure after makingmany payments, at which they could intervene and get the property back.

Other reasons might be that the property is overpriced but the owner iswilling to provide attractive terms, or that the property would be hard to getfinanced at a conventional lending institution.

There are advantages for some buyers to obtain a property with a WrapAround Mortgage, one of which is that the buyer may be able to acquire a lowerinterest rate than that presently offered on mortgages. Also a buyer may obtainproperty that he would otherwise not be able to qualify for, plus save extra costs ofnew financing such as closing costs. And if negotiated, it can be accomplishedwith little or no down payment.

Another significant advantage is that title is transferred with a wrap around whereas it is not with a Contract for Deed or Contract for Sale.

It’s best to assume the underlying mortgages rather than buy subject to, ifpossible. But if not, there are some things you can do to protect yourself in casethe seller doesn’t make the required payments on the 1st and 2nd. Make sure youand the seller open a special collection account at a local bank. The monthlypayments will go to the bank and they will pay the 1st and 2nd and then send theremainder to the seller. Their charges are usually very low for the service. Neverrely on sellers to keep their payments current!

CAUTION: If you buy property subject to loans in place, using a contract

for deed, purchase money mortgage or wrap around mortgage, make sure thatthe owner’s loan agreements do not have due on sale clauses. If these clausesare in the mortgages, the seller will have to get the lender’s permission to sell theland, or face the possibility of the lender accelerating the mortgage anddemanding payment in full if the property is sold. If that happened and the sellercould not provide the payment, a foreclosure could occur and the loss of propertyresult.

BALLOON MORTGAGE

A Balloon Mortgage is a mortgage, which is amortized over any number ofyears, such as 15 or 30 years, but the principal balance becomes due at a

shorter time, say 5 or 7 years. Balloons are sometimes used by lendinginstitutions to protect themselves if they have made the loan at a low interest rateso that the person can afford it presently, but with the anticipation that the interestrate will be increased at the end of the balloon.

I used balloon mortgages occasionally since I could get a better discountrate when I sold my mortgages. When a mortgage is sold, the sales price isdetermined by the yield to the investor. A shorter time period for the funds to bedue results in a better yield, and thus a better sales price. Also a balloon mortgagecan gave the buyer several years to obtain a better mortgage due to expectedraises, etc.

TITLE INSURANCE

As title to a property is transferred from one owner to another, a title searchis conducted to ensure a marketable title, which basically means that the sellerhas the legal right to sell the land. An owner may have a deed to the land but itmay not have a clear title. A defect may exist if someone, such as a mortgagecompany has a claim or lien on the property. Other clouds or defects could bemineral reservations, easements, subdivision restrictions and taxes, however theproperty can be legally sold subject to these conditions.

A search of the public records is conducted to trace the ownership andhistory of liens and encumbrances on a particular property and any defects thatwould make the title unmarketable are corrected. Then an abstract company wouldissue a “certificate of title” or a title insurance company would provide a “titleinsurance policy”. In some parts of the US the guarantee of a marketable title isensured by the abstract being brought up to date and analyzed by an attorneywhile in others a title insurance policy is used.

Even though an abstract is brought up to date, the protection for a buyer isnot as complete as buying a title insurance policy and most states use titleinsurance. The policy protects not only against defects that are in the publicrecords but also for those that aren’t. Title insurance protects against items suchas forgery, clerical errors or undisclosed heirs and is a wise investment.

An important note: make sure you ask your closing agent if they willconduct simultaneous closings for you if you require them. Some companies willand some won’t. It depends on their bank account.

Initially I used a real estate attorney for my closings but then started just

having a title company complete them for me. I used the same one quite often andwould just fax them the sales agreements and they would put the closings togetherfor me. Plus they would accomplish simultaneous closings, if needed.

CHAPTER 8 CONTINGENCIES AND ESCAPE CLAUSES

As stated earlier, contingencies and “escape clauses” are important in allcontracts, either buying or selling. They take the pressure off the sale orpurchase, as they can allow for you to back out of a transaction. In the case of apurchase, they can even ensure that you get your deposit returned should youchange your mind.

When you agree to buy a parcel of land, put something in the contractsuch as, "sale and purchase is subject to my attorney's approval". Or subject toyour partner’s approval. Then if for some reason you feel you need to back out,you can have your attorney or partner state that they don’t approve of thepurchase and the contract is void and your deposit is returned.

Another possible contingency would be “purchase subject to buyerarranging acceptable financing." Or, “tract of land has to be less than 20%unusable due to the green belt area."

Also if there is no current survey on the tract, it is a good idea to mention that the price of the tract is a particular price per acre as occasionally surveys reveal less than expected acreage. And make sure the purchase is subject to your approval of a legal survey.

Of course, the amount and extent of the contingencies you can get in your

contract when you agree to purchase a piece of real estate, depends on howagreeable the seller is. If the seller won't agree to contingencies, walk away andlook for another piece. Or possibly use an option, but DON’T FALL IN LOVEWITH ANY PARTICULAR PIECE OF REAL ESTATE!

A very important contingency to put in your purchase agreement is; Buyer

to be able to obtain all necessary permits and zoning for- - -(whatever... eitherresidential, commercial, apartments, etc.) This one is a must!

Also you might want to include a contingency such as, “Purchasecontingent on there being no liens on the property associated with anenvironmental cleanup”. I know of a gent who ran across a tract of land that wassuch a “good deal” that he thought; “this is too good to be true”. And it was!

He went to the county deed room and asked for assistance to determine itthere were any liens on the land and was shown liens placed on the property byan environmental agency. It indicated that there had been a gas station on theproperty years prior and an enormously expensive clean up project would have tobe accomplished to satisfy the lien! Needless to say, he forgot about that gooddeal!

You will also need contingencies in the contracts you sign with your buyers

if you are using a delayed closing on your purchase. The contracts you sign withpeople you sell a parcel to, can have a simple escape clause such as, “sale andpurchase is contingent on the consummation of the purchase agreement on theten acres between you and Mr. Such & Such.” This closing of course, will be atthe end of your delayed closing.

Make sure everyone understands this to begin with as this gives you anescape if in case you can't sell enough lots to be able to complete your closingwith Mr. Such & Such. Using this contingence in the contract with your newbuyers, will cause some to refuse to commit to buying the lot but for most it won’t.

This type contingency is used frequently in the sale and purchase ofhomes. A person may buy a home with the contingency, “The purchase of thishome is contingent of the sale and closing of my present home.”

Having escape clauses in your purchase agreement with an owner cankeep your life from becoming complicated. Let's say that you have arranged asix-months closing on a tract of land and it's been four months and you haven’tbeen able to sell the smaller parcels like you expected to. Four months and youhave only had three sales when you were expecting ten by now! So, it doesn't looklike you will have enough sales accomplished by the deadline to meet your agreedupon funds at the closing, so you need to back out of the arrangement.

First of all, you have put a statement in the purchase agreement with theseller, a statement such as, “sale and purchase is contingent on my attorney'sapproval”. Well, if you can't pre-sell enough lots to come up with your downpayment, then he certainly wouldn't approve of the purchase. Or, “sale andpurchase is contingent on the buyer arranging the down payment by such andsuch date.” So you will have clauses that will allow you to back out of the purchaseof the tract.

And if you have had presales of some of the smaller parcels you created,

clauses that you would have put in those contracts allow you to void thosecontracts and stop the project. A clause could be that the “sale and purchase ofthis one acre parcel is subject to my closing on the entire 86 acre tract with Mr.Smith”, thus allowing you to “escape” from the contract. You can void the presalesyou have had and return their deposits.

So, if it doesn't appear that this particular undertaking will work as you hadplanned, you can back out and get your deposit back. You're only out any cleanup costs, signs, preliminary surveying, etc, but you're out of it instead of beingtied to a “white elephant”.

This arrangement takes any stress off you as to whether or not you will beable to get the sales and be successful with the tract purchase. For those of youthat are not quite as bold as others, if you think about the delayed closing method,with escape clauses, you will realize that your risks are limited. If things don't worklike you expected, you could get out of the contract with your risk being minor.

Can you always get all the contingencies and escape clauses you desire? No you can’t! But you will if you persist and don’t rush things.

CHAPTER 9DO I OPTION TO USE OPTIONS?

An option is just what it sounds like. You have the option to buy the

property or not. The option will state the time period in which you can buy theland and at what price. If you have found some property that you like but havenot been able to obtain the contingencies or escape clauses that you feel youneed, then perhaps an option would be in order.

Let’s assume you have found a tract of land that you really like but theowner in not accommodating and will not finance the purchase, and you can notborrow the purchase money. But you want the tract for its resale value and feelthat you can successfully market the entire tract, or the smaller parcels, over thenext few months.

You could tell the seller that you desire the option to buy his land withinsay, a 6 or 12 month period, at a certain price. This would be after havingnegotiated the price of the property, of course. If the seller agrees to the termsof the option, he will tell you how much the option will cost you. He may state thatfor $1,000 you can buy the property anytime within six months at the price youhave agreed upon. Or he may raise the price somewhat. One way or the other,the option is going to cost you something because the seller takes the propertyoff the market and expects compensation.

The price of the option is the price you pay to have the ability toaccomplish the investigation, planning and advertising that you normally would dowith a delayed closing. If you determine from the advertising response that yourplanned subdividing of the tract will probably be successful as you have had anumber of presales, you could exercise the option and close on the purchase. Orif you don’t feel that the development would be successful, let the option expire.

Another choice you might have is to sell your option. Depending on howthe purchase agreement is worded, you could possible sell your option to a thirdparty for a profit. Always ensure the contract you sign states “your name orassigns”, IE, John Doe or Assigns.

If you had been able to tie up the property at a very good price using anoption, you might be able to resell the tract by selling your option and realize a

nice profit and never have to come up with a down payment or close on theproperty!

You would have to advertise and find someone who feels like you, that theprice of the property is very reasonable and has a good potential. And isinterested enough to pay you a premium for your option. So, it’s possible thatyou could make a nice, quick profit by simply assigning your option to someoneelse for a few thousand more than you paid for it.

Or you could wait longer for possibly higher profits. Let’s assume thatyou’ve found a tract of land at a great price of $100,000, which is quite a bitlower than you think it’s worth. But you don’t have the funds for the 20% downpayment, or the improvements that you feel are necessary.

But you still want to get involved with that particular piece of land. Youmight be able to tie the property up with and option of $1,000 to $2,000 for ayear, with the ability to extend the option. If you can’t resell your option during theyear for a price you are happy with, your contract has stipulations that for $200to $300 per month, you can extend the option another year. At some point youshould be able to sell the option for a sizable profit and never proceed to a close.

On occasion, a rolling option is nice to have. If you’ve found a really largetract of land that you want to work with, you might buy a certain portion of it, withan option on the remainder at a specified price. For each additional block ofacreage that you exercise your option on, the price might be slightly higher thanthe original price per acre, depending on how you negotiate.

Working with options can be profitable in several ways as they give youtime to accomplish your development plans before the interest clock is started,they allow for a possible lucrative sale of the option, and they allow time toorganize a partnership or syndicate to help with your development. But of course,you have the cost of the option itself, which is definitely lost if you don’t exercisethe option, but may be applied toward the purchase price if stated in your optionagreement.

As you start out you need to have any contract you use, IE, aContract for Deed, Purchase Money Mortgage or Option either prepared byor reviewed by a real estate attorney. As you become more experienced youcould perhaps complete them yourself.

I recommend that you have a Contract for Deed or an Option recorded at

the county recorder’s office. You may be told that these documents aren’tnormally recorded, but any document can be recorded and I feel it’s best torecord the option to protect yourself. This might prevent an unscrupulous sellerfrom selling the property to someone else.

As mentioned earlier, an option might be the answer if you can’t arrange apurchase agreement with your desired contingencies or escape clauses.

CHAPTER 10 HOW ABOUT AN AUCTION?

Another technique that I have used to market a great deal of land is a

public auction! A public auction can be an excellent tool for selling a lot of landvery quickly and very successfully, if it is structured correctly!

I've sold 46 lots to different individuals in one day, using an auction!!

Most people think that auctions are used in distressed situations andsometimes that's true. However, they can be used for any sale. Auctions can beconducted so that the sales prices are “absolute”, which means that any bid isaccepted. Or the seller can determine the minimum bid that he would accept andinform the auctioneer, and the auction will be stopped if bids go below that figure.

With an "absolute" auction, the seller is really rolling the dice but with anestablished minimum bid auction, there is protection. Absolute auctions arenormally advertised as such but the established minimum bid auctions are not.Since an absolute auction is an auction where there is no minimum bidestablished, the property is sold at any price! This is really risky and in myopinion, is not necessary.

The alternative to the absolute auction is an auction where, although it maynot be advertised, a minimum bid has been established. If, in the course of thebidding, the bids get too low the auctioneer stops the bidding. This way you havea minimum price set that you will accept for each lot and no lower.

I've conducted two large auctions and they definitely are marketingtechniques. They can be excellent means of selling a lot of property in a shortperiod of time. As I have said, I sold 46 lots in one day with an auction AND wehad the closings the same day!! Which I will explain later.

Should you decide to use an auction there are a couple of things youneed to consider. First of all, don't let the auction company talk you into putting allyour lots up for "absolute" auction. They may try to get you to do this becausethey say "it will bring more people out to the auction!" Don't trust them and don't

put all your lots up for absolute auction!

Let's suppose that you have 33 lots ready to market. You could advertised10 lots at "absolute auction", and then have a minimum bid established for theremaining 23 lots. Or you could simply advertise 33 lots for sale at auction.People have a real curiosity about auctions and will come out; you just have tohave it set up properly. As I mentioned, the auction company may try to get youto list all your lots at absolute auction. This way they know that everything will selland they will make more commission.

That happened to me once as the salesman for the auction companydidn't care about my welfare, he just wanted all the lots at absolute. I listed morelots at absolute than I should have but at least I didn't list all of them that way. Theauction turned out OK but if I had had less lots at absolute sale, I could havestopped the auction when the bids got too low . I would have made more moneyon the project, as I would have had more lots remaining to sell at a normal salesprices.

An auction works well in getting attention to your project and with auctioning off only a few lots, you will get publicity and people coming to your project.

A few lots listed at absolute auction may work as an advertising tool,however I feel that just as many people will come out even if you don't use theword “absolute”. Most people don't know what that means anyway, and wouldprobably have come out one way or the other. I feel that most people think that anauction means absolute so you really don't have to mention that word.

The auction companies normally charge 10% for their services and it can

be taken out of the price that the people bid, or it can be added to it.

I conducted one auction with the auction company taking their 10% out ofthe sales price. This was smooth for the buyers but cut into my net.

At another auction the 10% auctioneer fee was added to the bid price andthis information was posted in several locations under and around the big tent.However some people were upset because they said they didn't realize the 10%would be added, although we had signs everywhere. This method may result inyour receiving a little more money for your lots but I think that the best method isto have the auction company take 10% of the bid price, rather than adding 10%after the bidding is complete.

I feel that land auctions are worthwhile marketing tools but you have to set

them up so you are protected. The land that you auction off can be land that youhave bought and perhaps have free and clear, or it can be land that is not yetpaid for. It could even be land that you have under contract with a delayedclosing as will be explain later.

If you own the property free and clear, you could simply auction it off andrequire 10-20% deposit on the day of the sale with the closing set a few dayslater, at which the buyers would have to bring the remaining funds. Or you couldprovide owner financing with 10-20% down.

If you have closed on the land but don't own it free and clear but have a lotrelease, you could auction it off, with an established minimum bid and require10-20% deposit on the day of the sale, with the closing a few days later asexplained above. At the closing the buyers would bring the balance remaining inthe form of a cashier check and you could provide them with a free and cleardeed after paying your lot release. Or you could provide Purchase MoneyMortgages, discount and sell them, pay your lot release and provide free andclear deeds.

SAME DAY CLOSINGS

At one of my auctions I sold the lots with “owner financing”, and had theclosings the same day, even though I only had a deposit on the land!!

I simply provided "owner financing" with 10% down and had a minimumbid established with the auctioneer. The buyers bid on the lots under the auctioncompany's big tent and made their purchase. Then they went to a “closing” trailerthat we had rented, and completed their closings.

I had arranged for a title company to complete the title search and have

the paperwork for each lot set up for a closing, depending on the sale price andname. The title company personnel were in our sales trailer and when the buyerscame into the trailer, after making their purchase, they had a fast closing!

And since I had a minimum bid set up on some of the lots I knew aboutwhat the total sales would be.

Since I had provided "owner financing", I took back a mortgage for 90%

on each lot. I had made arrangements with a local finance company for them to

buy the mortgages at a discount, and they did that very day! So the auction wascompleted in about an hour then everyone had their closings and the mortgageswere discounted and sold. The discounted mortgages paid for the land as it hadnot been previously paid for!

Auctioning off property that you haven’t closed on can be risky as youmay not sell enough lots to cover the down payment you have arranged with theseller. Or to cover the total price if it is a cash arrangement. It depends on howmuch you like to roll the dice.

As stated before, I feel that auctions can be effective marketing tools, youjust have to put some effort into locating a good company to conduct it and haveit set up properly. I heard of one auction that was really set up properly. Theystarted with a barbecue with free drinks, alcoholic of course, and during theauction, more free drinks! Got everyone plastered and really loosened up andhad a very successful auction!!

An auction needs to be advertised properly in order to get the people tocome out. The cost of the advertisement has to be negotiated with the auctioncompany, as they will try to get you to pay for all of it. There are many auctioncompanies around and some specialize in real estate auctions. You need tolocate one with a good reputation and obtain and check out severalreferences! You need to obtain the name and phone numbers of severalprevious customers and go to the trouble to talk with them before you decide onan auction company!

CHAPTER 11IS FARMLAND GOOD FOR ANYTHING EXCEPTCORN?

As you have probably figured out by now, I believe in"subdividing" in themost simple manner. The ideal situation, in my opinion, is to find a parcel of landabout 300' deep along a paved county road with a six inch water line out frontand easy owner financing! Then simply slice it into parcels about one acre each.

This type situation doesn't come along every day but it does happen. Youjust have to be patient and don't rush things! And operate in counties that areeasy to get along with.

Don't think that you have to become a full-time developer, building streets,recreation areas, etc. (But I will discuss later how you can). Think about simplyobtaining a parcel of land and chopping it up into smaller pieces. And even if theparcel doesn't have full road frontage, the subdividing can be done in a simplemanner, avoiding the expense and trouble of making improvements such asstreets. A later chapter will give you some ideas on how to subdivide a parcel in amanner to avoid building streets.

My recommendation is to find land with as much road frontage aspossible, paved or unpaved. I was concerned at one time that if I tried to sell landon an unpaved road that I would have trouble selling it. But I found out that thatwas not true and I sold a great deal of land on dirt roads.

As you are looking for your land, consider all parcels, even farms. Once I

drove past a farm that the farmer was growing corn right up to the asphalt road.The property was relatively close to town and I felt that it was in a good area. Iwent and talked with the farmer and told him I didn't want to buy his entire farm,just the first 300' along the road.

I have found that one acre parcels in rural areas relatively close to town,sell very fast. There are 43,560 square feet in an acre, so a lot 300' deep and145' wide, is about an acre. In our area, if you keep the lots at least one acre, itis easy to get septic tank approval. Plus in a rural area, you should keep your lotsat least an acre, as they will sell easier. So my normal lot size has been at leastan acre.

