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Building a House to Sell with a Partner
Posted on 8/10/20 at 2:38 pm
Posted on 8/10/20 at 2:38 pm
So me and friend are looking to purchase some land, use the land as collateral, and construct a ~300k house on the land.
We have seen multiple other sites do the same in the market and seems to be doing ok.
This isn't a question about doing this in the current economic climate... that is a separate issue.
My background is construction and I have no doubt about the ability to get the house done in a cost effective and timely manner.. my question is about the legal and business side of it.
Do we form an LLC with a partnership? Then buy the land, get the construction loan, and sell the house through the LLC? How would this get taxed? Is it better we keep it for a year? (someone told me this)?
Sorry, just don't know much about the business end of it.
Thanks for any help.
We have seen multiple other sites do the same in the market and seems to be doing ok.
This isn't a question about doing this in the current economic climate... that is a separate issue.
My background is construction and I have no doubt about the ability to get the house done in a cost effective and timely manner.. my question is about the legal and business side of it.
Do we form an LLC with a partnership? Then buy the land, get the construction loan, and sell the house through the LLC? How would this get taxed? Is it better we keep it for a year? (someone told me this)?
Sorry, just don't know much about the business end of it.
Thanks for any help.
10
Posted on 8/10/20 at 2:51 pm to GeauxTigersGo
i can tell you as a mortgage lender the loan to build that house will be the hardest thing to get. I work for a large bank and we do construction loans but only as primary or second homes. Finding a construction loan for a flip house is going to be tricky. I would start with finding the loan before you get to the rest of the it. good luck
Posted on 8/10/20 at 2:53 pm to GeauxTigersGo
quote:
Do we form an LLC with a partnership?
an LLC should do fine
anytime you want to have multiple people invest, you need to form some sort of agreement and have it all down on paper with clear rules
Posted on 8/10/20 at 2:59 pm to GeauxTigersGo
quote:
Sorry, just don't know much about the business end of it.
Don't do it unless you can hump the note by yourself and you take the lick if you can't sell it for what you have in it, by yourself.
From experience.
Posted on 8/10/20 at 3:04 pm to hawkeye007
quote:
i can tell you as a mortgage lender the loan to build that house will be the hardest thing to get. I work for a large bank and we do construction loans but only as primary or second homes. Finding a construction loan for a flip house is going to be tricky. I would start with finding the loan before you get to the rest of the it. good luck
We talked about this briefly. You said to bring a chunk of money.
Posted on 8/10/20 at 3:10 pm to GeauxTigersGo
Be very careful with your partner.
2 buddies did this. After a law suit and a prison stent, those two don’t talk anymore!
Just saying, you might know someone, but when times get tough, you never know!
2 buddies did this. After a law suit and a prison stent, those two don’t talk anymore!
Just saying, you might know someone, but when times get tough, you never know!
Posted on 8/10/20 at 3:13 pm to GeauxTigersGo
Form an LLC to own the property. Use the lot as collateral when you go to build. You shouldn't any more trouble than a traditional construction of a personal residence. The only difference is on the investment property side lenders typically want more money down than if it were a personal residence. Good Luck.
Posted on 8/10/20 at 3:15 pm to MrCEO
We have the cash to buy the property outright (around 70k for the lot) I guess this would help secure the construction loan?
Posted on 8/10/20 at 4:51 pm to hawkeye007
quote:
I work for a large bank and we do construction loans but only as primary or second homes.
What's stopping someone from applying for the loan under the assumption that it's going to be a second home and then just selling after it's built?
Posted on 8/10/20 at 6:00 pm to GeauxTigersGo
quote:
We have the cash to buy the property outright (around 70k for the lot) I guess this would help secure the construction loan?
Not really, the reason banks only do construction loans for primary residences is b/c like all other credit transactions, it's all about risk. People are less likely to stop paying their primary mortgage note then they are for their side gig LLC project. If shite gets tight, you and the partner would stop paying that note first then everything else. Have you thought about a CD secured loan or something along those means?
This post was edited on 8/10/20 at 6:01 pm
Posted on 8/10/20 at 6:03 pm to iAmBatman
quote:
What's stopping someone from applying for the loan under the assumption that it's going to be a second home and then just selling after it's built?
Nothing really, but it would probably have to be in one person's name. So you would have to have the income, DTI ratio to afford both your primary and the new secondary. It would be pretty hard to convince the bank you are buying a second home with your "partner".
