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Liquidate Assets to Purchase Land

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Money Talk > Real Estate

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dlr1200
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Liquidate Assets to Purchase Land  Reply with quote  

My wife and I are considering purchasing land to build a home in a very desirable location. Cost of the land is $50K-$75K. We will be the owner/builder for the home - cost $300K. Our construction loan is paid in draws directly to us. We anticipate an appraised value of the completed home around $340K + land value.

We currently own a home with $40K equity, and will sell prior to moving into new home.
Liquid cash assets = $58K
Line of Credit = $15K
Monthly gross income = $11K
Debt = $0 (except for current home mortgage)

Question: What percentage of our cash assets should we liquidate in order to purchase the land? The advantage of 100% liquidation is that the offer is much more desirable to the seller, and we own it free and clear.

Thanks!
Post Tue Jan 03, 2012 8:32 pm
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oldguy
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Is the property currently owned by a family member (a stranger doesn't care if the money comes from a lender or the buyer)?

Why sell your home prior to moving? That would cause you to pay for two moves, utilities hookups, address changes, plus the disruption.

After you build, you can have the total package appraised and then get an 80% (or 90%) 30 year fixed rate loan - sounds like the loan would be about $320k or $360k, depending on the lender. And then sell the first home.
Post Tue Jan 03, 2012 9:28 pm
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dlr1200
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Thanks for the reply.

The land is not owned by a family member, but from a tax perspective, wouldn't cash be very enticing to the seller?

I misspoke - we will sell the home after moving into the new home, and only pay interest on the construction loan during the build.

The lender has agreed to wrap the land into the construction loan. I can then pay down the principal with cash and proceeds from the sale of our existing home during the construction loan modification to a 30 year fixed.

The lender will issue the loan based on the construction cost estimate, and consider the difference between the estimate and appraisal as equity. If we own the land, it too, is also collateral on the loan.
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Post Tue Jan 03, 2012 10:02 pm
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oldguy
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quote:
The lender has agreed to wrap the land into the construction loan. I can then pay down the principal with cash and proceeds from the sale of our existing home during the construction loan modification to a 30 year fixed.


If the land will be wrapped into the construction loan, that will be a good way to carry it - ie, pay cash for the land and then borrow against it.

As for paying down principal after you sell you existing home - maybe you can avoid much of that. With interest rates on 30-yr fixed rate loans at a 50 year low, you want to get the largest mortgage that you can - and retain your own capital for other investing.
Post Tue Jan 03, 2012 11:07 pm
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marknicolas12
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were low, the market had learned to borrow cheap money and buy real assets in the knowledge that ... when they are unable to liquidate assets fast
Post Tue Jan 22, 2013 5:57 am
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