Back to the farmer. At first he didn't think he could sell part of his landsince he had a mortgage on it. I explained about releases granted by mortgageholders, upon the payment of stipulated amounts of money. He called hismortgage holder and they told him that they would grant partial releases and toldhim how much would have to be paid to release each acre. Now he realized thathe could sell part of his land and was very happy with this as it could help pay offhis mortgage. And he didn't miss not being able to grow corn completely to theasphalt.

Any farmer that is growing crops along a public road is a good candidateto talk to. Don’t think that property that has been farmed recently and has notrees will not sell. Believe me, it will sell if as I have said before, you keep theprices reasonable and offer owner financing.

So, you could find a farmer such as I mentioned and get him to sell youthe first part of his land. If at first he appears uninterested, it may be that in theback of his mind he’s thinking about the mortgage he has on the property anddoesn't think he can sell part of it. You just need to explain to him that more thanlikely, his mortgage company will release pieces of his land upon his paying thema certain amount of money.

Have him call his mortgage company and ask if they will grant him partialreleases. They will probably say "yes", and will tell him how much is required toget each acre released. He may not want to sell the entire road frontage, but willprobably sell most of it once he realizes that selling the road frontage wouldreduce or eliminate the mortgage on his farm. Strips of land 60' wide could bereserved every so often to ensure that he has access to the remainder of hisfarm. You might negotiate for a strip of land 300' deep along the road and divideit into lots of about an acre each.

The farmer might own his farm free and clear of any mortgage butperhaps would still be interested in selling some of the frontage to generate cash.Once you have gotten the farmer to agree to sell the land and have agreed upona price, talk to him about providing owner financing.

He might also be interested in financing the lot sales and receiving 10-12%interest. In that case he would serve as a lending institution and when you had asale he would provide the financing. The down payment your buyer made couldbe your profit. The farmer would provide the new buyer with a warranty deedwhen the agreed upon sum had been paid.

Regardless how you have the financial arrangement structured, should anew customer desire to pay cash for their lot, pay the amount per acre agreedupon, to the farmer and he will pay it to his mortgage holder, if a mortgage exists. Any excess would your operating capital.

If your buyer wants you to finance the purchase, just sell it on a Contract

for Deed or a Purchase Money Mortgage. You will have to make sure you applythe payments made to you, on your master mortgage and it’s best to have a banktake care of that for you. Either method, a Contract for Deed or Purchase MoneyMortgage sale, is closed by a title company or an attorney.

The closing agent will ensure that the paperwork is structured so that lotreleases from the seller's master mortgage can be obtained as needed. And, incase of a cash transaction, will provide the buyers with a free and clear deed.Or, will provide the paper work necessary for the Purchase Money Mortgage orContract-for-Deed, if it's financed.

If the farmer won't go along with a Purchase Money Mortgage or wants alarge portion of the sales price at the closing, arrange a delayed closing such assix months, or nine months if you can get it, along with escape clauses. Thenerect signs and start selling lots.

As mentioned earlier, always have “escape clauses” in any contract. When you buy the land, put a contingency in the contract that will allow you toback out of your purchase, if you feel you should. And then put one in thecontract of any lot you sell that will allow you to void it if you have to.

And make sure you can assign your interest in the contract to someoneelse, as you might run across such a good deal that you could sell your interestin the contract and make a profit without going to a close, using an option asexplained in Chapter 9.

I am familiar with a gent that puts forth the effort to locate desirableproperty with proper zoning and ties it up with an option or delayed closing. Thenhe has the preliminary engineering planning accomplished, obtains the permitsand appraisals and has the project ready to begin, with the exception of thefunding!

He then sells the entire package at a profit to another party, usually aprofessional such as a doctor or lawyer. After he assigns his interest and the

new buyer obtains financing and closes on the purchase, he will remain andaccomplish the development for a percentage, if they desire.

This activity requires the gent to perhaps risk a few thousand dollars untilhe can sell his interest but he has been quite successful with this method ofoperation. He derives income on his efforts but does not have the financialliability!

As you are talking with various people about acquiring their property, you might keep in mind that if you can not get an arrangement you are happy with, you might ask the owner if he or she would be interested in a joint venture. They could provide the land and you could provide the efforts in subdividing it and split the profits.

CHAPTER 12 SUBDIVIDING THE PARCELS

As I have said before, I feel that the perfect parcel of land is one withcounty road frontage and a depth such that it can just be sliced into lots andresold. But suppose the parcel you have found is not shaped perfectly or doesn'thave much road frontage; then “chop it up” differently!

I found that it is much better to divide some of the land into larger parcels

such as 5or 10 acres, if required in order to avoid development costs such asroads and streets. If it is a fairly large tract of land with some road frontage, theinterior could be subdivided into large parcels and sold at reasonable prices.Then the remaining road frontage acreage could be made into smaller parcelsand the profit made on the road frontage. Later I will relate a story to serve as anexcellent example.

Normally it is a simple matter to subdivide land if it has county road frontage. In my county you can divide land into parcels without an approval process as long as each lot has at least 20' of county road frontage. But if you want to build interior streets, either private or county maintained, it requires an approval process.

You would certainly want to ask the county engineer’s office about the approval process for dividing land which has county road frontage as well as building private or county maintained interior streets.

In my opinion, if you can avoid building roads and streets, you aremuch better off. You can get in and make some money quickly and then moveon to the next tract without a lot of headaches and sleepless nights. So, with thatthought in mind, I came up with ways to sub-divide the parcels with minimumdevelopment costs and effort.

LOTS BEHIND LOTS

One of the methods is to divide a parcel into “lots behind lots”. Let'sassume you bought a parcel of land with road frontage and it’s 800' deep. Well,that is too deep to just slice off into 150' wide lots. It could be done, of course, butI found that the lot behind a lot handles the problem nicely and the response of

the buyers has been positive.

With the lot behind a lot concept, you would start by laying out the front lot,say 150' wide and 400' deep. That would be about 1.38 acres. Then next to the150' lot, create a 40' or 60' right of way leading into the parcel behind the one onthe road. The 60' would not be an easement on another person’s property butwould be part of the lot behind the lot. The owners would drive into their lot onland they own. The lot behind the lot would be about 210' by 400' or about 1.93acres.

Once you look at the diagrams on the last page, you will be able to figurethis method out very easily. The houses on these lots would be so far apart thatthe neighbors would not bother each other and it would allow them to buy theirland at a lower cost because you didn't have expensive development costs. Thismethod of course, makes it cheaper, easier and faster for you to accomplishyour sub-dividing. Once you’ve reviewed the diagrams you could decide whichmethod would suit your needs for your tract of land.

Earlier I mentioned 40-60' right-of-ways. This is because it gives theperson behind the front lot adequate width for a road and land for the utilitiessuch as water lines and power lines. But, smaller lanes may be feasible, such as20-40' right-of-ways. Check with your county engineer as your county mayrequire a certain minimum road frontage.

KINGSFIELD NORTH

Once I located an 80 acre parcel that had road frontage on three sidesand a six-inch water line surrounding it! I used the lot behind a lot concept andcreated “KINGSFIELD NORTH”, in a very inexpensive manner. The lots were atleast an acre with the second layer lots being about two acres and it has built outinto a very appealing development.

The only development costs on KINGSFIELD NORTH were clean up, lotlayout and surveying, and signs. The clean up did entail costs of cutting a greatdeal of the underbrush. It was very attractive property with mostly pines andsome oaks but the vegetation was so thick that you couldn’t walk around on it. SoI located a gent with heavy duty tractors and bush hogs and had him cut thebrush. The lots looked great and the features of each could be determinedquickly such as oaks trees, streams, or rolling hills, etc. Plus the prospects couldnow walk around easily, so the clean up helped my sells tremendously.

Cutting underbrush and having limited clearing done allowing the people tobe able to walk over the property and see the features and is well worth the effortand cost. This way they can visualize how they would position their house andother buildings, and it greatly increases sales. The people also need to be able tosee the boundary lines and locate the corners of the lots.

When you first start thinking about subdividing or chopping up land, Irecommend that you think, “How can I do this in the most simple manner?” Thelot behind a lot concept may be desirable but ask your engineering company forother ideas on ways of subdividing your tract in an inexpensive manner.

LEGAL DESCRIPTIONS AND SURVEYS

Now is a good time to cover legal descriptions and surveys. The legaldescription of a certain piece of land describes as accurately as possible it’sposition and boundaries. There are three methods of describing a lot or tract ofland; Section, Township and Range, which is part of the government rectangularsurvey system, Lot and Block descriptions of recorded plats or subdivisions andMetes and Bounds descriptions.

Section, Township and Range descriptions are normally used for largetracts of land, such as the NE Quarter of Section 19, Township 2 North, Range31 West.

Lot and block descriptions are utilized when the subdivision has beenplatted and recorded at the court house deed room. Once the plat has beenrecorded, the lots can be described by lot and block designation in that particularsubdivision. This is a much shorter legal description than the metes and boundsdescription. The description could be “Lot 4 of the recorded subdivision of LakeSmith as recorded in OR book 4, page 16".

Metes and Bounds means “measurements and bounds”. Metes are themeasures of length and Bounds were originally boundaries such as rivers orroads, etc. Now they originate at a known marker or point in the ground such asa section corner and are used to describe irregular shaped lots or tracts of land.

Normally the surveyor determines the distances and angles of a particulartract of land he is subdividing and produces the legal description. The descriptioncan sometimes contain many sets of angles and distances to completely describejust one piece of land and its beginning is normally referenced to a sectioncorner. Occasionally a benchmark will be used to determine the elevation of the

land, if needed.

SURVEY SYSTEM

In order to be able to produce legal descriptions and conduct surveys, thegovernment established a method of using the latitudes and longitudes of theearth’s surface to develop square grids. The US is divided by 36 PrincipalMeridians which are vertical lines running north and south and are named, suchas the Second Principal Meridian. There are also horizontal lines running eastand west across the country, called Base Lines.

On both sides of the Principal Meridians, the land is laid off in six-milewide strips which are termed Ranges. On either side of the Base Lines the land isalso laid off in six-mile wide strips termed Townships, which results in 6 mile by 6mile squares, or 36 square miles each.

Each Township containing 36 square miles, is divided into 36 one squaremile Sections. Each Section contains 640 acres. Each Section is divided intofour Quarter Sections of 160 acres each and each Quarter Section is dividedinto 40 acres or Square Forties. An acre is approximately 209' x 209' or 43,560square feet.

SURVEY PROBLEMS

Since the early survey work was primitive, as can be imagined, it stillcauses problems today. If a corner marker such as a section corner was notplaced exactly in its proper place, everything referenced to that “point ofbeginning” would be in error.

I am painfully aware of some of the problems that can cause. My Fatherbought a house in a rural area once and there was a current survey at theclosing and everything appeared in order. A couple of years later, the neighborto the north came by with a survey that she had obtained from a differentsurveyor, that showed that ten feet of my Dad’s house was on her land! Whenthe surveyor the neighbor used started running the section line, he started at adifferent point of beginning than the one our surveyor used. And that caused theneighbor’s property line to appear about 40' to the south!

We had to go to the expense of having our survey redone by a thirdsurveyor and it showed that everything was OK, since he started at the samepoint of beginning that our original surveyor had. So what to do? We had a

survey starting at a point of beginning to the south and the neighbor had a surveystarting at a different point of beginning to the north and they didn’t agree! If wewent to court and the court ruled in favor of the neighbor we would have to movethe house or pay for the 40'. So I arranged a settlement with the neighbor andpaid her. It amounted to a parcel of land that basically didn’t exist!

HOGS AND SHEEP!

One day a person that had bought a lot from me about two years prior buthad not built a house, gave me a call. He was all excited, as the neighbor to thenorth had erected a farm fence about three feet into his lot! I went up and lookedat the fence and talked to the neighbor, who was very uncooperative. He showedme the stakes in the ground that his surveyor had placed there recently and howhe had erected his fence, and said that he wasn’t about to move it!

I had my surveyor come out and recheck the corners and he confirmedthat our survey was correct and that the one the neighbors had was wrong. Twodifferent points of beginning had been used, and the property was in the samearea as my Dad’s house, so I could see what the problem was and knew thatthere was no easy solution.

However the neighbor decided on a solution! He was from a middleeastern country and told us that if we persisted and moved his fence that hewould fill his lot with sheep and hogs right up to the fence which would be nearthe other person’s new house! After considering that possibility my frienddecided not to pursue it!

TECHNOLOGY ADVANCES

With modern technology such as global positioning, (GPS), the surveysare extremely accurate and can also allow for shortcuts in field work as thesurveyor can go directly to a corner without numerous measurements as in daysgone past. A few years ago, each time I ordered a boundary survey of a parcelof land, the surveyors would cut through the vegetation along the boundary lineand flag it with survey ribbon. The lines were very visible and it was easy to walkthe lines and investigate the land.

Presently, unless you specify that you want the boundary lines cutthrough, you will probably only receive the corners marked with a stake andsurvey ribbon, since the workers can proceed directly to the corners withoutcutting the boundary lines.

This was a rude awakening for myself once, since I thought the price of

the survey that we had agreed upon included the cutting of the boundary lines.But the company said that it didn’t. Make sure you have a good understandingwith the engineering firm, as to what they are going to do for the agreed sum ofmoney.

Normally on a sale and purchase, a boundary survey is provided and paidfor by the seller. Make certain this is discussed and agreed upon prior to signingany contract. And if possible, have the property lines cut in so that you can walkthe lines and see the entire acreage.

CHAPTER 13 MOBILE HOME LOTS

Some developers have done quite well financially developing mobile homelots so we will discuss those. Normally mobile home lots are only 1/4 to 1/3 acrein size so many lots and therefore many sales can be made on relatively smallparcels of land. However, the one mobile home development that I accomplished,resulted in a lot of trouble and effort with minimum profit.

I became interested in mobile home lots after a friend told me he wasselling ¼ acre lots for $10,900 each! Over $40,000 per acre!! I thought, man, I’vegot to get into this! Bad Call! Before I got finished with my mobile homedevelopment, I wished many times I had not gotten involved. Prior to this, mymode of operation had been to buy land with road frontage and “chop it up”. (That’s my slang for a very simple subdividing of land.) Now my life was going toget complicated.

BROOKHILLS ESTATES

After my friend told me how well he was doing I decided to locate someproperty and put together a mobile home development. I had been chopping upland for a while and had some operating capital available. I found 20 acres thatwas in an area in which there were already a few mobile homes. The parcel wasrectangular and just about the right width to put a street down the middle and havelots on either side. Due to the terrain features and the space allocated for theroad, I was able to produce 28 lots of about 1/4 acre each. I decided on thename of Brookhills Estates.

The land cost $5,000 per acre or $100,000 and I had 28 lots at $10,900each or $305,200, minus expenses. That sounded pretty good!

After the closing, I had the engineering firm lay out the road and lots. Then I hired a bulldozer operator to clear the road right-of-way for the road. Atone location the road was to cross an area which had a small stream and was a“wet area”. We had to slow things down until the engineering firm had time toobtain a permit from the state in order to put the road through this area.

A strong word of caution! You don’t want to get crossways with anyenvironmental agencies! Make sure you get the necessary permits and abide bytheir guidance!

The small stream looked harmless but we were told that there was a largedrainage area that flowed through that area and that we would have to installmany large culverts or build a good size bridge. I went to the Soil ConservationOffice and once they analyzed their maps, they confirmed the large drainagearea.

I feel now that I should have gone with the culverts but I decided to have abridge built. I had the engineers design the bridge and I located a concretecompany who poured the side support walls and then had a structural concretefirm place concrete beams across the top. When the side rails were installed, wehad a bridge! It really looked good but I found out later that on occasion thevolume of water coming through completely filled it and maybe the culverts wouldhave been better.

Prior to the road being paved, I had to arrange for a waterline to beinstalled to service the homes. I went to the small municipal water companynearby and was shown on the maps where the nearest waterline was. I was toldthat if I wanted their water that I would have to have the water line installed, andgive it to them!

The existing waterline was to the north of my project and if we were tofollow a street route to our location, the line would be very long. The otheralternative was to cross a gent’s property to the north which would save me greatdeal of money. I visited the gent and he said OK that I could have the waterlineinstalled on his property but he would charge $2,000 for the easement acrosshis land. So I paid him and had a utility company install the line.

The line was mostly straight, about 2,000 feet long and came down astreet, across the neighbor’s property and through the middle of my development,stopping at the entrance. The cost was over $8,000.

After the line was installed but before it was officially turned over to thewater company, one of the neighborhood kids turned off the shut off valve thatwas installed at the start of the new line and the water was cut off. I realized it acouple of days later and complained to the water company. They sent a worker toturn it back on and when he did, he promptly blew the end of the 2,000 foot line

off! It blew the fire hydrant at the end of the line completely out of the ground!And the water was flowing like crazy!

I was to learn that day that if a waterline has drained, you have to open avalve downstream and fill the line slowly allowing the air to escape, or it will blowthe end off!

I almost blew a gasket when the water company people told me it was my problem! The repair cost me $700!

So, I finally got the bridge finished and the waterline up and running and

had the paving contractor pave the street. I decided to use a private road sinceour county requires full curbs and gutters for the county to accept any road formaintenance and those type roads are really expensive. The only problem with aprivate road is that there has to be a homeowner’s association to take care of it. Iwill discuss private and public roads in a later chapter.

Once I started selling the trailer lots, I realized that I had to help thebuyers more than I expected and that resulted in much effort on my part. Onething I found was that most people who live in mobile homes are living in them fora couple of reasons, and those are that they have little financial resources orhave credit problems. There are of course, many people living in trailers that donot have bad credit and there are many very nice mobile home developments.However, in my area it seems that a good deal of the people who are shoppingfor, or living in mobile homes, have bad credit or no money for a down payment.

EASY FINANCING

When I started advertising the mobile home lots, I found that I had toprovide very easy owner financing in order to make the sales. Invariably thepeople would tell me they didn’t have the money for a down payment or that theyhad bad credit. Consequently I had to offer owner financing with only $100 down,in order to get the lots sold!

I provided purchase money mortgages and then discounted and soldthem. I raised the price of the lots to $11,900 with $100 down and had to discountthe mortgages a great deal due to the small down payment and the credit ratings.I received about $7,900 each.

With the fact that there was such a small down payment involved, the

company that bought my mortgages reserved some of the funds in case ofdefaults. They kept $2,000 in reserve for 3 years in case someone moved off andleft the lot and they had to foreclose and resell it. If there was a shortage whenthey got it resold, it would be made up by the funds in the reserve, and therewere several lots that fell into this category.

The buyers had to have funds for their electrical service pole and septictank, so they had several hundred dollars of expense before they could move intotheir home and this caused problems. The septic tanks were costing about$1,500 and the power poles about $500 and some of the people asked me to add$2,000 to the price of the lot and provide a septic tank and power pole.

So we added $2,000 to the total cost for the improvements and thisworked OK but it caused extra effort for me getting the tanks and poles installed.Finally I told the buyers that they would have to put forth the effort required to getthis accomplished themselves and I would simply provide the funds.

There is one very important area that I can help you with if you areconsidering a mobile home development. The area is in obtaining financing, bothfor the development and for the buyers to acquire their homes. Go to the Internetand type in www.yahoo.com and then search for “manufactured homefinancing”. There are numerous companies which provide financing formanufactured homes and a great many of them have zero down. I located onewhich even provides land financing for a developer; www.aaa-mortgagebuyers.com/index.html.

