If you’re thinking about buying a home for personal use or as an investment but you can’t afford the required down payment, there’s a jewel of an opportunity that most people aren’t even aware of. Let’s say you want to purchase a home for $150,000, but your lender is requiring 20% down or $30,000. You’ve been saving for the past 3 years and you only have $7,000. You’re frustrated because at the rate you’re going, it could take another 10 years for you to save enough money for the down payment to buy a home.

There’s a solution to your dilemma. With your $7,000, buy a home site now, let it appreciate, then use the equity in the home site as the down payment for the purchase of your brand new home. If you’re wondering how this works, it’s simple. In the above example, the value of the home site is probably around $21,000. Many banks are willing to finance a home site purchase with a 30% down payment. If the lot is $21,000, you already have the required 30% down payment of $6,300. The balance of $14,700 can be financed with reasonable monthly payments until there is enough equity for you to build a new home on the lot.

This approach could be ideal for another reason. The recession has caused a severe shortage of available land inventory for new construction. Builders and developers are already scrambling to secure inventory for future building, most of which will come from raw land. The hard cost associated with buying raw land and developing it, will easily surpass $35,000 per lot. With that kind of an investment, builders are unlikely to sell home sites for less than $50,000. If that happens, in 2-3 years, your $21,000 home site could be worth $50,000.

If the $150,000 home you want to buy now, costs $200,000 in 3 years, the required 20% down payment would increase to $40,000. If your home site is worth $50,000, it’s appreciated value has now provided you with your full down payment. Instead of being priced out of buying a new home, you’ve used rapid appreciation from the purchase of a home site to achieve the American dream of homeownership. If you already own a home or have children, the home site strategy can also be an ideal approach to acquire investment property. Even if you never build on the property, the severe shortage of vacant home sites virtually assures you of a handsome profit, should you decide to sell it outright.

 

Your next step? Start looking for cheap lots to buy!