Author Topic: Considering a land contract. Advice and information sought.  (Read 1133 times)

Rollin

  • Handlebar Stache
  • *****
  • Posts: 1192
  • Location: West-Central Florida - USA
I have a paid off rental that has bee rented for 20 years without a missed payment. However, I am two months from retirement, plan to travel significantly, and do not want to leave the burden of land lording on the DW. Plus, I plan on taking the proceeds and paying off my home mortgage so I can be debt free.

I have a buyer who would be willing to do this (my current tenant) and can pay a 20% down payment and pretty significant monthly payments (I get $1,350 for rent, but he can pay about $1,500.

What interest rate do you charge?
How long a loan usually (before the ballon payment)?
They pay taxes and insurance, correct? Or do I pay insurance to ensure that if it burned down (for example) that I'd have my asset covered?

These are a few questions for now, but I'll likely generate a few more.

Thanks!

SwordGuy

  • Walrus Stache
  • *******
  • Posts: 5997
  • Location: Fayetteville, NC
Re: Considering a land contract. Advice and information sought.
« Reply #1 on: June 04, 2016, 04:10:58 PM »
Do it just like the bank does.  Make the buyer pay for the insurance.

Pick an interest rate that is comparable to market rates but a bit higher for your trouble.

And make sure you know how to calculate what the person owes if they pay early or late.  And keep damn good records, you'll have to do that for the term of the loan.

Or, raise the price to reflect the interest included into the price and just have them pay the same amount each month, with no pre-payment savings on interest.  Simpler for you and no difference to them unless they want to pay it off early.


Rollin

  • Handlebar Stache
  • *****
  • Posts: 1192
  • Location: West-Central Florida - USA
Re: Considering a land contract. Advice and information sought.
« Reply #2 on: June 04, 2016, 04:19:38 PM »
Do it just like the bank does.  Make the buyer pay for the insurance.

Pick an interest rate that is comparable to market rates but a bit higher for your trouble.

And make sure you know how to calculate what the person owes if they pay early or late.  And keep damn good records, you'll have to do that for the term of the loan.

Or, raise the price to reflect the interest included into the price and just have them pay the same amount each month, with no pre-payment savings on interest.  Simpler for you and no difference to them unless they want to pay it off early.

Would that differ from a conventional loan where very little goes to the principal in the beginning?

Thanks for the comments by the way.

MDM

  • Walrus Stache
  • *******
  • Posts: 9711
Re: Considering a land contract. Advice and information sought.
« Reply #3 on: June 04, 2016, 04:53:55 PM »
1. What interest rate do you charge?
2. How long a loan usually (before the ballon payment)?
3. They pay taxes and insurance, correct? Or do I pay insurance to ensure that if it burned down (for example) that I'd have my asset covered?
1. Up to you and the buyer.  Presumably the buyer could go to a bank for financing, so you can't be outrageous.  But there is also no need for you to be generous.  Based on http://abcnews.go.com/Business/wireStory/average-30-year-us-mortgage-rate-rises-366-39555919, having something in the neighborhood of 4.5% would not be unreasonable - unless the buyer could not get a bank loan, in which case 6% would not be unreasonable.
2. Up to you and the buyer.  If you think a cash infusion in X years would be good, or if you think interest rates might rise significantly in Y years, then "the smaller of X and Y" would be reasonable from your perspective.
3. Yes, they pay.  And any insurance proceeds from a claim go to you.

Paying a local attorney for a boilerplate land contract is probably worthwhile.

And you have to be prepared to walk away from the deal.  Otherwise you aren't negotiating, you are whining.

See http://www.vertex42.com/Calculators/mortgage-calculators.html, bankrate.com, etc. for payment schedule examples.

Good luck!
« Last Edit: June 04, 2016, 04:56:18 PM by MDM »