RESTRICTIONS

If you become involved with a mobile home development make sure you

put deed restrictions on the development in order to keep it looking decent. Andmake sure each buyer gets a copy of the restrictions. The restrictions shouldaddress inoperative or junked automobiles, number and size of sheds that can bebuilt, and that they must be built of new materials, skirting around the lower edgeof the mobile home, maximum age for the home, what type and location offences, etc.

You can visit other mobile home developments as though you were aprospect and ask for a copy of their restrictions and covenants and duplicatethem. Or visit the deed room of the courthouse and get copies of any recordedrestrictions on a particular development.

DECKS

Once during a visit to another mobile home development, I saw that they

were using decks on the front of the mobile homes to improve the looks of thetrailers and thus the development, so I started doing the same. I added the cost ofthe deck to the complete package and had a carpenter build them after the homewas set up. It greatly improved the overall appearance of the development.

I finally got the development completed and found that with everythingconsidered, i.e., putting the project together, working with the people, sufferingthe discounting of mortgages, having to reserve funds, etc., it definitely was notworth the effort.

Let’s put it this way, I accomplished one mobile home development with28 lots and I would never do another one! But, there are developers whoconcentrate on mobile home developments.

I would say that if you are interested in producing a mobile homedevelopment, locate developers who continue to work in this area and visit theirprojects and talk with them and learn as much as you can from their experiences.

MANUFACTURED HOUSING

In recent years the “manufactured housing” industry has greatly increasedand the homes are large, attractive, and somewhat expensive. The people whoare buying these homes appear to have more funds and better credit than theones I encountered with my mobile home project.

I am familiar with a successful manufactured housing development whichis a first class operation. The person who created the development is thedeveloper, the authorized dealer for the particular homes that they are installing,and the realtor for the sales. The project is highly restrictive with each ownerrequired to have installed a double, awning type carport, concrete double drive,large deck and skirting around the bottom of the home. Plus there are severalother restrictions which will ensure that the subdivision has a pleasingappearance.

There is an impressive entrance and a great deal of landscaping providinga pleasant experience as you drive in. There is a homeowner’s association in

place to collect monthly fees and provide the development upkeep.

The lots are only one-third acre and the cost with the double drive, carportand deck is $35,000. The homes average $65,000 or about $100,000 total.

The subdivision and the concept is so appealing that it causes one toconsider duplicating it, especially if you can become the developer, wholesaledistributor of the homes, and the sales person. If you were considering a mobilehome development, I would highly recommend a first class manufactured homesubdivision, if your property and community would support a higher cost item.

CHAPTER 14RECREATIONAL PROPERTY SOUNDS LIKE FUN!

Another time I complicated my life was once more a deviation from mystandard mode of operation. I indirectly became involved in a lake retreatdevelopment. How does a lake retreat in a beautifully wooded area sound? Pretty good, right? Well, be careful.

DEERLAKE RETREAT

The retreat that I built, “Deerlake Retreat”, was a development of 20 lotssurrounding an 11 acre lake situated on an 80 acre parcel. The retreat had manyacres of wooded common property which was used for walking, hunting, etc. Itwas a beautiful area, not too far from a major city and would seem to sell veryfast. But that was not the case.

I originally bought the 80 acre parcel for my sons and I to hunt on as itbordered a very large tract of land owned by a paper company. We were goingto build a cabin, enjoy the woods and of course hunt during the hunting season.And it was a good area for hunting as I got two eight points the first season andone of my sons got a ten point and the other, a six point. But it was a largeexpense that we were seldom using and my wife was on my case, so I decided tosell it, but it was so far out that I had little response to my ads.

About that time, the adjoining property owner asked me to sell him 4 acresnext to his property so that he could put the toe of a dam on it and build a lake. Isold him the land and watched him build the lake. And I thought, “that doesn’t looktoo hard, I think I’ll build one, survey in a few lots, sell them fast and that will bethat. The 80 acres will be sold!”

So, I had the preliminary engineer work done and the lots laid out with aplat drawn. I had an appraisal completed, (which I found out later was way out ofline), and went to the bank I used. The appraisal was for $450,000 and I toldthem I wanted $200,000 and they said “sign here”. They used the appraisal anddidn’t require that a feasibility study be completed. I feel that had I had afeasibility study done, to back up the appraisal, it would have been negative.

The reason a feasibility study would have been negative is because the

retreat was situated near the Gulf of Mexico with its numerous beaches and bays,which offer many recreational opportunities. Personally I didn’t think too muchabout that as the property was 50 miles from the water and I prefer the woodsand lakes to the beach. But it certainly was to play a role in concluding the saleof my lots.

Anyway, I got the loan and hired a consultant civil engineer and westarted building the dam. The ideal spot for a dam is a valley that a great deal ofland can be flooded with a short dam, one that is vee shaped. But my propertyhad a valley that was shaped like a u instead of a v, so it cost more to build. Myvalley floor was flat instead of sloping and the bottom of the dam was about 500long which required a lot of dirt. And the engineer made sure it was built verysoundly.

The core is the most important part of a dam as it prevents the dam fromleaking. Normally the best type soil is the sticky clay that resembles moldingclay. There happened to be a huge deposit of this type material near one end ofthe dam and a great deal of it was moved into the valley floor. The valley floor ismuck that can be 10-20' deep and it has to be removed and replaced with thecore material and that can be a monumental job.

Usually a large crane or a large back hoe, a track hoe, will remove themuck as bulldozers push the core material into place. Replacing the muck withthe core material was the most demanding part of the undertaking but it waseventually in place. Each day I watched as the trackhoe operator teetered on hismats on the soft muck, and one day he and his machine basically disappeared!He finally managed to get the trackhoe back on the edge of the mats andeventually pulled himself out.I thought the machine was a goner.

As a dam is being completed, the core material continues up through thecenter of the dam to the top, with the sides being filled in with fill dirt. The front ofa dam is not as important as the back and if the back starts leaking, as is evidentby wet soil, it has to be repaired. The repair consists of placing a layer of coarsesand type material over the wet area a foot or two deep covered with grass. Thesandy material allows any water that leaks through to follow the sand down to thebottom of the dam and not rise to the surface.

The majority of the trees in the lake area were cut down and burned and

the area from the projected water edge extending out several feet was cleared toprovide fishing without constant tangling of the lines.

The dam was large and expensive but was finally completed and createda picturesque 11 acre lake. The stream that fed the lake flowed constantly withcrystal clear spring water. Some trees had been left in the lake to provide forbetter fishing and they added to the attraction. In the years since the lake wasstocked, several huge bass have been caught.

There was one very tall pine tree that was left standing and a short timeafter the lake was filled, I decided to go out in a boat and cut it down with mychain saw. As I started to saw it down the side pressure caused my boat to moveaway, so I tied it to some bushes next to the tree and continued to saw. I thoughtI had it cut so that I knew which way it would fall but to my dismay, the darn thingstarted to fall backward toward my boat!

I tried to get the boat loose quickly but didn’t have time and the monstertree fell across the bow of my boat, catapulting me and the chain saw, which wasstill running, about 10' into the air and into the water! I finally located my saw onthe bottom of the lake but couldn’t move the boat because the %$*# tree was onthe bow! After much difficulty I made my way to the shore and once I took thespark plug out and dried it off, was able to start the saw! So, I swam back andsawed the tree off the very damaged boat and paddled in. So much for being alumberjack!

An older gentleman that had a bulldozer lived nearby and he and I clearedland and built walking trails all over the 80 acres. We also built a corral foranyone with horses.

The old gent had long hair and a Santa-like beard and one day as I waswalking toward the area in which he was working, I saw him running down theroad yelling at the top of his voice, with the dozer following him! He had abandonship while the dozer was still running, as he had stuck the nose of it into a beenest! He had put it in reverse and jumped off as he had bees in his hair and inhis beard! He had so many stings that we took him to a hospital!

We built over two miles of roads leading into the retreat. To build theroads, we took the trees down and burned them, then graded the land as best aswe could with the dozer. Then we had a gent shape them up better with a smallroad grader. After that I had gravel hauled in from a nearby pit to stabilize the

earth and the cost was exorbitant.

One thing I learned from that experience was how to build dirt roads! NowI’m a dirt road sport!

Actually if you should have to build a dirt road, the one aspect of theconstruction that makes for a road that won’t wash out, is a good crown in theroad. With a large crown, (raised center section of the road), the water will exitrapidly and cause little damage. Without a crown, the water stays on the roadand as it runs down, causes erosion damage and will be a constant problem.

Initially I had the dozer operator build the roads which were on a hillsidewith designated water turn-offs. Every 20-30 feet we would build a large hump inthe road which would cause the water to exit to the side. But there was a constantproblem with erosion. Finally one day an older gentleman that had worked in thetimber industry for many years told me to forget the water turn-offs and just builda nice crown in the road and it would solve my problem. We did, and it did!

Needless to say, by this time the $200,000 was long gone and I had tohatch more and more funds! The total cost of the development was such that thelot prices had to be high in order to break even, so that helped cause the sales tobe slow.

Much to my astonishment, I discovered that should you structure yourdevelopment so that it has limited use, you have limited prospects! And especiallyif it is in an area that has many other recreational features. What a surprise!

After having done one, I wouldn’t recommend building a recreation areaunless it is quiet large, and very competent feasibility studies have beencompleted. The property has to fill a need for the area and be so appealing thatthe interested parties can’t live without it, in order to get them to commitfinancially to a second home or weekend property.

One mistake that I made was putting a 600 square foot minimum area forany cabin. This required a somewhat expensive cabin and later I saw someterrific, very small cabins, which had much more personality than the ones I builtand were very inexpensive. In retrospect, I should not have mentioned a minimumcabin size.

Most people thought that if they paid $25,000 for one of my lots, they

would have to spend another $50-75,000 for a cabin. So I hired a carpentercrew to “shell-in” several A-frames and small cabins. I got the A-frames shelled-in for $10,000, and was finally able to sell the lots with partially completed cabinson them, for $35-40,000 each.

Eventually the retreat was finished and sold out and I took a break for acouple of years. The project was difficult but it wasn’t too hard, with one reasonbeing that due to the fact that it was so far out, there was no consideration forwater or sewage lines. At least I didn’t have to worry with those. I just told thebuyers they had to use a well and a septic tank.

A recreation area could be fun to build if you have the appropriatefunding so that it can be properly planned and constructed, but I would be verycautious of getting involved in one. Everyone has to have a place to live but theydon’t have to have recreational property!

CHAPTER 15 SHOULD YOU TRY A “FORMAL” DEVELOPMENT?

I have explained ways to subdivide in a manner to avoid expensive

improvements such as paved streets. As I have discussed, when you find land ona public road, normally a county road, it is normally simple to just slice it up andresell it if your county doesn’t object. And in this case there is no need toestablish a homeowner's association as the road is being maintained by agovernment agency.

Also on a public road it’s not normally necessary to have the subdividedtract designed and drawn by an engineering firm as a formal platted andrecorded subdivision, unless you particularly desire to do so or unless yourcounty engineer requires it. It could be an unrecorded subdivision and each lotwould simply have its own legal description described in metes and bounds,which was explained earlier. As I mention elsewhere, every county is different soyou should check with you county engineer’s office before you start anysubdividing.

As you grow and become more involved, you may want to accomplish aformal platted and recorded subdivision with paved interior streets, curbs,drainage systems, drainage retention areas, recreation areas, etc.

SETTING UP YOUR BUSINESS

You are probably familiar with some of the real estate attorneys in yourarea. Visit one and ask for help in setting up your business. You will have todecide how you will be doing business, as a Sole Proprietor, a Partnership, anLLC (Limited Liability Company), or a Corporation. He or she can help you withthe paperwork to properly start into business in the manner you decide. And theycan advise you on any license you should have or any regulations you shouldbe aware of.

Should you decide to construct a large development, you may want toform a partnership so that you would have the contributions of the partners toenable you to accomplish the project. Or perhaps form a corporation and sellshares, but this can be touchy so make sure you have proper legal advice before

selling any shares.

Your attorney will also help set up your development. You will either bedeveloping a county “platted and recorded subdivision”, with county maintainedstreets, or an “unrecorded subdivision” with private streets.

PUBLIC STREETS

If your development is within the city limits and you desire the city toassume maintenance of the streets, you will have to build the streets to accordingto their specifications. And the same goes for the county should yourdevelopment be outside the city limits. Normally the city and county specificationsare about the same and include paved streets with full curbs.

If you produce a subdivision with streets built according to the city orcounty specifications and will be turning the streets over to one of thegovernmental agencies for maintenance, no homeowner's association isrequired. Also if the streets are built according to their specifications, they willallow the subdivision plat to be recorded.

PRIVATE ROADS

In our county, if your roads do not have full curb and gutters, the countywill not let you record the plat and will not accept the streets for maintenance. The alternative is to use private roads which will have to be maintained by thehomeowners. There has to be some method to ensure proper road maintenancein order for the lot buyers to obtain mortgages for their houses and this isaccomplished by a homeowner’s association. Lenders won't lend funds forhomes unless they feel comfortable that the streets will be maintained by either agovernmental agency or a homeowner's association.

As you’re planning your development, you will have to decide whether touse public roads or private roads, and normally the decision is based on cost. Streets built to county specifications usually have full curbs, gutters, retentionponds, etc., and are expensive. But if the number of lots and the expected profitsjustify it, then county roads may be the proper choice.

Make sure you check with the County Engineer or your engineering firmas to the requirements for the county to accept your roads for maintenance. Youmight luck out and be in a county that still accepts dirt or gravel roads, which are

much cheaper. Most counties won't accept these and you have to have thempaved to their specifications before they will accept them and assume themaintenance responsibility.

If your county won't accept roads unless they are paved to theirspecifications with curbs and drainage systems, and your funds are limited, plusyour land is rural, then private roads may be the answer.

Private roads can be either paved, dirt, or gravel. Paved roads require thestorm water to be collected and treated in retention ponds or with ditches and thisapplies to both public and private roads. Using dirt or gravel roads, the rainwaterdoes not have to be collected and treated.

Since paved streets with the full, laid-back curbs are expensive to build,and my property was rural, I used paved roads without curbs on a couple of mysubdivisions. Therefore I had an attorney create homeowner’s associations.

A decision needs to be made whether to use public or private roads earlyin the planning stage as this affects your entire developmental efforts.

There are many decisions that have to be made as you grow in thisbusiness and that is one reason that I feel that my book can be of great value tomany people. What decision do you make? Can you sell lots on a private road? Yes, you can!

I thought that private roads and homeowner's associations might hurt mysales but that never seemed to be the case. Some people prefer private roads asyou can restrict access, and homeowner’s associations don’t bother them.

The disadvantages of a homeowner's association are the annual dues andthe efforts necessary to maintain an active organization to keep the commonproperty maintained. You don't have to manage the homeowner’s associationpersonally, as you turn it over to the homeowners when the development isfinished, or nearly so, but some associations tend to be disorganized andineffective.

PLANNED IMPROVEMENTS

Information concerning planned improvements is in order. In some statesthere are state agencies which monitor planned improvements. Normally you

can't sell lots until the advertised improvements are in place. Discuss this withyour attorney to determine if that is the case in your state. If it is you will need tocomplete the advertised improvements before making sales or you may be fined.

If you don't have the funds to accomplish all your planned improvementspresently, and you intend to complete them as you have sales, then you will haveto do it without advertising or telling the prospects about the plannedimprovements, until they are completed. As you take on a platted subdivision with various improvements, you reallyneed the services of a competent real estate attorney and engineering firm tohelp you satisfy all the governmental agencies. And there are a bunch; city,county, state and federal. If you slice up land that is on a public road with road frontage,whether the road is paved or unpaved, and you don't plan anyimprovements, you usually don't have to deal with all these agencies. Itkeeps life simple!

RECORDED AND UNRECORDED SUBDIVISIONS As mentioned earlier, subdivisions are either recorded or unrecorded. Ifthe streets are built to county specifications they will let you record the plat of thelots and streets and this is a recorded subdivision. If the streets are not paved totheir specifications and are private, they will not let you record your plat and it isknown as an unrecorded subdivision. With a county road and a recorded plat, the lots are described as “Lotsuch and such, of such and such subdivision”. This would be the legaldescription of the lot and would be a short description. With private roads and anunrecorded subdivision, the legal descriptions have to be in the form of “metesand bounds”. This type description can be quite lengthy as it includes angles anddistances to describe the particular piece of land. Either description serves wellalthough the title companies and closing agents prefer the short version.

As mentioned, when you buy property on a county road and simplysubdivide it into a certain number of lots, each with some public road frontage,(in many cases as little as 20'), you don't have to pave streets and you don't haveto put together homeowner's associations!!

When deciding whether to use county roads and a recorded plat, orprivate roads with an unrecorded plat, the decision will probably be madeconsidering the expenses and your resources. Your engineering firm canprovide preliminary engineering information of your streets and you can take thisinformation to several paving contractors for estimates and make a decision earlyin the planning stage. A decision can even be made before preliminary engineering work isdone by simply asking the paving contractors for a general cost per lineal foot fora street with full curbs and for one without curbs. Then analyze these estimates,considering the estimated length of the roads and the funds you have available. OBTAINING FUNDS FOR A FORMAL DEVELOPMENT EVEN THOUGH YOUHAVE LITTLE EXPERIENCE

OK, so you've decided to pave some streets. What next? This is where avery professional engineering company is a must! They can help you in severalareas, not only in the actual planning of ways to subdivide the parcel, but alsoby providing assistance in locating and obtaining the funds you may needto accomplish the improvements you have planned!

Let's assume you have decided to develop a parcel of land with pavedstreets, water lines, sewer lines and other improvements, but you don't have thefunds to accomplish it! You have located a tract of land that you feel is in a good area but theprice is high and would necessitate developing it into a high number of lots, andthus paved streets and other improvements. You need to go to a reputableengineering firm and ask for their help in subdividing the tract and in raisingfunds.

They will provide a preliminary drawing of the lot lay-out and estimate thecost of the improvements needed. And if requested, they can also structure aformal presentation for a lender with architect's renderings, schedule of eventsand estimated costs! And, working with a prominent real estate company, you can obtaingraphs of expected sales and thus the expected profits, factoring in the cost offinancing. Also a CPA’s analysis would be helpful. Then if you desire, make thepresentation to the banker yourself or have the engineering firm conduct it. With

this type professional help and a formal presentation, the banker feelscomfortable that the project has been planned properly and will probably providethe funds requested.

If you get the funds approved by yourself, this is great. But you may betold that your organization needs more financial strength and in that casepartners could be brought in. With the fact that you have located and tied upattractive property and have a development properly analyzed and planned,finding partners is not that difficult.

One point to remember, a professional engineering firm can be veryinstrumental in your obtaining funds to accomplish a development! So, you’ve arranged your funding and you're now on your way tobecoming a full-time developer! You will continue to rely on the engineering firmfor their guidance in accomplishing the steps of the development. As you becomemore experienced you will rely on them more and more so always associateyourself with a top-notch engineering firm.

ENVIRONMENTAL REGULATIONS One area in which an engineering firm can help is the environmentalregulations. You don't want to break any of the county, state or federal agencyregulations and the best way to avoid this is to rely on your engineering firm. Askthem to drive out and take a look at any area of your land that may be in a “greenbelt”. This is normally a wet area and is defined by certain vegetation and isenvironmentally sensitive. You may not be allowed to disturb it with heavyequipment. Always ask someone from your engineering firm to visit the propertyand walk over any land before you buy it! They may be able to point outcharacteristics of the land that you have not analyzed. (Another escape clauseshould be; “Purchase subject to my engineering firm’s satisfactory inspection”.) Also, always obtain aerial photos of the land from the County TaxAppraiser's office as they can help you and the engineering firm. I alwaysobtained aerial maps on any parcel of land that I was looking at, as a great manyfeatures can be determined without having to walk over it. And then I certainly used them as I was making decisions about how best

to subdivide the parcel. Of course the engineering firm will give you suggestionson how to subdivide the land but I always had input myself. And it came mostlyfrom the aerials. The aerials are not expensive and normally can obtained at theCounty Appraiser's office or a Regional Planning Board.

