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Salty Craig
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# Posted: 16 Mar 2017 10:13pm
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Hi everybody. I'm selling one of my properties. (To get another one)
I have a dead serious buyer who wants owner financing. I don't owe on it, so that's not a problem. Sale price is 65k. He wants to pay 5k down and make $1000 monthly payments for 72 months. Total of 77k. I ran this on a mortgage calculator and it's just under 6.2 percent interest.
I don't have experience with Owner financing so any advise will be appreciated. We will be closing with an attorney so y'all can skip that.
Please share your thoughts. Thanks!!
Salty Craig
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toyota_mdt_tech
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# Posted: 16 Mar 2017 11:02pm - Edited by: toyota_mdt_tech
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The going rate for raw land is about 7-8%. He isnt far off. You coudl have a title company hold the note. In other words, he pays them, then if you are killed, the the contract continues vs dealing with squabbling siblings and visa versa.
I just did this. I bought my neighbors 20 acres just east of me, we negotiated the price (he held the note) and then got a lawyer to draw up a contract. I told him I'd give him 10K down, and set it up for about $500 a month, but told him I would pay $1000 a month. So the contract was for about $488 a month for 7 years. I closed July 2014 and just made my final payment last week. Interest was 8% and I pay much less overall knocking it out in 2.5 yrs. Seller is happy, I am happy. Its a win win. Of course, if I defaulted, its still his and I was out my payments.
Having the title company hold the note and take the payments (middle man) eliminates any squabbling after the fact, ie death etc. This was good for both seller and buyer
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Gary O
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# Posted: 16 Mar 2017 11:04pm
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Study up on an instrument called a quitclaim deed.
It saves the seller alota angst if things go south.
6.2% seems a bit light (IMO), but not a deal killer for the six yr period.
Glad you'll use an attorney
hate 'em
need 'em
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bldginsp
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# Posted: 17 Mar 2017 12:15am
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If he fails of course you get the property back, but it's a hassle and then you have to start over. If you want him to stick with it, he needs real skin in the game. $5000 is a low down, in my opinion. There's a reason banks require 20%- the borrower has a lot to lose. And of course the deed is secured by a note, the lawyer should do that. Don't do a handshake deal (but I think you know that).
See if he'll go for 20% down 7% interest. The terms he offered favor him.
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RiverCabin
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# Posted: 17 Mar 2017 02:02pm
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Quoting: Salty Craig I have a dead serious buyer who wants owner financing.
You don't have a serious buyer. Ask yourself this question, why doesn't this buyer want to do traditional financing. There is going to be an answer and it's probably going to be credit.
I work in the legal field and have seen endless nightmares concerning Contracts for Deeds. Typically what I see are buyers who abandon the property and trash it leaving the seller with a huge mess. I've also seen buyers who enter a contract, timber the property (thus removing value), and then abandon it back to the seller.
At the dead minimum, talk to an attorney and to a title company and get their opinion.
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Salty Craig
Member
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# Posted: 17 Mar 2017 05:58pm
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Thanks to all for the great advise. I wondered if there was a way to keep the title 3rd party until paid in full, I'll look into that.
As far as him not using a bank? It's more difficult to get a loan on a property without a house on it. Like was mentioned, 20% is the norm. That is the biggest reason.
I do think that the rate is to low. He is open to what I will counter offer with. Guy is in love with the place, so I do think he's dead serious.
Quitclaim deed, I'll check that out.
Thanks for all the advise. I'll be watching for more.
Craig
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MtnDon
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# Posted: 17 Mar 2017 07:09pm - Edited by: MtnDon
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Quoting: Salty Craig I wondered if there was a way to keep the title 3rd party until paid in full, I'll look into that.
Escrow company... they handle all the money the buyer pays in, they pay out whatever taxes are due and fwd payment $ to you while they hold the title. They also get paid a fee, usually by the buyer. At least that is what we have done.
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VC_fan
Member
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# Posted: 17 Mar 2017 07:17pm
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We have sold a couple places on land contract. Small town deals with the local small town attorney drawing up the contract. I don't like them because they're so advantageous to the seller but they did work out well for both of us. The buyer saves a couple thousand dollars in appraisals, application fees, etc, etc so it's good for them. The seller is at very little risk in my opinion. But I agree that $5K probably isn't enough down. If you make any money on it the land contract triggers a taxable event so you owe tax on any profit even though you don't get them in your pocket. So the $5K may become a lot less after you pay the tax man.
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toyota_mdt_tech
Member
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# Posted: 17 Mar 2017 08:59pm
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Also, make some stipulations, ie no logging or heavy clearing until its paid for. Improvements ie structures must be all legal and permitted.
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bldginsp
Member
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# Posted: 18 Mar 2017 02:46pm
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I bought with owner financing, the contract stipulated that any profits from timber extraction had to be paid toward the mortgage, for the first 5 years.
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Gary O
Member
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# Posted: 18 Mar 2017 08:09pm
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Quoting: toyota_mdt_tech Also, make some stipulations, ie no logging or heavy clearing until its paid for.
Man, that's a good one.
Stripping the land happens all the time.
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Salty Craig
Member
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# Posted: 18 Mar 2017 10:00pm
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I will be ok on the logging concerns. 1/2 of it is in the Chesapeake Bay protection zone, so it can't be logged. The higher ground is brushy with smaller trees and I haven't seen much in there that would break my heart to see cut.
We have agreed to 8% but I haven't got into the down payment stuff yet. Maybe I should take his 5 grand and let him make monthly down payments another 5 months then close after I have 10k down?
