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Ok here is my question. I own 3 acres of land and I have someone that has asked me if I would be willing to sale it on contract basically owner financing. What are the thing I need to watch out for? Or just basically tell me it a bad idea and move on. The land is paid for so I don't have a loan on it. I will be swift in my attack. My venom is packed with enough pride and gun powder to take down any adversary that attempts to tread on my freedom. You've been warned, but if you still want to test me, take a step forward. | ||
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Caribou gorn |
why can't the buyer get a standard loan? bad credit? usually owner (seller) financing is beneficial to owner when he wants to sell his home/property quickly for one reason or another. also, you could get a higher interest rate financing it yourself than a conventional loan would charge. one thing to know is that if you do finance, you can still sell that loan to another institution, if that is something you'd be interested in. obviously, there are plenty of risks associated. eviction and repossession laws vary from state to state and can be very cumbersome for an owner. check your state laws about required notice for eviction. my Dad has done owner-financed second mortgages twice... once it worked out fine, though he had to really pester the buyer about payments often. the second time he got burned and lost $10,000 or so. bank repossessed the house but all he got was a tax write-off. I'm gonna vote for the funniest frog with the loudest croak on the highest log. | |||
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Striker in waiting |
It's only a problem when the buyer defaults on the loan and you have to go collect and/or repossess the land. Real property can be considerably more complicated than personal property in those situations. There are many, many, many pitfalls to avoid which would require consultation with a qualified real estate attorney in your state, but they all boil down to the trouble with default and repossession. -Rob I predict that there will be many suggestions and statements about the law made here, and some of them will be spectacularly wrong. - jhe888 A=A | |||
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| Striker in waiting |
On second thought, there's also the problem of the actual contract. The standard rules regarding sale of real property apply. Kansas law will dictate what is and is not required of buyers and sellers to avoid future legal nightmares. (In the case of simple undeveloped land, I'm thinking about all sorts of boundary issues, for example.) -Rob I predict that there will be many suggestions and statements about the law made here, and some of them will be spectacularly wrong. - jhe888 A=A | |||
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| Member |
Bad idea, move on. If the buyer can't line up their own financing then they're SOL. | |||
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| Member |
Seller financing is a somewhat complicated matter with the new banking regulations, especially if it becomes the buyer's homestead. Speak with an attorney well versed in the new guidelines, including but not limited to, CFRB, Dodd-Frank, TILA, Reg Z. And not surprising, some regs conflict with others. It can be a good financial move if the money and terms are right. But always anticipate the cost of foreclosure. | |||
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| Needs a check up from the neck up  |
Seller financing should not fall under federal banking TILA RESPA etc guidelines unless you do 5 or more a year (§12 CFR 1026.2(a)(17) There are pitfall but if the price is right and you add in the cost to forclose along with the price you might be fine. I do them here in Florida, Kansas obviously is a different cat so you need to talk to a local attorney to help. My rule of thumb would be 50% loan to value. Meaning if the property is worth $300, he needs to put up $150 then finance the other $150 over time. SFL is correct in that if your state has homestead laws your counsel needs to account for that being a hangup to the foreclosure process. Usually a purchase money mortgage will trump that, but you need to make sure that the mortgage you use is correct for the circumstances. So in short, what are the numbers first, then we can tell you about running or paying ESQ for more help. __________________________ The entire reason for the Second Amendment is not for hunting, it’s not for target shooting … it’s there so that you and I can protect our homes and our children and and our families and our lives. And it’s also there as fundamental check on government tyranny. Sen Ted Cruz | |||
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His Royal Hiney |
You're carrying the burden of determining whether the buyer is financially able to make payments and you'll be carrying the risk of the buyer not making payments anyway. If I were in your shoes and I was 1) wanting to sell the property and 2) wanting an income stream, I would a) hire a professional real estate lawyer to help you b) make sure the downpayment is 25% to 35% of the purchase price and 3) make sure the interest on the loan gives you a premium. These will help minimize your risks by having the lawyer watch your six, making the upfront money big so that the buyer wouldn't want to default on the loan, and the interest hefty enough to pay for your stress. "It did not really matter what we expected from life, but rather what life expected from us. We needed to stop asking about the meaning of life, and instead to think of ourselves as those who were being questioned by life – daily and hourly. Our answer must consist not in talk and meditation, but in right action and in right conduct. Life ultimately means taking the responsibility to find the right answer to its problems and to fulfill the tasks which it constantly sets for each individual." Viktor Frankl, Man's Search for Meaning, 1946. | |||
