Author Topic: Hard to sell land, considering seller/owner financing  (Read 3812 times)

lazyp

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Hard to sell land, considering seller/owner financing
« on: April 07, 2016, 12:49:28 PM »
I've owned 1.24 acres for over ten years, had it for sale for over a year with no interest until today.  A buyer is inquiring about owner financing.  The land is only 40k, he's offering zero down $1000/month at 10% amortized rate.  I don't have any experience with owner financing and would have no problem carrying the note.  Not sure how this is attached to the deed to ensure i can repo the land.  Any moustachians with experience?
thanks
Fred

Ensign1999

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Re: Hard to sell land, considering seller/owner financing
« Reply #1 on: April 08, 2016, 10:33:01 AM »
No experience with this either, but I would be talking to a property lawyer/broker in your area to get some advice.  Someone that knows what needs to happen and is experienced with your local laws.

In general, the title/deed would transfer to the new owner the same as a normal sale, but instead of paying a bank, he would be paying you as you are essentially loaning him the money to buy your property.  If he stops paying, then you would need to foreclose on the property to gain it back.

In the same way that a bank would have him apply for the loan, you should as well.  What is the reason he wants you to finance his loan instead of a bank?  Does he have poor credit and can't get a traditional loan?  Why does he want the property?  If it is to build on, they have loans for that as well?

I would be asking a ton of questions as there seems to be a lot of risk involved with very little pay off.  If you don't need to sell the property (which it seems you don't as you've held it for so long) then I might pass and let it continue to appreciate in value.  If everything checks out, then I might risk it...but I would be very careful as it seems to me that there are a ton of ways for this type of deal to go South and you don't have the protections a bank has.

SwordGuy

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Re: Hard to sell land, considering seller/owner financing
« Reply #2 on: April 08, 2016, 01:05:57 PM »
Two reasons to go with owner financing:

1) Buyer can't get a regular loan.  Seller beware.

2) Buyer is a real estate investor and wants to minimize how much cash they put into the property up front.  This lets them work more deals with the same capital and get a better cash-on-cash-return.   If the person is a smart investor this can work out very well for you.

Either way, you want your own lawyer to make sure the documents are done right so you can foreclose if need be.




mohawkbrah

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Re: Hard to sell land, considering seller/owner financing
« Reply #3 on: April 10, 2016, 06:28:57 AM »
$40k for 1.24acres? does it have planning permission or something, because thats pretty pricey

SwordGuy

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Re: Hard to sell land, considering seller/owner financing
« Reply #4 on: April 10, 2016, 08:20:32 AM »
$40k for 1.24acres? does it have planning permission or something, because thats pretty pricey

Location!  Location!  Location!

That's the first 3 rules of real estate valuation.

I would pay $40k for 1.24 acres in Manhattan without blinking an eye.   I would buy every acre I could get financing to buy at that price. :)

Dillydally

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Re: Hard to sell land, considering seller/owner financing
« Reply #5 on: April 10, 2016, 12:36:16 PM »
10% is a good rate, but not if you are out of pocket to foreclose on the property for failure to pay, or if he develops the land and pays you the full amount a year from now. I would want a down payment amount that is sufficient to cover foreclosure costs to cover contingency #1 and a prepayment penalty clause that would reimburse you a sufficient amount commensurate with your risk to cover contingency #2.

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paddedhat

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Re: Hard to sell land, considering seller/owner financing
« Reply #6 on: April 10, 2016, 01:44:45 PM »
Every county has a good ole' boy lawyer who can draft a contract that will leave you with as little exposure to risk as he legally can, and coming out with the best possible outcome if the deal eventually fails. I would be concerned with two issues. First, if the buyer wants it with nothing down, I would demand that they pay all closing costs, including your legal fees, and any other taxes and fees you would be liable for. Second, I would want to know what my recourse would be if the buyer decides to do anything that would negatively impact the value of the property, in the even that you have to take it back. This could be anything from a failed construction project to junk and vehicles abandoned on site.

lazyp

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Re: Hard to sell land, considering seller/owner financing
« Reply #7 on: April 11, 2016, 04:35:47 PM »
Thanks for the input guys, Paddedhat i think your suggestion of demanding all closing costs if he wants it for zero down.  My biggest concerns were the negative impact to the property and costs and difficulty of a foreclosure if it led to that.  Dillydaly I also appreciate you idea of prepayment penalties, but if he is paying the full asking price of the land plus the 10%, i'd be happy if he payed it off early.  I'll have to talk to a lawyer if this goes any further, i'd wonder if I can wait on the deed transfer after 1 year of payments, then put lien and do the transfer.

It is priced competitively for the area, 40k with beautiful mountain views.


Miss Piggy

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Re: Hard to sell land, considering seller/owner financing
« Reply #8 on: April 11, 2016, 05:16:37 PM »
$40k for 1.24acres? does it have planning permission or something, because thats pretty pricey

It's oceanfront property in Arizona?

Shane

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Re: Hard to sell land, considering seller/owner financing
« Reply #9 on: April 11, 2016, 05:39:29 PM »
$40k for 1.24acres? does it have planning permission or something, because thats pretty pricey

Where I live $40K for an acre is about the absolute cheapest you could hope to buy land. Prices go from there up to millions of dollars per acre. As others have said, it all depends on where the land is located and what the zoning is.

Fishindude

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Re: Hard to sell land, considering seller/owner financing
« Reply #10 on: April 12, 2016, 05:14:10 AM »
It's your land and your deal.  Have the lawyer write all terms in your favor to protect you against all of these concerns.
If he doesn't have a down payment for a loan this small, it's unlikely he has much to cover closing costs either, so although that sounds good, I doubt you'll be able to get much upfront money.  You will make your money back with a high interest rate on the monthly payments.   Wouldn't be out of line to charge 8-9% in a case like this, which is a real nice return in today's environment.

If you don't need all of the money right away it could be a sweet deal.  I know a few folks who have sold properties like this and done fine.  One even had a guy default after a few years, re-sold the property to somebody else on contract, so got way more than his original investment back in nice monthly payments.