I’m in a different position than the usual land hustler in that I’m drowning in parcels to sell, within about 30-45 minutes of Seattle. But, I’m a rank newbie when it comes to selling cashflow notes.
I currently have 14 acres of unbuildable (for residential) farmland next door to Everett, WA, that’s pre-divided into 36 parcels and just put under contract 40 acres that will subdivide out into at least 8 unbuildable lots. And, I have another dozen deals bookmarked on Redfin, just waiting for me to come up with the cash.
These properties are the “residue” acreage properties from my main niche of buying land that contains unused county “transferable development rights” that are suddenly worth far more (3X – 10X) than the asking price for the land/TDR package.
The nice thing is that you don’t have to sell the land to reap the TDR profits: The credits are Certified and split off, leaving behind a “conservation easement” on the property’s title.
(To sell these credits, you just need to find urban growth area multifamily developers who will need these credits in order to boost development density from 22 units/acre to 58, in a market where development land sells for $1 million/acre. BTW, this only works within Snohomish county, WA, under the county’s new comprehensive resource land conservation program.)
Without going into complex detail, it’s probably going to be about six more months before the free market for these TDR credits launches. Then the demand is going to be for 1,000’s per year just to keep up with projected population growth for the next couple of decades.
So, at the moment, I’m land-rich and cash-poor. It could be worse. 🙂
But, after “clipping off” the TDR credits for resale to urban developers, I’m still “stuck” with many acres of land parcels that aren’t out in the middle of nowhere. They still have value to one demographic or another and, by selling them as smaller parcels, at a minimum I should get at least my purchase cost back, but usually at least double that.
Selling parcels isn’t the problem, either. At least on low down seller note terms.
Since my main profit center is the TDR credits, my longer term plan is just keep the notes that the lot sales generate for the long term cashflow.
My challenge is that, right now, I need to sell some of these new notes in order to clear the underlying DOT on the 36 parcel property. I can’t split off the smaller lots until that’s cleared.
I need to sell 14 notes, but can offer deep discounts off the face value/purchase price. This will all be transacted within bonded escrow with a national service with offices all over the country.
The general way that this will work is that, when I sell the lot, I then refer the buyer to an interested note-buyer and they reach their own agreement.
The note-buyer then deposits the funds into escrow and, after recording the sale etc., the escrow company mails them the recorded DOT note.
What sounds reasonable to me, selling notes “wholesale” to “retail” buyers who are looking for high-ROI passive cashflow, is this:
$18,000 buys a $36,000 1st position face value note paying 8%. Interest-only monthly payments with a balloon at least five years out. These are commercial buyers, both small and mid-size.
So, the note-buyer will be earning an effective 16% on their money and, at the balloon, they’ll get a lump sum of twice their cash in.
By ordinary standards, for a completely passive and stable cashflow investment, secured by land, these seem like some pretty incredible returns. Not by active land hustler standards, of course, but pretty good if you’re a busy highly paid tech worker or a retiree with capital who’s seeking steady cashflow that pays a lot better than bank CD’s.
The big question is, “Where can I find these note buyers?”
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