The down side to that is zero interest during that period. The amortization chart has only $400 of the first payment going to principle.
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Salty Craig
Member
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# Posted: 18 Mar 2017 10:03pm
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Correction $400 interest and $651.99 principle.
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DaveBell
Moderator
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# Posted: 18 Mar 2017 10:52pm - Edited by: DaveBell
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Quoting: toyota_mdt_tech Also, make some stipulations, ie no logging or heavy clearing until its paid for. Improvements ie structures must be all legal and permitted.
Yeah, absolutely no changes unless submitted to you and approved. Tell him you'll likely agree to reasonable things but you need protection. Yeah, for a cheap down payment maybe he plans on logging it out and then walking away. The down payment needs to be high enough to make logging it out unreasonable. Whats the timber value right now?
Didn't see you post, never mind.
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Salty Craig
Member
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# Posted: 19 Mar 2017 01:13pm
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No problem Dave
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Salty Craig
Member
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# Posted: 20 Mar 2017 10:08pm
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VC_fan
Please share some expertise on land contracts. I've read about them online and that looks like a safe option.
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Woody
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# Posted: 21 Mar 2017 01:25pm
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As someone who recently purchased his land I can tell you those are some pretty favorable terms for the buyer. Seller carrying has a much higher risk and should have a higher interest rate for that risk. For us there were only two banks that did land loans and both wanted 40-50% down. Rates ranged from 3.875% (that's what we got after buying down the points a little) up to 6.5%.
It sounds like you settled at 8%, which is fine. But I'd ask for more down. You want him to have skin in the game so he isn't so likely to walk away. Also, when you draft your contract, make sure if he defaults he forfeits everything he's paid.
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VC_fan
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# Posted: 21 Mar 2017 07:31pm
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It wouldn't be correct to say I have expertise; I have experience. I've advocated before the advantages of using professionals in a small town because they simply can't screw too many people and stay in business.
The first one was a small amount ($25K) on a piece of land that had proven hard to sell. I found the buyer on craigslist (saying in the ad that it was listed with a local realtor) and turned him over to the real estate agent. The buyer wanted to put something like $10-$15K down and (I think) didn't want to go through the hassle to get a loan when he expected to pay it off in a couple of years. The agent put together an amortization schedule that the buyer was good with and had the attorney draw up a standard land contract. I glanced at it to make sure it seemed to look out for me but mostly trusted the agent and attorney to represent my interests. You'd asked about timbering the property; there was a boiler plate clause about not "laying waste" to the property which is legalese for not doing anything to hurt its value. Plus a lot of other things I would never have thought about. Cost was maybe $200 which the agent had the buyer pay (much cheaper than loan applications, etc). Buyer was a great guy who loved the place and who made every payment as planned. At the end I paid the same local attorney to draw up a deed in the buyer's name and that was that.
The second one was more money - about $80K. The buyer put down 10% which was not quite enough to pay the realtor and tax man. We weren't positive on the deal until 3-4 payments in. The agent offered the buyer X% interest with 15% down or 2% higher interest with 10% down; he put 10% down and paid higher interest. Amortization schedule was on a 30 year plan to keep the payments down with a balloon payment at 5 or 7 years when the buyer would have to pay me off by either having the cash or getting a loan. At my closing, the buyer was there with his mom and dad - he was 20 years old! So there's no way he could have gotten a conventional loan. But he was a great kid and paid exactly according to plan - just buying time until he could get a conventional loan. 2-3 years in he got a real loan (at a much lower rate) and paid me off. There was a real closing with a real title company that he paid for; I gave him a deed and got a check. I was glad to be able to help him out.
I'm in one now that I'm not as happy with because I don't like the buyer. Same about 10% down and same 30 year amortization with a balloon in 5 or 7 years. His banker suggested the land contract with me with the plan being that in 5-7 years he'll take out a home equity line of credit to pay me off (it's small in value compared to his house). In retrospect, he was probably already overextended on his house which he had just bought. I owned 25 acres adjoining his house which he wanted to keep anybody else from getting. He is just slow to pay, is a pain about reimbursing me for the property taxes (I understand in Ohio the buyer under a land contract is legally bound to pay the taxes - since he has the legal use of the property - though the bills still go to the legal owner which is me), and is just generally a thorn in my side. Fortunately I think he paid more for the land than it was probably worth to other people so it all works out.
Like anything legal I assume if the buyer simply decides to be a pain he can be, but I've fortunately not had that experience.
Hope that helps.
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Salty Craig
Member
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# Posted: 21 Mar 2017 08:19pm
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VC_fan
Thanks for sharing. I'm gonna make the contract as water tight as possible.
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BennyGray
Member
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# Posted: 15 Jun 2017 12:42am - Edited by: BennyGray
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Hi. Involving an attorney will be a good option. The lawyer will guide you the best in every aspect and can also solve the legal troubles if they arrive. A few months back, I came to know about an advocate Bechara Tarabay. This can serve as a useful content for you. I hope you have a good experience with the entire process of selling the property. Good luck.
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Salty Craig
Member
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# Posted: 15 Jun 2017 11:03pm
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Update:
The contract is ratified. Done by my attorney. Even filed at the good ol' courthouse. Rate is 8%. Payments are amortized for 6 years so payment is a hefty $1,279 per month. So far payments are on time. I guess if he bails, it will be expensive rent. Great guy but fingers crossed just a tad. Ya never know.
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Gary O
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# Posted: 16 Jun 2017 11:01pm
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Good on you, Salty
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