Posted on 8/10/20 at 6:36 pm to GeauxTigersGo
quote:
Don't do it unless you can hump the note by yourself and you take the lick if you can't sell it for what you have in it, by yourself
This. You have to tote the note on some for awhile. If you have to list it, kiss 5% off the top
quote:
Do we form an LLC with a partnership
Absolutely
quote:
How would this get taxed?
50/50 flow through to each of your tax return
I’ve done 25+. Partner was the $$ guy, I got the house built via subs. Like you I have a good bit of construction experience. You both sign the dotted line on loan so both need proper debt/income etc. Some you make $30K, some $5K. This is East TX so it was a grind. When I put the pencil on time spent it didn’t make sense so we quit. If you can keep 2 going on adjacent lots then it’s worth it. I was not willing to give up day job/benefits to run it full time bc I’m a puss. But, it did pay a good chunk of 3 kids college educations
Posted on 8/10/20 at 9:26 pm to GeauxTigersGo
Geauxtigers,
I’m a loan officer for a regional bank in South Louisiana. Hawkeye007 must be a consumer mortgage lender only that doesn’t even sniff commercial loans. Any bank that does commercial loans can do this, just different banks will have different requirements. The interest rate from us would be somewhere around 4.5%, but the best part is the flexibility we offer on funding the loan for folks like you building it themselves. If you’d like to chat more about it, just post your email.
I’m a loan officer for a regional bank in South Louisiana. Hawkeye007 must be a consumer mortgage lender only that doesn’t even sniff commercial loans. Any bank that does commercial loans can do this, just different banks will have different requirements. The interest rate from us would be somewhere around 4.5%, but the best part is the flexibility we offer on funding the loan for folks like you building it themselves. If you’d like to chat more about it, just post your email.
Posted on 8/10/20 at 10:15 pm to GeauxTigersGo
quote:
me and friend
I must assume you no longer want this person as a friend if you are going on this venture together.
Posted on 8/11/20 at 6:52 am to GeauxTigersGo
quote:
So me and friend are looking to purchase some land,
Good way to lose a friend.
Posted on 8/11/20 at 8:16 am to GeauxTigersGo
quote:
my question is about the legal and business side of it.
Do we form an LLC with a partnership? Then buy the land, get the construction loan, and sell the house through the LLC? How would this get taxed? Is it better we keep it for a year? (someone told me this)?
Sorry, just don't know much about the business end of it.
Who between the two of you has the contractor's license? Building a house you never intend to live in without a contractor's license will get you a stop-work order and months later you will be drug in front of the hearing committee to explain why you built without a license. You will then be imposed a pretty hefty fine no matter what you say and this all while the house you were building deteriorates because you can't touch it. I have seen this exact scenario play out a few times. The contractor's board even puts out a monthly newsletter citing all the people they have fined for working without a license.
The people that run the contractor's board are contractors themselves and use their position to squash any competition. They tried a few years ago to make it where a homeowner would no longer be able to pull permits for small jobs on his own house. Over the years they have made more draconian rules that favor them and kill free enterprise. The head of the board is the most crooked contractor in the state.
This post was edited on 8/11/20 at 8:18 am
Posted on 8/11/20 at 8:18 am to hawkeye007
quote:
i can tell you as a mortgage lender the loan to build that house will be the hardest thing to get. I work for a large bank and we do construction loans but only as primary or second homes. Finding a construction loan for a flip house is going to be tricky. I would start with finding the loan before you get to the rest of the it. good luck
This is why you establish a relationship with a local bank.
Posted on 8/11/20 at 8:32 am to stout
quote:
contractor's board
Glad I don't have to deal with that in TX
Posted on 8/11/20 at 8:36 am to geauxnc0308
Yea TX does it right. They do not have a state board and leave it up to the local municipalities to Govern. Do you know why as a state they do that? According to the states site, it's because they do not want to impede free enterprise. It's awesome.
LA, on the other hand, lets dirty politics kill the market and hurt the smaller guys and homeowners under the guise of "protecting consumers".
LA, on the other hand, lets dirty politics kill the market and hurt the smaller guys and homeowners under the guise of "protecting consumers".
Posted on 8/11/20 at 9:17 am to stout
quote:
Who between the two of you has the contractor's license?
I have both a residential and commercial contractor license.
This post was edited on 8/11/20 at 9:19 am
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