The new “gold rush” has been on for the last few years with no end in sight!  It involves purchasing and reselling raw land.  Historically, raw land has drawn a lot of real estate investor interest after a bull market has been in effect for years.  The logic here is that there are no “good deals” remaining, and raw land is readily available and usually affordable. The percentage of raw land that I historically funded was typically 3.5% to 5% of my wholesale closings.  However, in recent years, that percentage has risen to over 30%.

As a transactional lender, I fund wholesale same-day double closings for investors.  These transactions involve the investor–buyer getting a purchase contract for real property, specifically single-family homes, multi-family rentals, commercial properties, and raw land.  The investor’s goal is to find a buyer for his contracted property and sell it to get his profit from the deal. 

It sounds simple enough, but in some cases, the contract he has with the property owner cannot be sold or assigned to his end-buyer.  In many states, the sale of a contract, or its assignment to an end-buyer, is illegal. Most often, the investor uses a transactional lender for a double closing so that the original property owner and the end-buyer do not know how much profit the investor is making on the transaction.  

Another reason he may need funding for his purchase is that he doesn’t have the funds available.  It is also nearly impossible to borrow money to purchase raw land, even from hard money lenders.  In one case, an investor did a double closing with me where I funded $8,000 for the purchase of the property, and he resold it the same day for $48,000.  He told me ahead of the closing that he didn’t have $8,000, the closing agent wouldn’t allow an assignment, and had the seller or buyer known how much he was making, one or both wouldn’t have closed. 

So, what is the big deal about raw land?  First, there is land everywhere, from urban canyons in every major city to rural land across America.  Many of the landowners have purchased it or inherited it years ago and are tired of paying taxes on it.  They may have had good intentions of buying a piece of land to build a retirement home, but things change.  Suddenly, they are motivated to sell, and along comes an investor looking to purchase it and resell it.  Who would be a buyer after all these years?  Usually, it’s an adjacent landowner, someone looking to build their home on it, or a developer who wants to put in a subdivision.   

One of the investors I worked with for over two years had a simple plan.  He would buy one-acre lots in rural areas and put a mobile home on the raw land.  He would then sell the property and make net profits of $45,000 to $70,000 on every deal.  A local mobile home manufacturer worked with him to allow their homes to be set up as soon as he had the land prepared, but not to pay for them until the property was sold.  He completed 46 of these in his first two years and was able to keep 14 of these free and clear as rentals. 

In dealing with investors of raw land, I can spot the newbies quickly.  They have gotten a property under contract, but they make simple but often fatal mistakes.  The biggest one I see is that they ask for an inspection period of 30 days or less.  They should be getting a Due Diligence Period of at least 60 days and preferably 90 days.  This way, they have time to market the property to a prospective buyer.   

The flip side is new investors who didn’t just watch YouTube® videos but took the extra step to find a coach or mentor who is a professional at dealing in raw land.  I find that I am funding quite a few of the transactions from the Johanthan Havele’s “The Land Method”.  His students appear to have a solid understanding of the entire process, have good wholesale profits, and perform well in their wholesale transactions.  Check them out at www.TheLandMethod.com. 

I wish you limitless success in all you do, 

Dave Dinkel 

Frequently Asked Questions

Transactional funding for raw land is the same process as for single-family, multi-family, and commercial properties. An investor buyer contracts with a property owner to purchase the property. The investor finds a buyer and sells the property at closing, having bought it with a transactional loan, to the end buyer. The popularity of these transactions has increased significantly in the past few years, with a tenfold rise in our transactional lending business.

Transactional funding is less common with raw land because buyers often purchase the property directly from the original owner and keep it for their use. These buyers have the funds to close on the property, whereas most investors, with limited assets, typically choose to wholesale the land to end buyers who then use it for their purposes. The raw land transactions we fund range in size from a few thousand square feet to 700-plus acres.

There should be no risks when using transactional funding to close raw land deals, assuming the transactional lender is experienced. We see the failure rate at about 25% of the transactions we fund because of technical issues like unresolvable easements, rights-of-way, disputed boundaries, zoning issues, and similar technicalities that restrict the buyer’s potential use of the land.

Savvy transactional lenders should have no additional lending requirements that differ from those for any other qualifying property they would fund. As a transactional lender, we will fund the transaction if the property owner and end buyer sign all necessary closing documents, the end buyer has the necessary funds in escrow to complete the transaction, and the transactions occur on the same day. We encounter other transactional lenders who have strict requirements that frankly make no sense, so we get the double closings.

We do not charge any different amount for raw land or single-family homes, multi-family or commercial properties. If the amount ‘Due from Buyer’ is less than $69,000, our funding fee is $650, with no additional charges. If this amount exceeds $69,000, our funding fee is ¾ of 1% plus a $50 wire transfer fee. Over $1,000,000, the fee is negotiable.

Raw land qualifies for transactional funding with us as long as both ‘legs’, the A-B and B-C closings, close on the same day with the same closing agent.

The type of raw land that is easiest to sell is any parcel that can be used for development of a single-family home, multi-family, or commercial project. Rural lots tend to sell best if they are a minimum of one acre, especially if they have access to city water and sewer services. If the parcel is in an urban area, make certain it is zoned for a buildable lot, or it may only be sold to a neighbor of the parcel.

We do not loan on auctions, either tax deed sales or foreclosures, because of ‘chain of title’ issues. The most profitable deals are not at auctions but as pre-sale transactions with the property owner. As transactional lenders, we do not fund tax delinquent transactions unless the investor has a buyer for the property and we double-close on it.

Our requirements are the same for all transactions we fund. Three items are required: the signed A-B contract, the signed B-C contract, and the email address of the person at the closing agent who will be opening escrow. No signatures on any document are required from us. The only other requirement is that both A-B and B-C closing occur on the same day at the same closing agent.

An assignment is better if the profit spread is small enough that the original seller and the end buyer don’t object to the amount, as it will be disclosed to each party. Transactional funding is better if the profit spread is greater than $10,000 so that neither the seller nor the end buyer will know how much the investor is making at closing.