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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127222  
Subject: Re: financing to buy, and then subdividing Date: 7/16/2013 6:00 PM
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Hi 2gifts,

A conventional loan will tie up the entire original property as collateral. If you went that route, you could do this;

- buy new property and move into house
- get engineering done to subdivide, and put current house on the market
- sell first lot

Pay off conventional financing

Get new conventional loan on smaller 3rd lot with your home on it.
Get construction loan on the development lot,
- build new house
- move into new house, and sell remaining lot with house

Pay off conventional loan on sold home.
Get new conventional loan to take out construction financing on new home.

That's a whole lotta turnaround fees... can I be your broker? ;~)
(ACTUALLY KIDDING... the above is likely a nightmare scenario that takes multiples of time over simpler transactions, and I don't get paid by the hour for origination ;~)

Better idea;
Get an acquisition (lot loan) and construction loan combo to acquire the whole thing in the first place. It would be a portfolio loan, so the face rate will be higher, but by eliminating so many transaction turnaround costs the net cost would be much lower. Let's ballpark it at 9% & 3 points (but it may be as low as 7% & 2 pts... I dunno... not quoting anything sharply as I don't know the particulars.)

As you subdivide & sell off partial lots, you'll be able to restructure the collateralization with the lender without a full refinance. When the new place is certified occupiable, you can then do a single new conventional refinance on that at purchase rates & terms, and the sale of the old place will finalize that lien.

Who loves ya baby?
Dave Donhoff
Leverage Planner
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