SURVEYING THE LOTS AND STREETS If you have decided on an improved development and have your fundsarranged, the next step is to have the engineering firm survey the lots and streets.Make sure you have an understanding with the firm as to what they will do foryou. As they survey the lots, will they just put in the corner markers or will theycut through the vegetation along each property line?

I have found that if you have large wooded lots it is very important to havethe property lines chopped completely through and marked occasionally withsurvey ribbon. This is so that as the property is being shown, the potential buyercan see exactly where the property lines are. If the lots are small and most of thetrees and bushes removed, you can get by with just flagging the corners in a veryconspicuous manner.

Most potential buyers want to know exactly what they are buying and itmakes it easier for yourself or a real estate agent to show the property if youhave the property lines cut through with good markings.

After the engineering company surveys the lots, streets and retentionponds, it is time to have trees removed. You will have to locate someone with theheavy equipment to clear the street right-of-ways and any retention ponds.

RETENTION AREAS Normally one of the regulatory agencies that you will have to deal with hasregulations that require retention ponds. If an area is covered with asphalt paving,the first amount of rainwater has to be collected and "retained" so that the run offwill have time to settle into the ground.

The location and design of any retention areas will be completed by yourengineer and is very important in the early stages of the design of yourdevelopment. As mentioned earlier, dirt or gravel roads do not require retentionponds.

TREE AND STUMP REMOVAL

As you are planning to remove the trees for the streets and retentionareas, locate people who will pay for your pine trees. Normally there are smallcompanies which will pay for those trees, remove them and carry them to apaper mill. If you’re working with an area in which the stumps will have to beremoved, such as a roadway, it is best to allow the dozer operator to push thetrees down first as the operator will use the weight of the tree to help get thestump up. If the tree has been cut down, the dozer operator will basically have todig the stump up and will take more time and cost more money. Working with a dozer owner can be somewhat difficult. He will want towork by the hour as it is very difficult to estimate the time and cost of large jobsbut I found it best to require a specific price for the job. If he is working by thehour, unless you get the readings of the meter on the dozer, you really don’tknow how many hours were actually worked while you were away. Or whetherthe hours requested pay for, were legitimate.

I feel it is best to get 2 or 3 estimates for the entire job and use the oneyou feel most comfortable with. Also, always require a copy of his insurancecertificate for workman's compensation in case he gets hurt while working onyour job.

PAVING When it’s time to have the paving installed you certainly need to obtainseveral estimates. By this time your engineering firm will have complete thedrawings of the proposed road, which will include elevations and such. Take thedrawings to two or three paving contractors and obtain firm estimates. If you don'twant to work with a dozier operator to remove the trees and do the rough grading,ask the paving company if they will also include that and give you a completeclearing and paving package. Make sure when you are working with a paving contractor that you have agood understanding about what their services will include and get it in writing. Have a clear understanding on things such as whether they will install grass orground cover to control erosion on the sides of the paving. Require that they bespecific as to what they will do for the stated price, especially what type curbsthey will be installing! There should certainly be no misunderstanding in this area.

A problem with private roads without curbs is that the asphalt willeventually shift in some areas such as around curves, and the edges willcrumble. A ribbon curb can be used which is a concrete strip about 8" wide and8" deep which prevents the asphalt from moving and is about half the cost of fullcurbs. It is put in place before the paving and although it prevents the asphaltfrom crumbling, it will not control the rainwater and our particular county will notaccept this type road for maintenance.

As stated earlier, the type curbs and paving you use will normally becontrolled by the costs and the funds you have available for your development.

So, as you grow and accumulate experience and resources, you maywant to complete an improved, recorded subdivision with complete amenities,such as county roads and recreational areas.

If you have selected an area that is in demand and the timing is right, youcould earn an impressive income. Just make sure you surround yourself withcompetent advice and professional service companies! I found that you canwaste money trying to save money with the services companies, as I explainedelsewhere!

CHAPTER 16 GENERAL DEVELOPMENT INFORMATION

The most valuable features of my book, in my opinion, are the methods ofobtaining property with only a binder deposit and generating your down payment,of obtaining owner financing when making your purchase, of using delayedclosings, of using techniques for inexpensive sub-dividing, and of using “ownerfinancing” to market your lots quickly. Of course, very importantly is the use ofdiscounting mortgages either totally or partially. However now I will provide somegeneral real estate information that you may need for either part-time or full-timedevelopment efforts.

KEEP IT SIMPLE!!

One of the most important techniques of working with land, I feel, is tokeep it simple, as I have preached throughout the book. It can reduce the efforts,worries and costs. Try to stick with parcels that have some road frontage andsub-divide in a manner that you don't have to build roads and streets. I feel it isbest to make your money quickly and easily on the road frontage and perhapsusing the lot-behind-a-lot technique, then sell the interior acreage cheaply, ifthere is any, and move on.

SACRIFICE THE INTERIOR ACREAGE Once I bought a beautiful tract of land that was 120 acres and had 4,800feet of county road frontage. I did well with the road frontage, but instead ofselling the interior in large parcels, I decided to build some roads and createmore interior parcels. What a mistake!

Instead of sticking to a simple mode of operation, I went to a complicatedone. If I had just made my money on the front two levels of lots, (lot-behind-a-lot),and sacrificed the interior acreage at what I paid for it, I would have had afantastic, quick profit with little effort! But, I had gotten greedy and thought I couldmake all kinds of money if I developed the entire tract into lots. A terrible mistake for a part-time developer! No way was it worth the effortand worry, working in my spare time. If I had been a full-time developer perhaps

it would have been worth it. But, I advocate working with land in your spare timeand in a simplified manner. Perhaps my book can help you earn an income andalso help keep your life simple. Make your money in an easy manner and moveon!

An influence on my decision to create many interior lots was theengineering firm that I was using at the time. They drew a plat which had 130 lotsand really lobbied for the large development, and I’m sure they were thinkingabout all the engineering work that would be involved. I felt uncomfortable with thesize of the lots they recommended and the fact that the development was quiterural. I finally decided on a comprise and had the engineering firm design thedevelopment with three streets, which I had decided would be private.

Later on I realized how much I had screwed up by not sticking to mysimplified mode of operation and it still bothers me when I think of it. Consider thefollowing analysis.

The contract price of the 120 acres was $2,400 per acre, or $288,000. IfI had surveyed the front lots into parcels of about an acre each with the secondlayer of lots as described in the lot behind a lot design, about 60 acres wouldhave had public road frontage.

I had been selling one acre parcels for $9,900 per acre, so 60 acreswould have sold for $594,000, with hardly any development costs!

Then the 60 acres of interior property could have been sacrificed inlarge parcels at $2,400 per acre for $144,000 for a total sellout of $738,000!

A sellout of $738,000, minus the purchase price of $288,000 would haveresulted in a profit of $450,000, with very little effort!!

I finally got the improvements completed and the lots sold but did not makeanywhere near $450,000 profit, plus I had caused myself many headaches andproblems, simply because I did not stay with my simplified method of subdividing!Like I said, I’ve thought about that one a time or two! DON’T FALL IN LOVE WITH ANY PARTICULAR PIECE OF LAND

When you decide to work with acreage, be patient and find a good pieceto start with. Don't rush things and don't fall in love with any piece of real

estate! Make sure it has the attributes you desire such as road frontage,favorable financing and perhaps utilities, such as water and power lines. Then"chop" it up and resell it for a reasonable profit. I feel that this is one of theeasiest and fastest ways to produce an income, to obtain land for your own usethat is"free and clear", and to produce a residual income. And I speak from experience as I have built houses, cabins, lakes,worked with foreclosures, speculated with beach property, built mobile homedevelopments and accomplished minor and major housing developments!"Chopping up" land which has road frontage, is the easiest!

DEED RESTRICTIONS

Restrictive covenants are sometime placed in a deed to a parcel of land.The restrictions limit what the buyers can and can’t do with the property. Normally when I was developing my rural “Mini-Farms”, I stipulated such thingsas only private dwellings, no mobile homes, minimum square footage for thehouse, double garage required, certain number of horses per acre, and buildingset back lines.

As you create subdivision, you will need to consider what restrictions youwill place on your development. Unless the development is for mobile homes, besure and state “no mobile homes”. Also I used “homes of new construction only,with a minimum of 1,600 square feet and a double garage”.

I found that using 1,600 square feet worked well because more peoplecould afford housing in that range and the double garage made it look larger andmade for a nice looking community. And I found that even with these minimumrestrictions a great many people built homes over 2,000 square foot range.

One of my friends subdivided a tract of land in a rural area near one ofmy developments and used a restriction of 2,400 square feet plus a doublegarage, and almost never sold his lots. He said that even though it was ruralproperty, he was going to create the market! He almost created himself out ofbusiness! I recommend a square footage requirement that is medium and notexcessively large for the area so that you will have more possible customers.

Other items that can be included in the deed restrictions are stipulationson animals and fences. Since I normally sold rural property, I allowed for animalssuch as horses. And I didn’t mention fences as the lots were one to ten acres in

size and I assumed the owners would want to fence their “mini-farm” entirely. Bynot stipulating, they could do what they pleased. If you were to develop smallerlots in a subdivision, the fences might be restricted to the back yard only, whichis common.

Making the decisions on the restrictions for your subdivision is difficultand my advice is to visit many other projects and obtain as much information aspossible. Visit their sales office and capture brochures and handouts. And talk tothe realtor on site. Plus you need to look up various developments in the countydeed room at the recorder’s office, as you can obtain copies of their restrictionsand covenants. This is usually the only way you’ll be able to obtain all therestrictions the others are using. Very important stuff!!

Your real estate attorney will be familiar with the normal restrictions inyour area as he or she will have worked with other developers, so ask them.

Depending on your mode of operation, you could use minor restrictionsjust so that the neighborhood maintains a pleasant appearance or you could usehighly restrictive covenants. But you will have to make a decision in this regardsin the early stages of your planning.

CHAPTER 17 GENERAL PREPARATION

Now I will cover several items which you will need for your generalpreparation. Everything you do in real estate should have professional guidance.I will give you some thoughts and ideas, but every state and county has differentrules, regulations and ordinances and you should seek proper professionaladvice. And by the way, nowhere in this book am I attempting to give youprofessional advice. I am only trying to give you things to think about by relatingsome of my experiences.

REAL ESTATE ATTORNEY and CPA OK, so you need to obtain professional advice and a sharp real estatelawyer is a must. I would use one that specializes in real estate as he or she maybe able to help you more than just a general attorney. Visit the attorney and tellthem what you have on your mind.

The attorney can advise you whether to incorporate, operate as apartnership, LLC, sole proprietor, etc. Most importantly, he or she can adviseyou of the county and state rules and regulations that you need to know. Obtainthis information up front and conduct your development efforts properly. Also askthem if they have experience with homeowner's associations, as you may beneeding one or more. And ask about their rate per hour and shop around.

Make sure you discuss protecting your assets with perhaps acorporation. Who knows, you might make a mistake sometime and you wantyourself protected.

Also it would be a good idea to visit a CPA and get his or her input andadvice on any development you may be planning.

ENGINEERING FIRM

Next, visit an engineering concern. Locate an engineering firm that is of agood size and is reputable. Select a somewhat larger, dynamic concern, if you

can afford them, rather than a small inexpensive one because the larger firm willhave more resources and may save you money in the long run. The larger firmmay be somewhat more expensive but this is one extremely important key to yourendeavors. The larger firm will have the resources and personnel to help ensurethat they guide and advise you properly. When I started out I used a small inexpensive engineering concern and Iwas not satisfied with their services. When I started using a larger firm theymade my life more easy, as they recommended a different way to handle the rainwater run-off and saved me thousands of dollars. Plus they helped me in manyother ways. A large engineering company will have the wherewithal to produceand make a formal bank presentation for you as described earlier, should youdecide to take on a formal development. They’re your working partners andshould be first class.

When you visit the engineering firm, explain what you are planning andtell them that you will probably have them inspect any tract of land before youmake a purchase. The engineering firm's inspection of the property, before youbuy it, is a definite recommendation. This should also be done for your personallot purchases, whether you decide to go into the land business or not.

CITY AND COUNTY AGENCIES

By now you have spent a couple of hours with a real estate attorney andan engineering firm. Now go spend a few hours at the city and county offices.Normally your development won't be inside the city limits and you won't have todeal with the city. If you do however, go to their various offices and becomefamiliar with them and their functions. You will certainly have to deal with the county and a trip to the CountyEngineer's office is highly recommended. Go to his office and introduce yourselfand explain that you may be coming in with questions later and obtain copies ofany regulations or ordinances pertinent. And ask them about any zoningrestrictions! They can show you maps which will have the differently zonedareas depicted. You could also visit the health department and building inspectiondepartment to help you become knowledgeable of the county procedures andrequirements. Information on septic systems and what the county requires wouldbe very helpful and is something that you will need to be aware of as you are

making your decisions on your development. The county probably hasestablished the minimum size lots on which they will allow septic systems to beinstalled, so you may have to size your lots accordingly. The county health department can give you information on available sewerlines also. You need to know about sewer lines, whether they are available orwhether you would have to install one. In our county if your development is withina certain distance of a sewage treatment facility, you have to use it. And youhave to suffer the expense of installing the line to it!! It wouldn't be fun to get caught with a parcel of land and limited funds andfind out that you have to install an expensive sewage line! Spending some time atthe county engineer’s office could be time well spent. Also visit the county building inspection department. Ask them if you couldobtain a building permit on the land you are interested in. They will know ifthere are flood plains involved or zoning problems and this information cananswer a lot of questions for you. Normally if you can obtain a building permit ona particular lot, then everything is OK. I would highly recommend that you visitthese people before buying even one lot for your own use. This one thoughtcould be worth the price of this book, as a following example will show.

ZONING Proper zoning for the type subdividing you have in mind is critical!

Eighty percent of the counties in the US having zoning of some kind.Some people look at this as an advantage as it controls the amount and quality ofthe growth in an area, while others look at it as an infringement of their rights asowners.

The counties have zones which are created by the planning or zoningcommission and some of the basic zones are; residential, commercial, industrial,and agricultural, with each one having several categories of restrictions.

There can be restrictions on the minimum number of acres per parcel thatyou can subdivide your property into, limits on the number, size, or purpose ofbuildings, number of homes and population density per acre, etc.

New zoning is not normally that much different from the type activities or

zoning already in the place for a neighborhood. But there are stories of peoplewho have owned their property for many years and suddenly are restricted as towhat they can do with it! And without compensation!

Zoning laws for particular areas cause some problems but their absencecan also. You may have a beautiful tract of land and unexpectedly have a papermill built near you, or have mobile homes or very small houses appear nearby, ora stock car track! Who knows? Personally I prefer zoning restrictions as long asthey aren’t greatly restrictive.

If you are involved in real estate, it is beneficial to stay informed of thepresent zoning laws and proposed changes, as well as other county activities,such as planning for new roads or industrial parks, etc.

Once zoning laws are in effect, the county building and healthdepartments ensure they are abided by as they won’t issue building or sewagepermits until they have analyzed your proposed building or subdivision plans.

Should you locate a parcel of land that you like but it has the wrongzoning for your plans, there is a possibility that you might get a particular zoningchanged. Once I was successful in getting the zoning changed from residentialto commercial on a large building lot my wife and I had acquired, which allowedus to sell it to a doctor for a new office. But it was a great deal of trouble and wascertainly time consuming.

After I submitted the request to the planning commission, we had to getsignatures from property owners in the neighborhood stating that they didn’tobject to the zoning change, and present them to the commission. Once theyreceived the signatures it still took forever as it had to be advertised andpresented at a council meeting. But if finally worked.

If a Realtor tells you that the zoning can be changed or a variancereceived on a particular property, I would be cautious as it is difficult, andsometimes impossible,

UP THE CREEK! In the mid 70's I was asked to build a home for a friend who lived in theAtlanta area. He and his wife had found a lot that they liked and took me to look atit. It was in a nice development and was one of the last two lots remaining, which

should have told me something. The lot sloped away from the street, which wasnice, as they wanted a basement. About 300 feet to the rear was a small streamwhich was very picturesque. The lot looked OK to me. My friends bought the lot, paying cash for it. Everything looked good atthis point but when I went to get the building permit, the county said “NO”,because the lot was in a flood plain! It seems the stream basin was very activeduring heavy rains, and later I saw it when it looked like a river! The new ownerswent to the gent they bought the land from and demanded their money back andwere told to get lost! Needless to say, our relationship at this point was strained! The only way we could build on the lot was to forget the basement andbuild the house with an elevated floor level. We built the house on cement blocksabout five feet high. The county wouldn't let us haul dirt in to fill the yard to makethe house look normal, but we had to remove soil from the stream basin andtransport it to the area around the house. The county's concern was that if webrought soil in and reduced the effective area of the basin it would cause thewater during heavy rains to back up on other property owners. We finally got the house finished and the yard looked OK, but I wascertainly glad to get away from that house! A trip to the county buildinginspections department prior to buying the lot would have prevented a lotof problems.

FLOW UPHILL?

On another occasion, I bought a lot in a subdivision for the purpose ofbuilding a speculation house. The lot looked OK and once again sloped to therear, and had a small stream on the back of the property. The subdivision hadsewer lines and I had noticed the manhole cover directly in front of my lot, but Idid not have anyone open the cover and take an elevation of the sewer line at thebottom.

We proceeded to build the house and when the plumber was installing therough plumbing, he determined that the sewer line out front was higher than thehouse! Of course, the sewage would not flow up hill! What to do?

A pumping station was out of the question due to the cost! Luckily I hadan accommodating neighbor who solved my dilemma. After explaining mypredicament to a gent that lived on the lot to the rear of my lot, (on the adjacent

cul-de-sac), he allowed me to have the drain line installed across his property toa man hole and sewer line that was down hill! If he had not granted me aneasement I would have had to suffer a great expense.

After that experience, as I was arranging to start another house, I ask aplumber to open the manhole cover and strike an elevation on the pipe at thebottom. He told me that wouldn’t be necessary as he had the engineeringdrawings of the sewer system and it indicated the elevation. I insisted that heobtain an elevation and when he did, it was quite different than where it shouldhave been!

A word of caution! Before buying any lot that slopes away from thestreet on which you have to utilize the existing sewer line, always have theelevation of the line determined by a plumber before signing a contract!(Perhaps another escape clause!)

EASEMENTS

It is much better to actually own the land over which you have to traversefrom the public road to your house, and also the land on which the utilities to yourhome are located. But this is not always possible and an easement on anotherperson’s property is used.

Normally an easement is for ingress, egress and utilities and is deededand recorded. It is included in your legal description and gives you the legal rightto build a road or install utilities across the other person’s property. As yourproperty is sold and resold, the easement stays in place with the land, unlessotherwise stated. Don’t ever buy land that has no public road access on a verbalagreement that you have the right to cross another person’s property. If you haveto utilize an easement given to you by the seller, make sure it is recorded.

