Just curious what banks are requiring for a down payment on raw/ recreation land these days? Is it still 20%?
Anyone have any creative ways they built up cash for their down payment? Timber sales, etc?
Personally, I would not take a loan out to buy recreational land. If I plan to use the land to produce income (farming, timber, etc.) then I would only consider a loan where my carrying cost was less than the expected income.
When we purchased our hunting property, we looked at a number of options. First, we decided to go in with other folks with similar wildlife interests and hunting philosophies. We formed an LLC to hold the land. Rather than having the LLC take out a loan, each of the members was required to bring cash to the table to invest in the LLC. Each member could independently decide how to raise the cash. In my case, we decided the cheapest money was a cash out refinance of our primary residence. The property we purchased was a pine farm. The location and characteristics of it were such that we felt that it was a good long-term (20 year plus) real estate speculation. The property had been been managed in two units. One was recently clear-cut and replanted in pines. They were about 8' tall when we purchased it. The other half was about 15 year old pines. We expected a first thinning of that half in about 8 years and the other half in about 15 years. We decided this income would offset much of the interest we were paying on the refinance. The fact that the cash out refinance was at a lower interest rate than our current mortgage helped balance the books.
We have been doing wildlife management and hunting this property for the last 16 years. We just finished a timbering. Half of the property got a first thinning and the other half got a heavy second thinning. In addition to the timber income, we also got some income from a USDA program for the heavier than normal second thinning.
This approach is not without risks and issues. Anytime you take on business partners, you will have to compromise with their needs and desires. This goes for management, as well as changed in personal situations and objectives over time. It is important that you think through the long-term possibilities when you design the LLC. I would have been happy to continue on the path we were on, but some of the other owners were ready to cash-in on the long-term real estate speculation. We had an opportunity to sign up with a solar project and took it. It was a reasonable compromise. We will lose some of the land to the solar project but it will generate significant regular income (if it goes into construction). We will still be able to hunt the unused land. If the project does not come to fruition, we will still receive some income during the study phase over the next few years.
This describes how we acquired land, but your question is more about how we got the cash to get started. The answer is "Lifestyle" plus luck. Both my wife and I have had good professional careers. Our lifestyle has always been well below our means. For example, when I purchased my first car, it was used, I had to take out a loan with my credit union to buy it. I took out a 3 year loan rather than 5 year and I made extra payments. I paid it off while it was still running well. Rather than spending that money when it was paid off, I had it pulled from my paycheck and saved. So, when that car finally died, I had a good down payment for my next car. I bought that one new. Not a fancy car, just a basic honda civic with a standard transmission. No "features". Once again, I took a 3 year loan and saved the payments once it was paid off. I ran that car until it died. From then on, we purchased all of our cars with cash. A few new, but most used, and ran them till they died. My friends at work would brag about their new BMW or sports cars.
The next financial thing I tacked was rent. To me that was a waste of money. I had no down payment for a home but I had good income. Once again, I bought a used mobile home. My rent was only for the lot and was about 20% of what I was paying for a 1 bedroom apartment. It took me only a year to pay that off. After living there for about 5 years, I sold it for what I bought it for but by then had saved enough for the down payment on a home.
So, now for the luck. My company moved me to another location and paid for the move, including buy and sell fees on homes and points on the new loan. Timing worked out such that I made about 30% on my existing home. The real estate bubble burst in the area I was moving to and was able to buy a home at a very good price. I bought it FISBO and was able to talk the motivated seller to take a second mortgage at a favorable rate. This plus my down payment from the first home meant the bank was exposed less than 80% so I did not have to pay PMI on the mortgage.
Because we lived a lifestyle well below our means, we have always been able to contribute the maximum to 401Ks and other retirement programs. We use credit cards for just about everything, but have never paid one cent in credit card interest. If we could not afford to buy it in cash, we did not buy it. That meant we could always pay off the full balance of our cards each month.
We have been prudent, but also very fortunate. Don't discount the role of luck. Sometimes stuff just happens and folks get stuck in a hole. It can be very challenging to claw your way out. As with food plotting, there are no magic beans!
