I was speaking with a land broker today about purchasing a parcel of land and then building on it. She told me that in

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Customer: Hello.
I was speaking with a land broker today about purchasing a parcel of land and then building on it.
She told me that in some deals she has the builder “buy the land” (she knows lots of builders), and my group would get the loan for the construction.
Once the building was done, the builder would somehow sell the land back to us. After construction and the group only has 1 loan rather than 2…..
She said this is good for beginners because it’s only technically 1 loan and not 2 initially.1. I think I’m missing something here- but does this kind of sound like a loan structure to you between a builder and a group interested in building?2. Are there certain types of loans that builders and interested parties come together on?
We need a builder to build a few warehouses for us.Thank you
Answered by Richard in 20 hours 10 months ago
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Richard
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Richard, Expert

Hi! My name is Richard & I will be helping you today! It will take me a few minutes to type a response to your question. Thanks for your patience!
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Richard, Expert

Good morning.  The land broker needs to stick to brokering deals and leaving the legal aspects alone.  You really don't want to do that because you risk losing the land if the builder goes broke or defaults on its loan to build the improvements and the lender forecloses.  .  The advantage of owning the land and doing a construction loan which then closes into a permanent loan is that if there is an issue with the builder, you own and control the land.

Customer
Thank you.
That makes sense.
So when securing land and getting the building plans underway, should I have the broker privy of the building plans?
Does the broker help me secure the entire loan of land purchase along with building? Or just land only?
Ideally I’d like to have 1 loan that consists of purchase with the construction of these warehouses.
Thank you.
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Richard, Expert

No...the broker should not be involved.  A broker's only role is to find you the property.  From there, the plans and loan should be your pursuit without any input from the broker.

Customer
Thank youBefore doing this, what type of lawyer should I hire to make sure I’m doing all this in the right order?
Biz plan, talking to builders, etc…..
also- there is a group I’m working with- can a lawyer draw up a biz plan w/ operational agreement?
Thanks
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Richard, Expert

I just wanted to let you know that I will be away for a dinner break for the next couple of hours.  But, should you have a follow up while I’m away, I will address it immediately upon my return. Thank you in advance for your patience. I apologize for any inconvenience.

Customer
Thank you.
What kind of information must I present to the lawyer when wanting to establish a biz plan, for my biz idea? Does this lawyer help present it in a way to introduce to bank?
Does the lawyer consult with the broker during land sales?
Thank you
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Richard, Expert

If you have a business plan, I would start with working with an accountant to get all your projections in order.  Then, once that's done, I would go to a real estate lawyer to document your business plan.  It's likely that lawyer would have various bank relationships to which he/she could refer you.  There is really no further role needed for the broker.
Customer
Thank you very much.
Lastly, once we have the attorney draw up the operational agreement (with our group involved), does the attorney:
1. Deal with the lender or broker on our behalf in anyway (other than reviewing documents)?
2. Does the lawyer wheel and deal for us or just advise us on the documents and drafted deal?
3. Does the attorney put the biz plan, the operational agreement together for us in a way to present to the bank?
Thank you
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Richard, Expert

Typically, the lawyer will help draft/negotiate the operating agreement and loan documents, but otherwise the broker should have no role and you and your business team would present to the bank.

Customer
Thank you
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Richard, Expert

You're very welcome!  It's been my pleasure to help!

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