Since easements are recorded, you could ask your title company aboutthem. Or make a visit to the county recorder’s room and obtain a copy, or visitthe tax assessor’s office and look at their maps of the tract you are interested inas the easements normally are indicated. The easements would show up at theclosing, but to learn of recorded easements early in your investigation mightaffect your decision on the purchase or might be used in your negotiations.

Once I was really excited about a plot of land that I had discovered butmuch to my dismay, upon my investigation, an easement reserved by a timber

company showed up almost in the center of it. The property had previously beenowned by the company and when they sold it, they reserved the easement andthe right to build a road in order to get to their other property. This really but adamper on things as there was no way the property was acceptable with thateasement in place.

The timber company had a massive amount of property in the area so Ilocated maps of their property and learned that there were two other routes thecompany could use to get to their property. I took all the maps to the attorney forthe timber company and requested that they cancel the reservation. After acouple of weeks the company agreed to the cancellation, and did not demandcompensation. I lucked out on that one.

If your situation requires that you obtain an easement from a propertyowner for your road or utilities, be prepared to pay for it, as the other party willbe surrendering the right to their land and expect to be compensated.

STATE AGENCIES

Locate any state agencies, such as environmental, that you think mayhave an interest in what you’re doing. Call them and go visit with them. They arejust people and will help educate you and keep you straight. Believe me, youwant to keep the environmental agencies happy. In Florida presently, you have to deal with the "Florida Land UseRestrictions", among other things. You can't divide 100 acres into two pieceswithout approval! Of course, your engineering firm and real estate attorney willbe familiar with such restrictions and will be able to assist you.

Ask your engineering firm about the state and county agencies, but makea personal visit with them and establish a relationship. This may sound like a lot ofeffort but it can all be done in a day or two. This is a very important part of yourpreparation!

TRAINING Something that takes longer but may be important also, is a real estatetraining school. You don't have to be an agent to sell your own property but theeducational aspects of such training could be helpful through the years. You mayalready be a real estate agent or you could decide to attend an agent training

school later, as you become more involved. Reading books on the principles ofreal estate could be very helpful also.

To find a local real estate training class, call a couple of the real estatecompanies listed in the yellow pages and ask them. They should know some andadvise you.

SEMINARS There are some very good seminars going around the country. Seminars,in my opinion, are worth the money just to hear of the different techniques otherpeople employ. One seminar that I attended on foreclosures was two days inlength and cost $450 and could have been condensed into 2 hours! I did feel,however, that the information I received was good information and helpful.

Basically, I feel that real estate courses and seminars are helpful but arenot mandatory. A seminar that I thought was better than expected was one onworking with mortgages. Knowledge of mortgages is very helpful in any area ofreal estate, but as you can now realize, it is very helpful in working with land.

LIBRARY

The local public or college library is a very good place to spend sometime. There are many books that can be of value to you, in every area of realestate. Why blaze your own path when there are many publications available tohelp make your way much easier? A couple of hours in the local library is timewell spent. The library has a reference book for almost any question you mighthave. There are books on the principles of real estate, to help your basiceducation, books on building houses, buying houses, organizing real estatesyndications, and even land. The ones on land that I found were more formal andin general terms and didn't present practical applications as I have!

So, basically for your preparation; obtain some books on the principles ofreal estate or attend a real estate school, locate a top-notch real estate attorneyand engineering firm. And visit the county and state agencies and begin tobecome familiar with the rules and regulations.

CHAPTER 18 AREA SELECTION

Knowledge of the growth patterns in your area is extremely important

when deciding on a purchase. If you are not familiar with the growth patterns,ask an experienced real estate agent, talk to an active real estate appraiser, orvisit the Chamber of Commerce.

Make sure you concentrate on an area that is growing. You do not wantto buy land and have to hang on to it. Of course, if you use the techniques in thisbook, you can tie up a piece of property and see if it will resell before youactually close on it. In order to find property that can be bought for a reasonable price andprovide a good profit margin, you will normally look on the outskirts of the city.When looking for a tract, first make sure you are in a county that will not preventyour subdividing activities. Then as you are looking for land in a particular area,notice if there are fire hydrants or manhole covers in place.

And look for land with a for sale sign on it, preferably by the owner. Personally I prefer to find land that is not listed with a real estate company. Should you come upon property that really gets your attention and there is nosign on it, you will need to locate the owner.

Even though I feel that working directly with the owners of a particularpiece of land is preferred, working through a Realtor is still feasible. I found thatRealtors will go along with a delayed closing if they feel that is the only way theycan assure themselves of a commission in the near future. And on occasion theywill cut their commission in order to make an arrangement work.

LOCATING OWNERS

To locate owners, first visit some of the neighbors in the area and ask ifthey know who owns the property. If you can’t determine the owner and theiraddress, go to the County Tax Assessor's office. At the Tax Assessor's officeyou can locate the property on their tax maps and they can provide you with thename and address of the owner.

By looking at the tax map you can determine how many acres the people

own and how it lies. This could give you very important information on theapproximate road frontage and whether the road is public or private. And whetherthe tract is so deep that a road would have to be built or shallow enough so that itwould be perfect for slicing up.

Analyzing the tax map could cause you to loose interest in that particularpiece of land or could get you very excited. These maps will also indicate anyeasements that have been recorded on the property.

Also while you are there, if it looks as though you want to pursue thispiece of land, ask if they have aerial maps of the area. You can then look at thetax map and determine roughly where the property lines are on the aerial photo.These photos can be very helpful in your investigation of the tract as they wouldshow possible problem areas such as a large swamp or a large ravine, etc.

It would be best for you to learn as much as possible about the landbefore you approach the owners. Through the years, I have found the tax mapsand aerials obtained at the tax assessor’s office to be very helpful.

Sometimes contacting an owner, especially an out of town owner, willresult in your obtaining the land you are interested in.

When you do contact the owners, I would suggest that you not appear tobe a big time developer but just a person that is looking for some land at areasonable price, perhaps for your family. Make sure you let them do the talkingand don’t appear anxious. And let them tell you how much they would take for theproperty. You need to negotiate as good a price as possible and a later chapterwill help you with negotiating.

Don’t be discouraged if the owners tell you they are not interested inselling at this time. Just give them your contact information and look for anotherone. You may have to do it several times in order to find a party that is ready tosell their property.

Back to the land selection. I like to find property out of the city a shortdistance so that the buyers can have horses if they care to. With that thought inmind, I normally made the lots at least an acre and sometimes 5-10 acres. Whenyou are looking for land to develop, the topographic features are very important

such as trees, ravines, swamps, etc. Normally the more large trees the land has,the easier it is to sell and to sell at a higher price. However, you can also marketland with no trees, at the right price. When you are making further analysis of a tract of land that is for sale, itis a good idea to walk over it, if possible. If not, be sure to obtain an aerial photoor rent an airplane and fly over it. I normally did all three. (This is of course,when you are really getting serious about making an offer.) You want to be ableto see any unusable areas so that you can figure this into your analysis as youare estimating how many lots you will subdivide the land into and how much thegross sales might be. Also you can use this information to perhaps negotiate a lower price forthe tract. You can point out that the tract has wet areas, ravines, etc. and thatyou will only pay a certain amount for the land.

But when you are showing the lots, use this same information to help withyour re-sales. I found that wet areas and any stream, even a small brook orspring, caused that particular lot to sell faster than the others. Many people reallylike the thought of having water on their lot. I always made a big deal out of evena small spring when I was advertising.

ADVERTISING

This is a good place to mention advertising. I tried many different types ofadvertisement from newspaper ads, to throw outs, to radio, to billboards and byfar the one that worked best for me was the local newspaper.

And the smaller the ad, the better. I could place a large ad and talk aboutthis and that and get hardly any calls. Then I could put a small ad such as; “Fiveacres with small stream, owner financing, call xxxx”, and it would get a great dealof calls! And it was cheaper. I think most people feel that if it’s the owner theymay get a better deal so I deliberately tried to keep my ads from looking like areal estate company was involved.

I contracted for a large billboard once to advertise my development... my“Mini-Farms”, but I certainly would not recommend that to anyone. The sign wasvery expensive and almost invariably when I ask the people how they heard aboutthe lot for sale, they would say the newspaper.

One thing I learned when I was showing property was that I had to paint apicture for most people to get them to buy the lot. I could say, “You could placeyour house here near this large oak and your workshop or barn could be placedover there”, and it worked really well.

Also I found that I had to sell most of my lots myself as the real estateagents weren’t interested in selling relatively inexpensive lots because of the smallcommissions.

And I found that I had to help the people find their financing if I wasn’tgoing to provide owner financing. Normally I would try to get the people to comeup with the cash instead of me having to provide the financing because I had tosuffer quite a large discount when I sold their mortgage.

So, I would have a price of say, $12,900 with owner financing or adiscounted price of $10,900 for cash. And cash to me meant that either they hadthe cash or they borrowed it.

To help them I would call around and find a source for financing land andnormally it would be a credit union. You may have to call several to find one thatwill finance 70% or 80% of the sale price of the lots. If you can find that kind ofsource and provide that information to your prospects, it will really help you sellyour lots.

As you are starting out, you really don’t know what to charge for your lotsin order to get them to sell easily. Of course, you should know what you have toget out of each lot in order to break even. But it’s tough to decide what price touse to make sure you achieve a good profit, but at a price that the lots will sellquickly. It would be wise to take a real estate appraiser who works in the area tothe property and get their opinion of your resells before you even buy the tract.

And then get an official appraisal of the value of your lots after you “chopup” the tract. This will protect you and you can show the appraisals to theprospects and they feel comfortable that they are getting a proper price. As youget more into larger developments, a feasibility study would be in order.

LOCATION

The location of land is more important than the topography, I feel. It needsto be in an area that is in demand, and in an area that is very much in the

direction of growth. It is also extremely important to consider negative aspects ofa neighborhood such as paper mills or landfills.

There is an area in which I am familiar that was once very much indemand and the value of the property in the neighborhood stayed quite high.Then the county decided to establish a new sanitation landfill in the area and theproperty values decreased drastically. Especially as the odor of the facility beganto be more apparent.

Another important consideration is the access of adequate highways andstreets. If the area is very congested and the highways stay packed, you maythink of another area. Most people want to move out and away from suchconditions.

UTILITIES Of considerable importance on the selection of a tract of land is theavailability of utilities. As you drive around the neighborhood of a piece of landthat you are interested in, be sure and look for fire hydrants and manhole covers.The existence of fire hydrants tell you that a waterline is available and manholecovers normally indicate a sewer line. The water lines and sewer lines are themost important of the utilities because if you don't have them, you normally haveto go to the expense of installing them. Or use wells and septic tanks. Electrical, phone and cable lines are not as important since you don'tusually have to pay for those. Normally if you are developing in a rural area, theonly utility you have to be concerned with is the water line as the homes willprobably be on septic tanks. If your area doesn't have a water line, you can sellthe lots without water and tell the buyers that they will have to use a well. Once I developed an area in which the buyers had to use wells and I wasconcerned that it would affect my sales adversely. But I found that it didn't seemto matter as some people actually preferred wells, so overall it wasn't a factor. Ifyou develop an area along a county road, whether paved or unpaved, and thereis no water line or sewer line, I wouldn't worry about it and just tell the new buyersuse a well and septic system.

The color of a fire hydrant can tell you the size of the waterline that it isconnected to. Normally there has to be at least a 6" line in order to provide the fullwater capacity for the fire hydrant. And those hydrants are normally completely

red. When you see a hydrant that has say, white caps on it, this indicates to thefire department personnel that the waterline feeding that hydrant may not be fullsize.

So, if you see fire hydrant that is not completely red, that could tell youthat the water line along that street is not a 6" line. The importance of that is that Ihave found that if you have a 6" line, you can accomplish a great deal ofdevelopment without having to install a larger line, but if you only have a 4"line...beware!

MUNICIPAL WATER COMPANIES

When you are in the rural areas you probably will be working with a smallmunicipal water company, which is nonprofit and mostly managed by volunteers.They won't have the funds to install the water lines and they will tell you that if youwant their water, then install the water lines! And then give them to them! Andthat you can’t receive any part of the tap-on fees from future customers! Youhave to be careful with the water companies and get everything in writing!! Once I bought a large tract of land which had road frontage on both sidesof a county road. I visited the local water company before I bought the land andshowed them on their maps which land I was going to develop and even showedthem my aerial photos. I told them that I was going to develop the east side firstand then the west side. The president of the company, a volunteer, said OK theywould provide the water service. But I didn't get anything in writing. Thedevelopment on the east side moved along nicely and I started developing thewest side. When the new buyers on the westside went to get their permits for waterservice, the company told them that no water service was available! I drove to theoffice and the same president told me that no water service was available on thewest side of the road!

He said that the 4" line that was on the east side of the road was largeenough to handle the east side development but not the west, and that they didnot know that I was going to develop the west side! I went ballistic! But it did nogood, as I had nothing in writing. I had gone to the trouble to visit those peoplebefore I bought the land, which is what I should have done, but I didn't getanything in writing, which I should have. Always get any agreement orunderstanding in writing!

If I had know about this problem earlier, I would have just sold the lots on

the west side using wells. But since I had already made several sales and hadtold the people that water was available, I had to have a water line installed.

My engineering firm later told me that the water company was responsiblefor the service and thus the size of the line on the existing public road. Butbecause I was adding interior roads, even though they were private, I wasresponsible for the line in the development as well as the one leading to it, if theexisting line was less than 6".

So, I had the engineering firm locate an 8" line that the water companyhad in place about two miles away and design a 6" line to connect to it. Of coursethis took time and cost money. And the water company told me that we wouldhave to install fire hydrants along the way to my project, and those things areabout $1,000 each, installed!

They demanded that the new 6" line be installed on the west side of theroad opposite the 4" and extend slightly past my development. The lines werethen tied together in two locations which gave the people in my area 10 inches ofwater line! Believe me, no one in that area has complained of weak waterpressure!

During all this hassle, I was thinking, “Why didn’t I just make a niceprofit on the road frontage and sacrifice the interior? If I had not plannedinterior roads, or at least not mentioned water service, I would not have had togotten involved in this as the water company is responsible for lines on existingpublic roads.

A nice profit simply selling the road frontage and basically sacrificing theinterior acreage in large parcels at what I paid for it, would have been a muchbetter plan!

SEWER LINES

As mentioned previously, manhole covers normally indicate the existenceof sewer lines so as you investigate an area always look for them, as thisinformation could be critical to you. I mentioned that the manhole normallyindicates a sewer line, but it can simply indicate telephone company utilities. Ifone is observed, check the top and see if it indicates a phone company. And to

be on the safe side, call or visit the county engineer and ask if there are sewerlines in that particular area.

If there is a sewer line close by, be sure and ask the county engineer ifits use would be mandatory. Most counties dictate that the sewage treatmentplant be utilized if the home or subdivision is within a stated distance from asewer line, which in my area is one-fourth mile. And installing sewer lines is veryexpensive!

If there is a sewer line nearby and you intend to provide sewer service,there is a tap-on fee for a new line, which a developer has to suffer then pass italong to his buyers. I feel it is better to use a sewer line for your development ifone is close by than to have to worry with septic systems. But it’s not fun to havea sewer line installed as they are very expensive and frequently uphill pumpingstations are necessary, which certainly adds to the cost!

Should you see a manhole cover near a tract of land that you are excitedabout, (which tells you that you will probably have to connect to the system),consider the expense of installing a line when deciding to pursue that particularparcel.

Keep in mind that you will have to suffer the expense of having a linedesigned and installed and then give it to the municipality which owns the facility.Look in the yellow pages for a company that advertises utility services installationand get some rough estimates per linear foot before you make a decision topurchase the tract.

SEPTIC SYSTEMS

If your area doesn't have sewer lines, your lot buyers will have to useseptic tanks. This is not normally a deterrent to your sales, but it should certainlybe a consideration when you are looking at a parcel to purchase and develop.

It can be a deterrent if you are in an area of a great deal of rock or claywhich necessities an expensive system. And can even restrict the size of thehouses being built. I’ve heard of an area in Tennessee where the Ground Waterdivision of the county government occasionally restricts the houses to onebedroom!

Once again, rely on the county officials. Go visit them and get to know

them and the local policies. I recommend that you always have someone from thecounty health department come out and give their opinion on the acceptability ofthe land for septic tanks before you sign a contract. They will normally requirethat you conduct either a percolation test or a soil analysis.

A percolation test determines how fast water will percolate or settle intothe ground. It is a relatively simple test as a hole is dug and water poured in andtimed as it is absorbed. A list of county approved engineers who conduct thesetests can be obtained from the county health department. A percolation test is avery basic exam of the property characteristics, while a soil analysis providesmuch greater detail.

A soil analysis is the best way to determine exactly what you have to workwith, but they can be somewhat expensive. However, your county may requirethem. The soil analysis is accomplished by a company utilizing a truck mountedauger which drills a hole perhaps 25' deep. As the soil exits the hole, it isanalyzed by a technician and recorded. The health department inspector thenrefers to the data as he decides what type system will be required. Companieswhich conduct these tests, can be found listed under "Labs--soil analysis".

It’s possible to get an inspector from the county health department to giveyou his best guess of what type system would be required on a particular parcelof land by just looking at the land and vegetation and by conducting his own basicanalysis.

He can use a post hole digger and dig several holes 4-5' deep and giveyou his impression before you buy the lot or commit to a soil analysis. As he isdigging the hole he is determining how easy, or how difficult, it is to cut throughthe soil. If it’s difficult, this would probably indicate a “hard pan” which can be acompacted layer of soil or clay or perhaps sand stone. Occasionally sandstone isnot too bad as it can usually be broken through relatively easy. However, claycan represent big problems, as it may be several feet thick.

As you are becoming interested in a lot or tract of land, you can do somebasic analysis yourself. Take along your post hole digger, (I’m sure everyonehas one!) and dig several holes around the property. Check to see that you findsoft sandy type material and not rock or hard clay. Also check to see that thehole does not fill with water after several minutes because if it does, the land mayhave real problems. This fast analysis can alert you to possible problems andexpense with difficult septic systems early in your investigation.

The inspector will probably tell you to have a soil analysis performed

before they will give you their official opinion. In my opinion, you should have asoil analysis done anyway as this is the only way to really determine what kind ofsoils you are dealing with. If you make a purchase and find later that the land isnot acceptable for septic tanks because it won't percolate properly, the buyerswill have to install expensive systems and won’t be too happy. And your sales willbe slow.

If the land won't percolate due to a hardpan or clay, a couple of thingscan be done. If the problem is heavy clay and essentially impenetrable by water,an “above ground” system can possibly be installed by trucking in fill dirt andinstalling the drain field in the upper levels of the fill dirt. These areas aregenerally about 40'x100' with the fill dirt about three feet deep. This creates adrainage area for the tank and is more expensive than the normal system but isusually not cost prohibitive and takes care of the problem.

If the problem is a hardpan such as sand stone, the installers will have tobreak through the stone with a backhoe which ensures that the water will drainthrough. If they can’t, an above ground system will have to be utilized.

As you walk over land, you can get an idea on how the soil percolateswater. Notice the soil and vegetation such as trees and bushes. Is the soil sandyor mostly red clay? Do you notice a lot of rocks lying around? Do you see waterstanding in puddles and you know that it has not rained recently. Are there areaswith no bushes or trees growing, only small ferns? Do you see very tall pinetrees with few branches? All these items can tell you that there may bepercolation problems.

Once you have a percolation test or soil analysis completed, don't rely onthe opinion of the person that conducted the test. Take the results to the healthdepartment inspector and get his determination on what type systems will berequired. If he states that normal systems can be installed, that is great. If hesays that an elaborate system will be necessary, you may not want to followthrough with the purchase.

