No Money Down With Benefits for All

Recently I had the opportunity to visit with Gary Vandenberg, a friend and business associate of more than thirty years, also in the creative real estate business. We reminisced on past transactions, successes, and war stories. One transaction Gary remembered intrigued me all over again.

It involved a 14-acre property in a beautiful recreation area. No services. Zoned half residential, half agricultural. On this site he eventually completed a 37-unit semi-detached condominium project and a four-lot single-family project. The journey there was interesting.

The people

The sellers were long-term free-and-clear owners, quite content to stay in passive land-banking mode. Gary is a developer, investor, and exchanger whose continual goal is to add value.

The situation

The sellers were in no mood to sell at fair market value. Gary needed a creative structure to make the development possible.

The solution

Gary paid a 25 percent premium for the property through a creative formula:

• The transaction was conditional on Gary receiving final zoning and development approvals for the full 14 acres, at his expense.
• Gary arranged a construction loan for the infrastructure and a construction credit line for building the condos, both secured by a first mortgage on all the property except one acre reserved for the four single-family lots. That acre stayed free and clear.
• The seller took back the balance of the purchase price two ways: two single-family lots deeded at closing (the profit in those lots became, in effect, the down payment), and an interest-only second mortgage paid out through partial discharges as the condominiums sold.

Seller benefits

The sellers received substantially more than the original third-party valuation, and sold as-is, leaving all hard and soft costs with Gary. Even if Gary had walked away during the conditional period, his rezoning and approval work would have increased the property's value at no cost to the sellers.

Buyer benefits

Gary acquired the property with no money down. The lots not deeded to the seller were sold after closing to fund the rezoning, reports, and road construction. After paying off the infrastructure loan and the seller's second mortgage, Gary was left with ten free-and-clear condominium sites and all the value-add opportunity that followed, which he went on to complete.

What about us?

The basic questions, as always: What type of investor are we at this point in the cycle? What is our current and long-term situation? Our objective? Our needs? The articles in this library exist to help answer them honestly, coupled with an honest look at what you can add to help a transaction happen.

A reminder: markets and circumstances are forever in motion. Are our actions keeping up?