The Rolling Lot Option

Creativity is a necessary ingredient of land acquisition unless you have an overabundance of cash to tie up all the sites you want to control. A rolling lot option agreement is an exciting and potentially extraordinarily rewarding method of controlling developable land without paying in full for the land on the day you take title. 

A rolling lot option agreement is a contract between you and a land seller who has multiple lots and is willing to tie up his land without being paid in full on the first day you take contractual control. 

Several basic components are required of this simple but sophisticated technique of land acquisition, including: finding a seller with patience; your willingness to pay more than an all-cash buyer; a tangible track record of success; your ability to commit to building your product on speculation; and negotiating a favorable lot takedown schedule. Your ability to manage the specifics of these basic elements will impact the success or failure of completing a rolling lot option.

A seller with patience is a seller who will wait to be paid in full for his land. He usually is comfortably wealthy and is under no duress to quickly liquidate. He probably is not a first-time land investor, and he has the ability to understand that a rolling lot option agreement is the basis for a win-win, buy/sell agreement. Be willing to test the seller’s patience to determine how much time is available both for your initial meeting and for your most important contractual consideration — the lot takedown schedule — which dictates when you are required to “roll into” additional lot takedowns.

Be mentally and economically prepared to pay more than a cash buyer. Expect to pay between 90 and 110 percent of the asking price, assuming you have done your budgetary forecasting and that you are convinced there is adequate profit margin even if you pay 110 percent of the asking price. 

Since you are shopping for sites you can buy with a rolling option and you know that your purchase price is on the high side of market value, you also should consider locations and building lots with the likelihood for excellent appreciation. Then, you can comfortably afford to pay market value for the land while using the time allotted in your takedown schedule to take advantage of any increase in lot value.

One of your primary objectives at your initial meeting is to pre-establish your credibility with the seller, and reinforce it. I always ask people to check out my website. At one initial face-to-face meeting, I shared my leather-bound album containing high-quality 8- by 10-in. pictures of my interior and exterior work with a land owner/seller. He was so impressed he cancelled his afternoon appointments and drove two hours to walk through one of my homes. Credibility and trust were well on their ways to being the basis of our win-win agreement.

A critical funding requirement I have found in closing all the rolling options I have done is my willingness and ability to offer the seller one or more spec homes to be built on their land immediately upon execution of our agreement. The more lots you tie up, the more models or spec homes you will need to convince the seller that your business plan will lead to the quick, efficient absorption of his lots that you want to control. 

More important than the price you agree to pay for each lot is the amount of time you negotiate before you have to buy it from the seller or lose your option. The key word here is option. The best part of a rolling lot option is that when the time comes to buy, you have the luxury of deciding whether or not to exercise your rolling lot option on the seller’s land.

Your ability to master these basics of negotiating a successful rolling lot option will open up extraordinary profit potential for your company. Your creativity will be tested at every twist and curve of the exciting yet rewarding effort of creating a rolling lot option.