If you do want to go ahead and sign a contract even though you have notcompleted the complete analysis that you should, you might want to put anescape clause in the contract such as, “Purchase contingent on the soil analysisallowing for permits for septic systems which cost less than $3,000", or whatever.

If you have determined that there is a problem with installing normal septicsystems and you are still interested in the land, use this adverse information tonegotiate a lower purchase price. The tract would be worth less if you have to tellyour lot buyers that they will have to spend $8-10,000 for their septic system vicethe normal $2,500.

Another very good way to investigate your selected area for possibleseptic system problems is to call a couple of septic tank installers listed in theyellow pages. Ask them if they know of any problems in your area. They might befamiliar with your specific location and could give you an alert. Of course, soilcomposition changes and good areas exist right next to bad areas. The only sureway to determine any potential problems is to have soil analysis conducted.

As you can see, it is very important to determine if the area that you areinterested in has sewer lines and if not, does it have possible septic tankproblems. You need to know this information before you commit to buying asingle lot for your personal use or a tract for development.

INSTALLING A SEPTIC TANK

A septic tank contains the solid matter while the drain, or leach field,allows the liquids to be absorbed into the ground. As a new tank fills with water, itreaches a point that the water starts to flow out into the drain field pipe. The drainfield pipe rests on a layer of gravel and has many small holes in it, which allowthe water to run into the ground. The drain field has to be basically level becauseif it isn’t the water will run rapidly to the end of the pipe. If a system is installed ona lot which has a slope, the drain field will be placed perpendicular to the slope soit can be level.

The required length of the drain field is determined by the percolationcapability of the lot on which the system is placed. In sandy areas it can be ashort as 100-150' while in clay areas, 300-400'. After the soil analysis has beencompleted, the Health Department inspector will make a decision on the typesystem to be used and the amount of drain field. And he will indicate where thesystem should be placed.

With that information, calls can be made and estimates received on theinstallation. Then when ready, usually near the completion of the building, thesystem can be installed in a few hours.

WELLS

If no water line is available, or the owner simply prefers, a well can be

drilled and a pump installed. Normally a 4" hole is drilled into the ground to a levelat which water is present, with the sides of the hole being stabilized by a casing.Water is trapped underground in aquifers which are loose water bearingmaterials such as sand or gravel, and in consolidated water bearing rocks, suchas sandstone and limestone. Once the shaft and casing is in the level of thewater, a pump will pump it to the surface.

Underground water is normally preferred for drinking as it has beenfiltered by the sand as it sinks into the earth and is more pure than surface water.A great many people prefer to have a well and their own water supply.

When I decided to structure a development that required the owners touse a well, I didn’t know if I was doing the right thing or not. I just knew that Ididn’t want to pay to have a lengthy water line installed, so I made the decision tomarket the parcels without water. Much to my surprise, it didn’t seem to matter atall! Hardly anyone objected! I found that my sales did not suffer because therewas no water line available and wells were to be used. I was thinking that I shouldhave known that earlier.

Most wells are drilled today but in days gone past, they were dug. Thewells were about 4'x4' and dug until the worker had to quit due to the flow of waterinto his hole. I remember my Dad digging one on his farm many years ago whenI was a kid and it was not very deep at all, maybe 20' or so, but he told me thatsome of the dug ones were as deep as 50'.

Drilled wells in our area are often 100' or so, and I’ve heard of some 200-300' deep. The well drillers will not guarantee you that they will find water but willcharge you by the foot which is about $20 per foot for the hole and the casing.

Observing the type trees on a parcel of land can give an experienced welldriller an indication of the presence of water and also the quality and approximatedepth. In arid areas, willows and cottonwoods can indicate water within 20 feet.Maple, birch and oak trees can indicate water at shallow depths while mesquitecan indicate water at 30'-50'.

If a well driller can find a good supply of water, which is normally the

case, a free source of quality water will be available for many years. The onlyadverse comment I’ve heard about a well is that the pump seems to be struck bylightening more frequent than you would imagine. I assume it has something todo with the fact that it is certainly grounded.

If a well is to be used as a water supply for the home, it has to be placedat least 100' from the drainage field of the septic tank.

CHAPTER 19 SHOULD WE NEGOTIATE?

Once you have found some property that you like and desire to subdivide;now comes a very important task... negotiating!

Negotiating is one of the most important aspects of working with realestate and is one area that a great deal of people glaze over. Some people arereluctant to try to negotiate a lower price as they may feel they are getting a gooddeal. Or they don’t realize that negotiation is normally expected, or they are timidand lack the confidence to try.

There are books and seminars available on the art of negotiating andwould certainly be useful throughout life, not just with your real estate ventures.As a matter of fact, I’ve seen a two day seminar advertised on the art ofnegotiating for only $795! I think I would have to negotiate that one.

Prior to negotiating a price on a parcel of land, you should do yourhomework. Find out how long the property has been on the market and if theprice has been reduced. Try to find out the real reason the owner is selling. Youwant to get an idea of how motivated the seller is.

Also realize that most sellers set their price higher than they expect toreceive and you have seen the term, asking price. Since the seller anticipatesthat negotiating will occur, accommodate him! Plus it will make you feel better aseveryone likes to get a bargain and always like to buy “whatever” at a reducedprice!

There are some important principles of negotiating that you would do wellto remember. The most important one, I feel, is the adage; “The first one tomention a number, loses!!”

When you’re interested in buying anything that you think can benegotiated such as real estate or perhaps a car, etc., attempt to get the seller toquote a price, if one is not indicated.

And never mention a price yourself! Insist on the other person givingyou a price because the first one that mentions a number, loses!

And after the other person gives you a price, negotiate!

If negotiating to buy real estate, always appear nonchalant and perhapssomewhat disinterested in the purchase. Don’t appear excited and enthusiasticas the other party can read your body language and realize they have the upperhand.

Tell the sellers to state their price and conditions. And don’t accept theasking price… unless, of course, you are familiar with the property values in theneighborhood and know for sure that you are getting a great deal.

SILENCE!!

If negotiating in person, a very effective tool is... SILENCE!!

As the other party presents you with a price... DON’T SAY ANYTHING

FOR A FULL 30 SECONDS!!

Look at your shoes! Look at the sky! But don’t say anything... the silencecan be deafening!

The other person can not normally be silent that long and will start talkingand will probably offer other choices. Try it on a friend or spouse when theypresent you several choices and see what I’m talking about. They can’t stay quietthat long and will probably present you with other choices.

Let’s say that someone just told you, “I’ll take $150,000 for the property”.Look at your shoes, look at the sky, but don’t say anything for a full 30 seconds!If the seller is motivated, they can’t take the silence and after several seconds willprobably say, “OK, I’ll take $140,000 and nothing less”.

Still, DON’T SAY ANYTHING! You will likely be presented with yetanother choice... especially if the seller is motivated.

Silence can be extremely effective if you will use it. Also body languagecan be used to help with your negotiating. Always appear as though you aren’treally interested and not too concerned. And when presented with an offer,

appear as though you can’t believe it! But don’t say anything! Stare at yourshoes, or the sky!

And never appear anxious! Even if you hear a number that really getsyour attention, appear nonchalant.

Silence can be used when selling a property as well as buying. If youhave a lot advertised for say, $15,000 and a prospect tells you they will pay$12,000, appear as though you can’t believe it! And then don’t say anything! Ifthe prospect is really interested in buying the lot, and if you can just be quiet longenough, you will probably get a higher offer.

The thing about using silence is that it’s hard to be quiet long enough!

Silence really works if you will only use it!

WHAT TO OFFER?

When you have been told the asking price of some property that you areinterested in, it’s good negotiation skills to never accept the price but make anoffer for something less. A rule of thumb that I have used is to offer 20-30% lessthat what they are asking. Or even less, if I feel the property is overpriced.

Since your offer is much less than the owner is asking, they probablywon’t just jump all over it. But be patient! The owner will either accept your offerand you will feel great about your purchase, or you will be presented with acounter offer. You may accept the counter offer or you may make another offeryourself.

When you are presenting your offer, you might point out any aspect ofthe property that you feel justifies a lower price, such as wet areas, ravines, etc.Also while negotiating the price of the property, you need to be negotiating theterms and conditions you desire, as they can be as important as the price. Youmay pay more for a tract of land if you can get the terms and conditions youdesire. And of course, the contingencies you need.

SUBMITTING A WRITTEN OFFER

Negotiating for real estate can be done in person or over the phone andthat happens frequently when you are selling smaller parcels such as single lots,

and the above mentioned techniques can be used.

But if involved in a large purchase, the negotiating is usually done throughwritten offers. One person submits an offer to buy at a price they are willing topay, and with the terms and conditions they feel they need, along with a checkfor earnest money. The seller may accept the offer and everything moves to aclose, but normally they will submit a counter offer with a different price orconditions. This at least shows you that the seller is willing to negotiate.

After you receive the new price, point out more of the deficiencies of theproperty such as the fact that there are few large trees, or that there is no waterline, or no electrical power, etc., when you resubmit your offer. Your secondoffer would be somewhat higher than your first one and if the seller rejects it andsticks to a higher price, you still have a couple of choices. Either walk away orperhaps offer a larger down payment or cash if you can arrange it, for a lowerprice. Or maybe change the conditions or contingencies.

If that doesn’t work, either accept the price and conditions or forget aboutit and look for another property.

A couple of important points to remember when negotiating on the sale orpurchase of real estate are; 1. If selling, point out the advantages of the particular property and havean appraisal handy. Make the prospective buyer feel comfortable! 2. If buying, make the seller feel uncomfortable and unsure of yourintentions. Present the image that you may walk away. Keep them on thedefensive!

SPLIT THE DIFFERENCE

If a person mentions “splitting the difference”, that could be music to yourears, but don’t jump all over it! Let’s assume that you like a parcel of land that ispriced at $200,000. You make an offer of $150,000 or $50,000 less than what isbeing asked. The seller says, “Let’s split the difference”. So the difference thatyou and the seller are now negotiating over is $25,000.

If face to face, don’t say anything and use SILENCE! If you do sayanything, say that it’s still more than you will pay. If this activity doesn’t get a

response from the seller, you might tell him that you will split the difference on the$25,000!

Sometimes it’s difficult to know when you should give in and accept anoffer or whether to continue with the negotiations. You should continue trying toget as good a deal as possible and as liberal terms as possible, until you feel thatyou are at the bottom line. Then either sign the agreement or walk away. Onoccasion the other party may tell you to get lost at some point, and at that timeyou can assume that you are at the “bottom line”!

As stated earlier; don’t fall in love with any particular piece of realestate! If one deal falls through, find another!

And as we discussed previously, the terms and conditions, orcontingencies, can be as important as the price of the property. If you fall in lovewith a certain tract of land but don’t get agreeable terms, you may cause yourselfsome sleepless nights, believe me!

As you know, the degree of success that you have in obtaining thecontingencies that you desire such as a delayed closing with escape clauses,depends on the cooperation of the seller. If you don’t arrange what you feel youneed, then an option to buy may be better than a purchase at this time. Or walkaway!

RECAP OF NEGOTIATING

Things to remember; 1. On initial discussions, the first one to mention a number, LOSES! 2. Don’t accept the initial price or offer when buying or selling. 3. Make a substantially reduced offer when buying. 4. Don’t appear anxious. 5. Read the body language. 6. Make a buyer feel comfortable. 7. Make a seller feel uncomfortable. 8. Use-------------------SILENCE!

CHAPTER 20 NOW; THE HOME!

The major portion of this book has been devoted to obtaining land and

getting it free and clear, or mostly so, because there is more effort andknowledge required to accomplish that than there is to getting a home.

So we’ve spent a great deal of time discussing how you could first,acquire the land you desire and then use the income you generate, or the equityyou create, to obtain the home you desire!

That’s a perfect way to operate... acquire the land you desire andgenerate income for the other things in life you desire.

Or obtain the land you desire and use its equity for the other things in life,such as a home.

EQUITY IN YOUR LAND

The first consideration would be to evaluate carefully the money you havebeen able to generate and put away. Of course the more funds you have, themore options that are available for you.

The other consideration should be how much equity you have in the landyou own. I would suggest that you obtain an official appraisal of your land sothere is no question of your equity.

You should have a good idea of your equity as you have been involved inland sales in the neighborhood, but a formal appraisal could be of great benefit,as the lending institutions require them. The equity in your land is important as itenhances your net worth and as it could possibly be used as “land-in-lieu of adown payment” for a new home.

So now we have a nice equity in our land and we need to use it to get ahome using land in lieu of a down payment, and with a reasonable monthlypayment.

TYPES OF HOMES

There are many different types of homes that can be obtained at a

affordable price. Of course, the smaller the house, the more affordable the price.Reasonable sized homes can be built at prices most people can afford. And itcan be done with no down payment if you have proper equity in your land andwill be explained later.

If you desire a larger house but with more affordable monthly payments,you could build it yourself. You could serve as the builder and normally save 10-25%.

Another means of obtaining a reasonably priced home is to invest in apartially completed home and complete it yourself. Most contractors will give youa price for constructing a home that is not totally complete. You could tell them towhat degree you wanted the house completed and receive a price accordingly.There are many builders who specialize in this endeavor.

Manufactured housing has become increasingly popular in recent years.The design and quality of manufactured homes has been improved to the extentthat they are much in demand, due primarily to the reasonable cost.

BUILD YOUR OWN HOUSE

You may want to build your own house and save the contractor fees inorder to enjoy a lower monthly payment. Contractor fees are from 10-25% andcan be a substantial sum. It’s possible to build the house yourself and save someor all of the fee amount and it’s not as difficult to build your own house as youmay think. Plus it can be fun and satisfying. There are many books in thebookstores that explain the process in detail, as to how to serve as your ownbuilder.

You will first need to talk with several banks or mortgage companies aboutbuilding the house yourself, if you intend to have a mortgage on it. Now days,some lenders required a licensed contractor, where others will go along with theowner serving as the builder.

The banks know that the house will get built properly as each step of theconstruction has to be inspected and approved by the county inspectors as wellas the bank inspectors.

Basically a “builder” is simply a “coordinator” as everything issubcontracted out. The subcontractors are very specialized and can be found toaccomplish almost any task you need. You simply need to visit several housesthat are under construction and talk with the various subs and accumulate a list ofnames and phone numbers.

As you’re visiting the construction sites, talk with the builders themselvesand ask them for the names of reliable subs. Normally the builders will nothesitate to give you various names and numbers of people they have used andare pleased with.

Once you have your blueprints drawn, farm them out to some generalcontractors and have them give you an estimate to build the entire house. Thentake the prints to various subcontractors and put together an overall estimateyourself. Then you can decide if the savings would be worth your time and effort.

One problem with building your own house and that is we have atendency to run the price up more on our own house. If we had to live with theprices and allowances that a contractor had given us, we would not opt for themore expensive carpet or fixtures, etc. We can run the prices up in such amanner that it would negate any savings we were planning on!

USING YOUR EQUITY

Let’s look at an example of how you could use the equity in your land.Say the house you want to build has been appraised at $100,000 and you havethree acres free and clear that is worth $40,000, so the appraisal of yourcompleted house and land is $140,000.

With today’s liberal lending, you could obtain a loan for 80%-100% of theappraised value of the house and property. An 80% mortgage would be amortgage of $112,000 and 90% being $126,000.

You have estimates from three builders indicating that they will build yourhouse for $100,000. We will assume that you can build it for 80% or $80,000,which is about normal if you do it yourself.

So since your land is paid for, you would have to obtain a mortgage of$80,000, or only about 57% of the appraised value of the land and the house! ($140,000 x .57= $79,800)

If you got an agreement with a building contractor to build your house for$100,000 and your land was paid for and appraised at $40,000, with the totalappraised value being $140,000, you would only need a mortgage of about 72%!

If you have not gotten your land free and clear by using the techniques

explained earlier in this book, but have an equity of $14,000 and you desire to have a builder build your house, you would need a mortgage of 90%, or $126,000. So if you do not have your land paid for completely but have an equity, you should be able to find a lender who will use the equity in the land in lieu of a down payment.

Simply visit some of the local banks that have mortgage departments and

ask them to explain their loan policies. Normally if you have a good equity in yourland, it is possible to obtain a permanent mortgage for enough to have the housebuilt without requiring a down payment.

PARTIALLY COMPLETED HOUSES

A excellent source of reasonable housing is the Jim Walter Homescorporation. Most people are familiar with the Jim Walter Corp. as it is one of thenation’s largest builder of single family houses.

The advantage of Jim Walter homes is that they are reasonably pricedand you can have the house completed to the extent you desire. It can be a“shelled in” home, to one 90% completed.

If you are handy, you could have it completed to a certain point and thencomplete it yourself. This arrangement is very accommodating and can result insubstantial savings!

There are many models to choose from and a catalog can be obtained viathe Internet. To obtain a catalog, go to; www.jimwalter.com and complete therequest form.

The corporation has several sales and model locations across the US,and can be found in the local phone books and at the company website. Theselection on homes is quite extensive, from about 900 square feet to severalthousand square feet in size.

One reason the company has been so successful is that they providefinancing with no money down and no points or closing costs to qualified buyerswho have their land paid for. Obtaining this type financing with nothing down canbe a real advantage for many people.

There are many reasons to have land that is paid for and to have a niceequity in it and this is one of them... you have more options!

MANUFACTURED HOMES

One of the best ways to obtain a very affordable home is to use a“manufactured” home. The manufactured homes are build at the manufacture’sbuilding warehouse and then transported to the desired location. The constructionis very controlled and thus the costs are controlled which results in a better valuefor the money.

The quality of the construction and the design features are such that thehomes are very attractive and much in demand.

A quality home of 1,200 square feet can be bought for $39,000 or about$259 per month! And most of the dealers have several lending sources and manywho will use equity in land in lieu of a down payment.

There are many successful builders of manufactured homes in the USand can be located in various cities or on the Internet. Simply check the phonebook for locations and visit the sales locations to see the homes. Or go to theInternet and search “manufactured homes”.

You will find many excellent websites such as www.mawilliamshomes.comThe Manufactured Home network at www.mhn.net , www.manufactured-home-guide.com

When you search “land in lieu of down payment” will find numerouscompanies that are available. Most indicate manufactured homes but someindicate stick built homes also. Some impressive ones are; www.aaa-mortgagebuyers.com www.theloanplace.com www.zerodownloans.com Mortgage Finance Directory at www.seekon.com/B/Finance/Mortgage

If you have credit problems but desire a mortgage, search for “bad creditmortgages”. Many are available such as; www.i-bad-credit-personal-loans.com ,

www.bad-credit-loans-mortgages-loan.com or www.1stopbadcredithomeloans.com

So, you have acquired your land and have made a profit, or have created an equity by selling a portion of it. Now you are in the driver’s seat tocomplete putting together your “family estate”!

CLOSING COMMENTS

So, you want to be in the “driver’s seat” on your way to establishing yourdream homestead. You just have to take your time initially and let land put you ina better position to acquire the impressive family estate you have dreamed of!

As mentioned earlier, most of the book relates to land, as that can be the

key to your obtaining the homestead you really desire.

I have related stories which drive home the point that I feel the best way toproduce an income or build an equity with land is to keep it simple! Especially ifyou’re doing it in your spare time.

Regardless of the fact that I preach to keep it simple, there are many fulltime developers around the country with large projects that are complicated, yetthey are extremely successful. The information provided concerning using yourengineering firm to help raise the funds for a major development could aid inlaunching you into this profitable world. I wish I had realized that earlier.