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safe & sound |
I come from a family of builders. My grandfather was smart enough back in the 1950s and 1960s to purchase farm land for cash. As the years have gone on, that land became prime for development. This is how the business survived the downturn around 2008. There were no loan payments, so they simply stopped building and sat on the property. Go back to around 2005, and there was a section of the county that builders were trying to gobble up. Multi-million dollar deals. Enter a local farmer. He sat on land that had been in his family for probably a 100 years or more. He had been farming it, but had no children that would carry on when he was done. He was approached by a builder, offered an absurd amount of money, and said he would sell. But wait Mr. Builder! How are you going to pay for this? Builder said he would finance through a bank, and the farmer proposed he finance it himself. He owned it outright afterall, and why should the bank make money off of it while he could? And what about taxes? If you're not going to develop it right away, then it would be best to continue farming it. Keeps the taxes low. So the farmer agreed to continue farming it as a share cropper. Although paperwork was signed, nothing really changed. The farmer still did what he had done for many years before. The only difference was that he now got a high five figure check each month as payment for the property. Month after month, 2005 until maybe 2009 or 2010, that farmer collected those checks. Finally they stopped coming. Builder was bankrupt due to the crash. Farmer took the property back, has a few million in the bank, and never skipped a day of work. He continues to farm it today. For those who say don't do it, why not? You own it out right, could probably get a decent interest rate, and if things go wrong you take it back. Don't skimp on the lawyer. | |||
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| Needs a check up from the neck up |
amen __________________________ The entire reason for the Second Amendment is not for hunting, it’s not for target shooting … it’s there so that you and I can protect our homes and our children and and our families and our lives. And it’s also there as fundamental check on government tyranny. Sen Ted Cruz | |||
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| Member |
Damn that's a beautiful story. Didn't need a Harvard MBA to make some solid decisions. 'Murica! ------------------------------------ Proverbs 27:17 - As iron sharpens iron, so one man sharpens another. | |||
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| Just because you can, doesn't mean you should |
Before you spend any money get an answer to the question, why can't he finance it through a conventional lender. Lenders often want a high down payment (50%) for raw land and that's the best answer. Bad credit, not so good. There is a reason people have bad credit although if he has a significant down payment that still might be OK. Once past those hurdles, the previous advise to get a good real estate lawyer plus possibly an hour with a good CPA to ask how to structure this for your situation to minimize taxes. ___________________________ Avoid buying ChiCom/CCP products whenever possible. | |||
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| Lawyers, Guns and Money  |
+1 Beautiful, a1abdj. "Some things are apparent. Where government moves in, community retreats, civil society disintegrates and our ability to control our own destiny atrophies. The result is: families under siege; war in the streets; unapologetic expropriation of property; the precipitous decline of the rule of law; the rapid rise of corruption; the loss of civility and the triumph of deceit. The result is a debased, debauched culture which finds moral depravity entertaining and virtue contemptible." -- Justice Janice Rogers Brown "The United States government is the largest criminal enterprise on earth." -rduckwor | |||
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| Member |
I see seller carrybacks often enough even here in the crazy bay area market to know it's not an insane idea. Usually it's becuse there is no lien to pay off and the seller can get a better yield on that loan than if they stuck it in a bank CD. As a bank lender I occasionally do land loans and even my very best clients we stick to 50% down and your usually 3 years max term at Prime +1, floating. So somebody who's hard up for a loan may be willing to pay more. Don't cheap out on legal and CPA advice. Mainly 1) what happens and how much will it cost you to foreclose and 2) if you have a big gain built up on this land do you need to 1031 it to defer taxes or are you paying the taxes and moving on. | |||
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| Member |
I appreciate everyone's advice. At this point I think I will have to pass on the owner financing. You guys all make some good points but honestly the lands not worth hiring an attorney to put something together. I am sure where some of you guys live 3 acres on black top with utilities is worth allot more than it is here. I will be swift in my attack. My venom is packed with enough pride and gun powder to take down any adversary that attempts to tread on my freedom. You've been warned, but if you still want to test me, take a step forward. | |||
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