Frequently Asked Questions
What is Land Arb?
"Land Arb" is an abbreviation typically used to refer to land arbitrage, a real estate investment strategy where investors seek to profit from differences in their purchase price and their selling price specifically when owner financing is involved on both sides of the transaction.
For example, an investor may be making $100 monthly payments on the purchase of the property and be receiving $250 monthly payments from their sale. The $150 difference is the arbitrage.
Using this method, the investor can have little to none of their own money tied up in the deal.
How does a typical deal work?
The typical flow of a deal works like this.
The investor markets directly to sellers to find a deal.
When they have a signed purchase agreement, they would submit the deal to us for a funding quote.
Terra Capital will prepare a funding quote.
When the quote is approved, Terra Capital will perform due diligence.
The investor will work with the seller to have them sign the deed transferring title to Terra Capital.
Terra Capital will wire or cut a check directly to the seller.
Note and Land Contract documents will be signed detailing the transaction between Terra Capital and the investor.
The first payment is due to Terra Capital approximately 30 days after funds were disbursed to the seller.
Can I hold title to the property?
In a typical transaction, no, Terra Capital will retain title to the property until the Promissory Note is paid in full. However, in certain situations this will be considered if a Deed in Lieu of Foreclosure is also signed at closing.
What types of deals does this work best for?
This funding style works best for direct from seller deals as the starting purchase price is often lower in those deals. Our quote uses a formula gauging market conditions and property specific criteria, but at its base the purchase price drives the quote. Additionally, depending on the length of the term, we’re also evaluating how long it takes to recoup the original investment as that directly impacts our ability to continue lending.
Ultimately you as the borrower must decide when margins may be too thin to use us as a funding partner. There will be deals that don’t make sense for us to fund but would still make sense if self-funded.
We have found that typically purchase prices at 50% of market value or less will work and higher than that the margins begin to get thin.