Remember to consider a couple of things; one is to go spend an hour ortwo with a real estate attorney that is familiar with your state and countyregulations and licensing requirements. Be sure you visit the County Engineer’soffice as well as the Health Department and Building Permits Department. Makethese visits BEFORE buying anything!

I would strongly recommend that you have someone from an engineering firm visit the property and look at the ariel photos to ensure you don’t get involved with a piece of land that has problems such as wet areas or “green belts”.

Also if you are looking at farm land, visit the local Soil Conservation Office as they can show you on their maps any problem areas such as green belts and areas that are prone to flood. They can estimate

how many acres drain through a certain area, which could alert you to possible flooding problems. And believe me, if they tell you there are problem areas, I would stay away!

And another is that each county is different and if one county is too

restrictive on breaking up land, go next door. Call or visit the County Engineer’soffice in other counties and ask them about their subdivision requirements. Makesure you do this before you commit to buying a piece of land that you might notbe able to work with.

If the county that you want to live in is too restrictive, you might go worknext door and generate income to buy the land you want in your desired county.

Another item to consider is that if your area is a seller’s market, you mightgo to another area that is more of a buyer’s market until you have gainedexperience and resources.

Also don’t rush out and bite off more than you can chew. Start off with arelatively small tract. Take your time and find property with the terms andconditions you need, and use escape clauses. And don’t fall in love with any onepiece of land! Don’t complicate your life!

Sometimes it’s best to walk away!

And be sure you have competent professionals to advise you! When youselect a real estate attorney however, don’t select the oldest and mostconservative one in town as he will try to throw cold water on your ideas. Youjust need him to make sure you are up to speed on any rules and regulations youneed to know and to help you protect your assets!

Make sure you have a complete plan in mind as to how you wouldsubdivide a particular tract, as well as how you are going to accomplish yourresells! Are you going to provide “owner financing”, and how, or are you goingto require the buyers to come up with the cash or get their own financing?

Having a feasibility study done or at least having an appraisal done of thevalue of your lots after you “chop up” the tract, before buying the tract, couldprevent you from getting into a jam.

Reread the book several times and pay attention to the things that I

mentioned that could complicate your life. I can’t emphasize enough that youdon’t want to run out unprepared and careless and get yourself in trouble.

Initially if I couldn’t find a parcel of land that had road frontage so that Icould just slice it up and sell lots, even lots behind lots, I wouldn’t become involvedwith it. Even with great terms. (And that’s assuming my research had turned upno negatives.)

I’m sure some of the stories of my experiences will scare some peopleand they won’t become involved in land. However it’s not that treacherous andcan be very satisfying and rewarding. Even though you may not go intobusiness, a great deal of the information should come in handy throughout theyears with your personal purchases.

You may simply desire to obtain a parcel of land and then resell portionsof it in order to be financially able to get your “dream home” built on it. That’s OKand it can be done using the techniques in the manual, just don’t rush things!!

One last thought; as I have related, I have been involved in many areas ofreal estate. If I could back up and start all over, I would acquire land free andclear, as I have discussed. Then I would build duplexes, serving as the buildermyself and then keeping them and renting them.

Consider this; if you had your land paid for and then served as the builder,constructing the duplexes for approximately 80% of the appraised value, yourmortgage would be so low that you could have an impressive cash flow as youbuild equity!

Let’s say you found 40 acres and sold 30 acres in small parcels and have10 acres free and clear. You start building duplexes at the front of the propertyand only build a private road as you fill the property with duplexes. It could providea heck of a monthly income while increasing net worth considerably!

Something to think about.

Good luck in your endeavors.

©Copyright 2001 by Huey C. Walsh

All rights reserved. Printed in the United States of America. Except aspermitted under the United States Copyright Act of 1976, no part of thispublication may be reproduced or distributed in any form or by any meanswithout the prior written permission of the author.

This publication is designed to provide accurate and authoritative informationin regard to the subject matter. It is understood that the author is notrendering legal, accounting or other professional advice. If legal advice isneeded, seek the services of a professional specializing in that area.

The author has used his best efforts in producing this information and makesno warranty of any kind, expressed or implied, with regard to the suggestionscontained in the manual. He also makes no guarantees of your financialsuccess and shall not be liable in the event of any incidental or consequentialdamages in connection with the use of the materials in this manual.

Special Report #1

Experience The Thrill of Condo Ownership!Experience The Thrill of Condo Ownership!

One thing that most people desire is to be able to enjoy leisuretime away from their normal routine.

And to able to enjoy quality time with their families.

One of the best ways to accomplish this is to have a resortcondo at which to spend time away from the hustle and hustle.

But as most people have realized condos are very expensive. So, What to do?

Forget about enjoying a condo? Rent one? Or join a time shareorganization?

Many people choose to just forget about it and let time passthem by. And believe me, it will!

But you don’t have to let time go by without enjoying one. Youcould rent one, but most people won’t put the effort into setting aside thetime and money to rent one. They talk about it but never go ahead and do it.

The other possibility is that they could invest in a time-share andhave the one week per year use of a unit. However a majority of peopledecide not to become involved due to the huge number of families using theunit each year. Plus all the various costs involved.

MODIFIED TIME SHARE

A great method to really enjoy a picturesque resort condo is toput together a modified time-share!

How about being one of a handful of families that owns a beachcondo, or a mountain unit, or both?

It’s possible and is a great way of enjoying the luxuries of afantastic family get-a-way...a modified time-share!

A modified time-share can provide two large benefits. Thebiggest advantage is that first, it can provide the means for a family to beable to afford ownership of a condo.

And second, it can cause the families to go ahead and take thetime off to enjoy a vacation.

Wouldn’t it be nice to spend “quality time” with your family everyfew weeks without having to worry about the expense!

Sometimes we postpone vacations for one reason or the other.But with a luxurious condo waiting on us, we have a tendency to use it! Wefell guilty if we don’t use it. Which is great as we force ourselves to use itand consequently enjoy more leisure time.

An advantage of a modified time-share is that there can be asmall number of owners of the unit but still cause the condo to beaffordable.

With a small number of families involved, the unit does notexperience the wear and tear of constant use. Plus the families cancommunicate and trade time slots with each other.

YOUR CONTRIBUTIONS

The big advantage to yourself in organizing a modified time-share is that it can be arranged so that it doesn’t cost you any money!

You can get a group together and divide up the costs, with yourcontributions being;• Coming up with the concept. • Putting together the organization.• Selecting a unit. • Serving as manager or overseer of the organization and condo

unit.

And you and your family get to enjoy the condo because youwent to the trouble to put the organization together.

So, that is the basic concept...put together a modified time-share!

Now how do you do that?

THE ORGANIZATION

First, you must decide on the area that you desire to own acondo...either a beach or mountain resort or perhaps a golfing community.Then you will have to visit the area to select a unit.

To make it easy to get a small group of families together, youshould select an area that is relatively close to a couple of large cities, say2-3 hours driving time.

If you are arranging a group for an expensive condo, you couldexpect that type party could afford to fly to the condo area so it could be

further away.

However, if you were to select an area within 2-3 hours drivingtime you would probably be able to locate more interested families. You mayfind enough for 2 or 3 condo units!

Once you have decided on the area and type condo unit you wantfor your first endeavor, you must decide on a specific unit.

As you decide on the unit, you will need to sign a contract andplace a binder deposit with the purchase agreement. It would be to youradvantage to extend the closing date as much as possible, such as a 3-5month closing. Or even a 6 months closing if the seller will go along with it.Of course, it will depend on how fast the particular units are selling and howanxious the seller is. BUT, extend the closing date!

Usually the binder deposit can be as low as $500 to $1,000 butmay be higher, but this can be recovered as your organization closes on thepurchase.

Of course, now you need to decide on the number of familiesyou want in your organization so that the individual contributions can bedecided.

And you will have to decide whether your group will pay cash forthe unit or finance it with a mortgage.

If it is a cash transaction, each family will have to produce theirportion of the total costs at the closing.

If it is to be a financed arrangement, contributions will still haveto be produced by the closing in order to cover the setup and closing costs.

BASIC STRUCTURE

So, some very important decisions will have to be made byyourself in a addition to the area and specific unit, and they are...• How many families will be involved?• Will the group pay cash for the unit?• Will the group finance the purchase with a mortgage?

There are two ways to analyze this. One is that the variousfamilies will each arrange to have their share of the total costs at theclosing and thus complete a cash transaction.

Or arrange for the down payment to be collected from thefamilies prior to the closing and put a mortgage in place.

MANAGER

The best arrangement for yourself as manager, would be to paythe unit off totally with a cash transaction so that there is no worry ofcollecting and making the mortgage payments each month.

However, it may be easier to get a group of families togetherdepending on the income level you are seeking, if the purchase is to befinanced.

If it is financed, you or your spouse will have to collect themonthly mortgage payments, as well as the condo fees.

An arrangement can be made so that you collect the monthlypayments and condo fee payments on a quarterly, semi-annual or annualbasis to reduce the effort required.

If you establish an organization that pays cash for a unit, should

a family not have the cash, they can obtain it by some other means. If theyhave to borrow it, they would make their own payments and you would nothave to bother with it.

CONDO UTILIZATION

An important decision will have to be made as to the number offamilies involved. The more families involved, the cheaper it will be foreveryone and thus the easier it will be to find interested parties. However,you will have to find more families.

There are 13 weeks in each quarter (13x4=52), so if you were toput together an organization of 12 families, plus yourself, each family wouldhave one week per quarter use of the unit.

Or, if you wanted less families say, 6 or 7, then basically itwould work out as 2 weeks each quarter.

Once I put together a modified time-share with a six families,(all friends) and each family had use of the unit a great deal. But eachfamily could loan or rent out the unit when it was their designated time andthey weren’t going to use it themselves. We also had the flexibility ofcalling one another and trading time slots as the need arose.

Each of the families came up with their share of the total costand the unit was paid for. My wife and I served as the managers of the unitand took care of getting the unit set up initially and then took care of it.

It was fun to set the unit up initially as we selected thefurniture and other furnishings. The unit has three bedroom plus a loft andis a beautiful beach condo unit.

NUMBER OF FAMILIES

Should you decide to use several families, the costs will be lessand it might be easier to get a family interested but of course, you will haveto go to the trouble to get more families involved.

Personally I think that if you are putting together anorganization made up of friends and other family members, I would use 7 or13 families and each one would have one or two weeks use of the unit eachquarter.

If you are using friends and family members they may want tolimit the number of families in the organization so that the unit would sufferless wear and tear.

Actually more than one week per quarter causes most families agreat deal of difficulty utilizing their time slots. But of course, they couldloan or rent it out.

I would say that it would be best to loan it out as it would beloaned to friends and family members and they would take care of it. If itwere rented out occasionally the renters probably wouldn’t take as goodcare of it.

You have to make a decision as to the number of families in yourgroup. As you are deciding, you will probably be guided by the total expenseof the unit.

YOUR EFFORTS

As you are setting up the organization you will incur expenses(which can be recovered), that will ultimately be paid by the other familieson a pro rata basis.

Since you are setting up the organization you can make thedecisions on the expense and whether you recover your set up expenses orlet them be part of your contribution.

Since it requires a great deal of effort to set up and maintain anorganization and you certainly can justify your contribution by thoseefforts.

When you start your efforts you will need to visit a real estateattorney to discuss your plans. The attorney will be able to give you adviceto help with your decisions on how to structure your group.

OWNERSHIP

There are several ways the unit can be owned. It can be ownedby a corporation, limited partnership or just as a group of families all on thedeed.

With a corporation or partnership the title would be in the nameof the corporation or partnership. If neither of those vehicles were used,all the owners would be on the deed as joint tenants.

More on ownership later.

START UP COSTS

The real estate attorney you visited would probably conduct theclosing of the purchase. He or she will be able to provide you withestimated costs of setting up the organization and to complete the closing.There are many costs associated with a real estate closing such as titleinsurance, doc stamps, recording fees, etc.

Plus other expenses such as insurance and tax considerations. It

is extremely important that you get all the estimated expenses together sothat they can be covered by the partner contributions. (Always refer to theother members as “Partners” and not “Investors”.)

Some of the expenses that will have to be covered are;• Your visits to select the unit• Legal advice and services• Binder deposits on the condo• Advertising costs• Closing costs• Furnishings

If you are purchasing a preowned unit it should be furnished.You would have to decide what furnishings would have to be replaced andthe estimated costs.

Let’s assume that you found a condo that you liked for $190,000which would give everyone a chance to get away from the rat race butwould not break any family budget.

So, lets say the total expenses to set up the organization would be;Two visits to the condo resort at $250 each------------------$ 500Binder deposit----------------------------------------------------1,000Attorney fees for consultations and setting up corporation-----1,500Advertising---------------------------------------------------------500Closing costs (4% of $190,00)---------------------------------- 7,600Furnishings-------------------------------------------------------21,000Total------------------------------------------------------$32,100

$32,100 divided by 12 (not 13), would be about $2,700, per family for set upcosts, closing costs and furnishings.

Until you get the organization set up and the closing completed,

you would need about; $500 for resort visits, $500 for attorney visits and$500 for advertising, or $1,500, which you could recover at the closing.

CASH TRANSACTION

Now, with a unit cost of $190,000, the total contribution perfamily to completely pay the unit off would be $15,800 per family, (12families). Your contribution would be your efforts as explained earlier.

Plus $2,700 for organizational set up would put the cost perfamily at $18,500 to completely pay for the unit leaving it free and clear ofany mortgage. This investment would be for 1/13th ownership and fourweeks use per year forever and ever.

Each family could come up with their share and if they neededto borrow all of it from a bank at say, 8% for 10 years their payments wouldbe about $225 per month. Of course, after 10 years the payments wouldstop.

With any condo unit there are items that must be paid such astaxes, insurance and condo fees, in addition to the monthly utilities whichwill be discussed later.

If the taxes were $1,200 per year and insurance $1,000 peryear, that would be $2,200 yearly for the unit. Plus the condo fee ofapproximately $100 per month would be $1,200 per year putting the totalannual expenses at $3,400 for the condo. Divided by 12 would be about$280 per family per year, or $23 per month per family for the taxes,insurance and condo fees.

FINANCED TRANSACTION

OK, let’s look at a financed arrangement. If 90% financing wasobtained for the $190,000 condo, the down payment would be $19,000 or$1,600 per family. 95% and even 100% financing can be obtained now days.

Financing the balance of $171,000 for 30 years at 7.5% interestwould require payments without tax and insurance, of about $1,200 permonth, which would be $100 per month per family. Or $1,200 per year perfamily. Of course, taxes, insurance and condo fees would have to be addedeach month.

So, $1,200 per year for mortgage payments plus $280 fortaxes, insurance and condo fees would be about $1,500 per year totalcontribution for each of the 12 partners. Or, $375 per quarter, or $125 permonth.

With a financed arrangement, I don’t think you would want tocollect the partner’s contributions monthly but would probably collect themat least quarterly or maybe semi-annually or annually.

MONTHLY COSTS

There are other costs to consider also. Those are the utilitiesand the cost of replacement of the furnishings as they wear. The only wayto avoid arguments would be to assess, say $20 per month per family or $240 peryear for a furnishing escrow to be used as needed. That would provide forabout $3,000 per year for condo furnishing replacements.

The monthly utilities would have to be estimated on a monthly basis anddivided by 12. Estimates would be;Electrical power--------------------------------------------------$200Water and sewer----------------------------------------------------50Basic phone service---------------------------------------------------40

Cable------------------------------------------------------------------50Garbage---------------------------------------------------------------20 Total----------------------------------------------------------$360

So, $360 per year per family or $30 per month per family.

THE BOTTOM LINE

Now, let’s put it all together.

First, we will look at a situation where the condo is paid off atthe closing.

As noted earlier, the contributions to get the organization setup and the unit closed on would be about $2,700, and $15,800 to pay it off. Or a total of $18,500 per family (12 families).

Then the annual costs per family (12) would be as follows:Taxes and Insurance---------------------------------------------$285Furnishing Escrow--------------------------------------------------240Utilities--------------------------------------------------------------360 Total----------------------------------------------------------$885

About $900 per year or $75 per month.

Now, let’s look at a financed arrangement.

First, $2,700 per family would be necessary to get theorganization set up and the closing accomplished, as previously discussed.And the down payment share per family would be $1,600.

So, with the unit financed at 90%, each family would have tocome up with about $4,300 to cover the set up costs, down payment and

closing costs.

Plus; $100 monthly for the mortgage payment. 20 monthly for furnishing escrow. 30 monthly for utilities. 25 monthly for taxes, insurance and condo fee.Total $175 monthly per family.

So, using 13 families, with your contributions being your effortsas discussed earlier, and dividing all the expenses by 12 looks like this;

Set up, close, and pay the unit off--------$18,500 and $75monthly.

Set up, close, and finance 90%-------------$4,300 and $175monthly.

If you shop, you could probably find 100% financing but it wouldbe a little more expensive, maybe 8.5% interest. The payments on $190,000at 8.5% at 30 years would be $1,460 per month or $122 per family.

So, the initial contributions would only be $2,700.

Plus $122 monthly for the mortgage payment. 20 monthly for furnishing escrow. 30 monthly for utilities. 25 monthly for taxes, insurance and condo fee.Total $197 monthly per family.

Set up, close and finance 100%------------$2,700 and $197monthly

TYPES OF OWNERSHIP

As mentioned earlier, the condo unit could be owned by JointTenancy, by a Corporation, or a Partnership.

If the organizational structure is as Joint Tenancy, the ownersto be on the deed as joint tenants with each owner having an undivided equalinterest in the condo and share in the financial obligations of theorganization.

If a Corporation is to be used then everyone would be issuedshares of stock, and when an owner decided to sell their share, they couldsimply sell their stock in the corporation.

Also if a Limited Partnership is used, the owners could sell theirpercentage in the partnership.

Probably the easiest method of ownership would be to use aLimited Partnership. With a Limited Partnership, the partners are only liableto the extent of their contributions, while the General Partner has unlimitedliability. The General Partner, (or General Partners), is the only one whomakes the decisions for the partnership. (You could be the General Partnerand serve as manager of the organization and buy insurance to cover anyliability.)

With a Corporation, each owner has shares of stock in thecorporation and should they decide to sell their interest, they simply selltheir shares. It might be a good idea to put the “right of first refusal” in theby laws. That way the other owners could have the first opportunity topurchase the stock before it was offered to the public.

The attorney would produce Articles of Incorporation, Bylawsand Shareholders Agreement and the corporation would be managed by a

Board of Directors in accordance with the Bylaws.

Everyone could be a member of the board with the officers ofthe corporation elected by the board with everyone having one vote unlessthey had bought more than one time slot. The officers would be thePresident, Vice-President and Secretary-Treasury.

The Bylaws would state what percentage of the total voteswould have to be cast for approval of decisions by the corporation. Annualstockholders meetings would need to be conducted with all owners invited.

The attorney could put the language in the shareholdersagreement as to how the corporation would handle a situation where one ormore of the owners did not pay their monthly or annual contributions tomeet the organization obligations. The Board of Directors can vote to sellthe shares of any shareholder who does not pay their assessments. Thecorporation should keep funds set aside to meet monthly obligations shouldan owner fall be behind in their payments.

You should confer with a CPA or tax attorney as you are settingup your organization to make sure you receive the proper tax treatment. Ifyou use a corporation, you might be better off to term your corporation asa “non profit” corporation, but you will need proper tax advice on that. Thecorporation will not make a profit and its use is strictly for ownership of theunit.

You would probably elect a Sub Chapter S corporation and someof the expense of maintaining a second home could possibility become a taxdeduction for your partners. That would be great to have a second home ina resort area and have a tax deduction.

I would not call the families “investors” , because you don’t wantany problems selling securities. I would refer to them as partners even

though they would ultimately be stockholders in a corporation that has beenput together simply as a vehicle for condo ownership.

You really need to rely on a real estate attorney to help you getyour organization set up properly.

CONDO ENJOYMENT

This endeavor could certainly be fun as my wife really enjoyeddecorating new condos with new furnishings, etc. It’s a real thrill to be ableto visit really nice condos...at no expense to yourself!

There is no reason that you can’t arrange more than onemodified time share. How would you like to be part owner in a beach resortcondo as well as a mountain or golf community unit? Or maybe a ski resortcondo.

You would have more use than you could possible utilize. So, youcould rent you time slots to others. Let’s say that you have four units indifferent locations with one week use per quarter, so four weeks eachquarter times $800 would be $3,200 per quarter or about $1,100 per monthincrease in your income.

SCHEDULING

As Manager you would probably be elected President of thecorporation, if one is used, or the General Partner if it’s a partnership, andyou would arrange the schedule for the owners use. If you have a total of13 families, each one would have one week per quarter and would rotate.

If each new year you constantly moved the families up oneweek, that would cause each family to be able to use the condo at different

times and not have one or more families also having the use on the sameholidays. Each family would have the other families schedule and phonenumber and could trade time occasionally.

FINDING YOUR PARTNERS

When you start to locate families that are interested in ownership in acondo, you might look first to other family members, friends and coworkers.This would make it easier to put together the group.

Talk to them and try to keep your organization with that groupas it will make your efforts easier.

I talked to friends and also I put pictures up on the companybulletin boards. I put pictures on 3x5 cards, along with an explanation, andplaced them on the company bulletin boards. Also a friend that had decidedto become one of the owners, put some pictures on his company boards. Avisit could be made to various office buildings, churches, etc. and cards andpictures placed on the boards.

If you place ads in the newspaper in cities within 2-3 hoursdriving time of the condo unit that you have selected, you should getresponse. The ads could be simple such as; “Become part owner of abeautiful condo at ----, private families, not a time share company, veryaffordable, call ----.”

It seems that the short simple ads work the best. If you havetrouble deciding on which section of the classifieds to use to get noticed,you might opt for a small display ad in the front section of the newspaper.That way someone might see it that would not have been specifically lookingfor a condo, probably because they didn’t think they could afford one. Itwould get a lot of attention.

Be prepared to provide any interested party an informationpacket. Providing them with a map to the area, brochures from the complexand floor plans of the unit would be very important. And amateur picturesthat you take walking around the complex. Also, you might go to a localairport and have a pilot fly you over the resort while you take aerialpictures. This would be very effective in getting the prospects attention andinterest, especially if it is a beach resort.

Locating the families for your condo ownership should berelatively easy but make sure you have consulted an attorney because youdon’t want to get into trouble selling corporate securities. You just want tolocate co-owners in a condo unit.

TEST THE WATERS

You could test the waters for interest in the concept and condolocation before you sign a contract for the purchase of the unit. You couldaccomplish your planning efforts up to the point of signing a contract andthen talk to your friends and relatives or place a couple of ads to see whatkind of response you get.

Then you could continue or back out, on the purchase of the unityou had decided on. The price or location of the condo unit could be greatand you get good response or it could be wrong and get poor response. Butthis would let you know early.

When you do sign a contract on a unit and place a binder depositon it, make sure you have some escape clauses to allow you to get out of itin case you aren’t successful in getting the required number of families andfunds together. Something like; “sale and purchase contingent on your beingable to arrange financing by such and such date”, or “subject to yourattorney’s approval.”

Make sure you have an arrangement with a real estate attorneyor a title company so that your friends deposits would be placed in escrowuntil the closing. Also you would need to provide the attorney’s name,address, etc. to your friends so that they would feel better about theentire arrangement.

RECAP

Items to consider are;Decide on an area and make a couple of visits to locate an acceptable unit.Visit a real estate attorney and discuss the preliminary arrangement.Test the waters on interest levels.Sign a contract on the unit, with escape clauses.Have an attorney establish a corporation or partnership.Locate partners.Complete closing.Obtain insurance.Furnish unit.Establish schedule for time use by the families.

ENJOY THE CONDO!

Special Report #2

Build Your Own Dream Home, or Become a Builder WithBuild Your Own Dream Home, or Become a Builder WithVery Little Experience or ResourcesVery Little Experience or Resources!!

Being able to serve as the contractor , or “coordinator” for theconstruction of your own home can provide a means of saving a considerablesum. Of course if you have the ability, knowledge and time to physicallyconstruct the house, the savings can be even more impressive.

However, most people do not possess the abilities or have the spare time toactually construct their own house so the use of sub-contractors is thenorm.

In today’s construction industry the sub-contractors have become veryspecialized and very professional, and a “builder” is actually a coordinator ofsub-contractors.

There is of course, a certain sequence of events that must be accomplishedin order to construct a building. Basically the sequence of events is the sameregardless of the type building.

For any new construction, you will first need to arrange a building site andhave the necessary blue prints or architect’s drawings completed.

The physical construction of a house consists basically of the following;1. Survey or lay-out of the foundation.2. Construction of the foundation.3. Initial plumbing structure is put in place.4. Concrete is poured forming the floor.5. Basic framework is erected along the installation of the doors andwindows.6. Heating and air conditioning ducts are installed.

7. Initial electrical wiring is accomplished.8. Insulation is placed in the walls and ceilings.9. Drywall or paneling is installed and finished.10. Kitchen cabinets and bathroom vanities are built and put in place.11. Exterior siding or brick work is completed.12. Roof covering is installed.13. Trim work and painting is completed.14. Electrical, plumbing and heating and air conditioning installationscompleted.15. Floor covering is put in place.16. Landscaping accomplished.

In order to ensure that a house is built properly, the local county employeesinspectors to inspect the construction in various stages.

And if a construction loan is in place, the lender will normally employ someone suchas an architect to inspect at various stages.

For the construction of a house, two loans are normally utilized. One is aconstruction loan which is short term, normally six months, to be used to constructthe house, while the other is a permanent loan of 20 to 30 years.

After an owner qualifies for a permanent loan, they can then arrange a constructionloan using the permanent commitment. Some lending institutions have permanentconstruction loans whereas the construction loan converts to a permanent loan whenthe house is finished thereby saving some closing costs.

If an owner has the funds necessary to pay for the materials as the house is beingbuilt, there is no need for a construction loan. But usually a construction loan is usedand funds are disbursed as various stages of the building are completed.

Normally a portion of the construction loan, (a “draw”), is made when the foundationis completed and another after the framing, etc. The lender will provide theborrower with a schedule of what must be in place in order to receive disbursementsduring the construction.

The builder or owner receives funds during construction which is used to pay thesub-contractors and material suppliers. Before construction begins, the owner orbuilder must establish credit accounts at several material suppliers, such asconcrete suppliers and lumber and building supplies.

The construction of the house is accomplished on a credit basis with the ownerpaying the suppliers and sub-contractors out of the construction loan disbursements,or draws. So basically, if a person has a decent credit rating, they can obtain acommitment for a permanent loan, put in effect a construction loan, establish creditaccounts and provide for the financial requirements for the construction of theirhouse.

Now for the physical aspects of the construction. Serving as the contractor orcoordinator is not that difficult but it is time consuming and has it’s frustrations.Frustrations such as when one sub does not show up to accomplish his work asscheduled, and screwing up the work scheduled by 2 or 3 other subs which ispredicated on the first one finishing his work. There are frustrations but overallthe savings are worth the effort.

An obstacle that must be overcome early in your planning is to locate a lender thatwill go along with you serving as your own contractor with no previous experience.You may have to shop around but you should find one who will agree to that becausethe lender knows that their inspector as well as the county inspector will ensurethat the house is constructed properly, regardless of your construction knowledge.

So you locate a banker who will allow you to serve as your own contractor and thatis one obstacle out of the way. Now you just need to locate the sub-contractors sothat you can “coordinate”.

Sub-contractors for the various phases can be found by reading newspaper ads,reviewing the yellow pages, by asking suppliers and bankers for names and phonenumbers of subs they are familiar with and by visiting building sites. As you pass ahouse under construction, stop and talk with the subs and possibly the builder. A listof competent subs can be put together rather quickly.

You could stop at a site at which workers were installing a foundation and showthem your drawings and ask what part of your job could they do for you and alsogive you an estimate. Then locate electricians, plumbers, etc. and ask them the samething.

As you establish a list of sub-contractors and learn what they can do for you, aswell as what they will charge, you are basically ready to start construction.

A recommendation is to visit the county inspector’s office and introduce yourself tothe building inspector, electrical inspector, etc., and tell them that you might becalling them occasionally to ask a question about the construction of your house. Thiswill really impress them as most people do not ask the inspectors to come out to lookat questionable areas. The probably will be happy to help you.

So you can rely on the inspectors, friends with construction knowledge, otherbuilders, sub-contractors and anyone that might be of help to you, and you will getyour house built!

Now we will discuss how you can accomplish all this even if you don’t have tons ofmoney available, but you have an average credit rating.

Of course you will need a lot for a building site. If you have the funds to buy one,that is great. But if you don’t, there are a couple of options available. One is to talkto the developer of sub-division lots and ask him if he will “subordinate” a lotpurchase for you.

What this means is that for about 10% of the price of the lot, the developer willagree to go to a subordinate or second position behind the construction loanmortgage. He will receive the remaining 90% balance when your permanent loan isput in effect.

An advantage to building your own house is that you may be able to providecomplete financing of your home and lot with very little funds required upfront.

Let’s say that your home appraised at $150,000 and your lot at $30,000, so your

house and lot would be $180,000. With today’s liberal lending, you could obtain aloan for 80-100%, with 80% of $180,000 being $144,000 and 90% being$162,000.

We will assume that you can build your house for 75% of the appraisal or 75% or$150,000 would be $112,500 and with your lot costing $30,000 that would total$142,500.

So, you find a building site you like and get the developer to agree to subordinate itfor you. Then get qualified for a permanent loan for 80-90% of the appraised value,arrange a construction loan and before long you will have a new home with a sizeableequity in it and all accomplished with very little upfront funds.

There are several books available which go into complete detail on how a house isbuilt and they can be referenced. Also you should seek professional advice prior tostarting your efforts to construct your house.

Special Report #3

Become Wealthy Working With Houses That Are InBecome Wealthy Working With Houses That Are InForeclosure!Foreclosure!

A foreclosure is the process by which a property which has been pledged to securea debt, is sold to satisfy the debt. A large percentage of foreclosures involve housesand this is the area we will concentrate on.

The phases of the foreclosure action are as follows. The pre-foreclosure startswhen a person misses a mortgage payment that he has agreed upon, and is said to bein default. At this point, the lender will send a letter asking for payment. When asecond payment is missed, another letter will be sent out which has a strongermessage, and the loan will normally be turned over to the lender’s collectiondepartment. Should a third payment be missed, the lender will normally start aforeclosure.

If the loan remains in arrear, the lender’s attorney will file court papers in thestates which use mortgages, and advertise for the sale of the property. The sale ofthe property is completed by an auction conducted at the court house steps, at theproperty, or at an auctioneer’s office.

The borrower can normally make up the payments and reinstate the loan to preventthe foreclosure right up until the date of the auction. Or declare bankruptcy.Lenders don’t usually want to bother with a foreclosure and would prefer that theloan be brought current.

So, sometimes you can locate a property which is in foreclosure, bring the paymentscurrent, assume the loan and become owner of a house with a sizeable equity in it.

Working with houses in foreclosure can be very profitable and it can be rewardingin that you can help people out of stressful situations. Nothing could be morestressful for a person than losing their house and at the same time, really damagingtheir credit rating.

By locating a house in default and preventing a foreclosure, you can possibly make anice profit, and by stopping the foreclosure, prevent the damage to the owner’scredit rating.

A technique that has been explained at some expensive seminars is to locate housesin foreclosure and go visit the owners. Explain that you will take the house and it’sfinancial and physical liabilities off their hands and prevent the foreclosure. Andthat you will give them $500-$1,000 for moving expenses. By assuming the mortgageand bringing it current, the foreclosure will be prevented and their credit ratingprotected.

You can imagine that when you contact the owners, they probably won’t be too happyto see you, since they are for the most part in a desperate situation. But you couldexplain to them that you can prevent them from really damaging their credit rating.

Of course, you have to do your homework to determine if the situation is worth itfinancially for you to become involved. You would need to visit the neighborhood andget an impression of the value of the house. This would help you decide if you woulduse the house as a primary residence, a rental or a resale. And there are otherinvestigations you must do which will be discussed later.

And of course, you should seek proper legal and professional advice as you startyour activities so that you can conduct business in a professional manner.

Working with foreclosures can provide an impressive income by locating houses withlarge equities and reselling them. Also accumulating several attractive rentals forthe income and depreciation, can be very beneficial. However, some purchases willrequire the investment of several thousand dollars.

When you have resold several houses with large equities, you could accumulateenough capital to start retaining ownership of more of them to use as rentals. Eachpurchase will have to be analyzed carefully to ensure success in the endeavors. Onceyou have located a property in foreclosure, which will be explained later, throughanalysis is required.

There are several items recorded at the court house in the public records,pertaining to each property. Deeds, mortgages, (or in some states , trust deeds),liens, judgements and sometimes promissory notes, are recorded at the county courthouse deed room.

A deed is the instrument used to transfer title of a property from one person toanother, where a mortgage is an instrument used by which the buyer pledges theproperty as collateral for a loan. Trust deeds are similar to mortgages except forthe rights they offer the lenders during a foreclosure. A promissory note spells outthe terms and conditions of the repayment and makes the borrower personallyresponsible for the loan. And a lien is a claim against a property which is used ascollateral for a loan and some common ones are for taxes or judgements.

Prior to purchasing any property, the public records should be investigated todetermine the general “health” of a property. A property may have severalmortgages and liens filed against it and you would certainly want to have thisinformation. You could visit the county deed room and research the records or if youare unfamiliar or feel more comfortable, have a title company do a search for you.

Don’t ever take the owner’s word for the obligations against a property! Researchthe public records and be well informed.

Each mortgage or trust deed will have to be investigated to determine the balanceremaining, payment amount, interest rate, how many payments are past due and if thelender had included a “due on sale” clause.

And it is very important to determine which mortgage is the most senior and whichones are the junior ones. This is determined by the date on which each was recorded,with the one with the earliest date being the senior, or first mortgage. And you willneed to know which mortgage is being foreclosed on.

If the first mortgage is being foreclosed on and it goes to an auction, the proceedsof the sale are applied to the first mortgage and anything remaining will be appliedto the junior mortgages. So on occasion, a purchase can be made with a bid of onlyenough to cover the first mortgage, even though there may be several mortgages

recorded.

If a junior mortgage, such as the second mortgage is being foreclosed, the minimumbid would normally be for enough to cover the second as well as the first mortgage,but could still provide for a nice profit margin.

Each situation will have to be looked at carefully and you will have to determine theestimated market value of the property as well as the balance on the mortgages andthus the expected minimum bid.

The combined total of the mortgages on the house should not exceed 70% of themarket value! 50-60% would be even better! But don’t go over 70%.

Normally there will be some repairs necessary on the house and this can beexpensive. So you have to decide if there is enough equity in the property minus theestimated repairs for you to go to the trouble of acquiring it.

To determine the market value of a property you will probably need the services ofan appraiser or the opinion of a very experienced realtor. Normally a realtor that isactive in your area and market range can provide a closely accurate estimate of themarket value.

So you’ve analyzed things and decided that if you could assume the payments, theproperty would produce a significant profit. This is the point that you talk to theowners about bringing the payments current and assuming their loan. You wold begetting them out of a stressful situation and providing funds for moving expenses.

Of course, as you can see, this process can require that you have several thousanddollars of operating capital. The first couple of transactions may be difficult but asyou stay involved with the business, you can build an operation reserve.

Normally the easiest and most profitable situation would be to obtain ownership ofthe property while it is still in the pre foreclosure phase prior to the auction.Especially if you can assume the present loan.

As you are investigating a property, contact the present mortgage holder and ask ifyou can assume the loan. And if they will provide you with funds to make repairs. Ifthey will accommodate you it makes the entire process easier. That is, if you havethe necessary funds available to bring the mortgage and any other obligationcurrent, such as taxes.

If the lender will not allow you to assume the loan, you will need to investigate a newloan and make sure you have this worked out before you agree to buy a property orbefore you bid on one at an auction.

To ensure that the bidders are serious, lenders will require a deposit of in the formof cash or cashier check be made prior to the auction. Usually you have to settlewithin 30 days on a purchase, so make sure you have the funds arranged.

So you become involved in the bidding process with your predetermined high bid inmind. Don’t get caught up in the bidding frenzy and exceed the high bid you haveestablished. Remember, you will probably have repair costs and other expenses.

If you are the successful bidder, you provide the financing or assume the loan andcomplete the settlement upon which you will receive a deed to the property.Hopefully the prior owners are out of the house but if they aren’t, you may have togo through an eviction process. When the previous owners have vacated, you can thencomplete the repairs and either resell the house or use it as a primary residence orrental unit.

Locating property in foreclosure or in pre-foreclosure will require some effort onyour part.There are several ways of learning of property in financial trouble which could beof interest to you. Notice the newspaper for any ads of financial distressedproperty or any foreclosure activity. The court house docket will tell you of anyimpending activity and you can review the docket and obtain the property owner’sname, address and phone number.

Also you can look up the property owner’s name and address in the Grantor’s Index.This will list the deed book and page number of any impending action. And you can

determine what mortgages are recorded and the original loan amount.

Contact banks, credit unions, mortgage companies, insurance companies and mortgagebrokers and ask for the department that handles property in foreclosure orproperty that has already been foreclosed on. Normally if the bids at the auctionare not high enough, the lender will simply take the property back and they areinterested in getting their investment back or at least of sizable portion of it. So,it’s possible to find a house that the bank has taken back and which the lender maybe in the mood to make a good deal of the property just to get rid of it as they arenot in the property management business.

And contact Realtors as they often hear of someone in financial straits and might bein the pre-foreclosure stage. Plus you could call real estate attorneys, accountantsor land surveyors and engineers. Or talk to your mail carrier or newspaper deliveryperson for information on houses that are vacant or if they know of anyone thatmight need your assistance in avoiding a foreclosure.

If you locate a house that is vacant and it appears that the owners have abandonedit, this may be just what you are looking for. Go to the trouble of locating theowners, which would start with the neighbors. They may be able to tell you wherethe owners are or give you information about their financial situation.

Plus advertisements can be placed in newspapers and local throw-outs. Advertisethat you will provide relief from foreclosure or that you buy houses.

Locating and investing in distressed property can be profitable and rewarding foryou. Of course there is effort involved in the process. First try to find propertythat is in pre-foreclosure, throughly analyze the obligations against it, determinethe market value and either pursue it or forget about it.

And don’t fall in love with any piece of real estate and keep your bid or investmentto 70% of the market value. But don’t try to squeeze every dime out of a propertyowner and make their situation more distressful.

Consider this activity as a business and conduct yourself accordingly. And always

seek professional advice when unsure.