Buying/Selling on Contract for Deeds

[West Branch]

How many people here have experience buying or selling land with a contract for deed? Good, bad or in between I am interested in hearing about it. I would be on the buying side of any transaction that may happen.

Do you do payments over set period like 5-10 years or do it with a balloon payment after 3-5 years?

I have heard some people say that MN has an interest rate requirements for contract for deeds but it looks like that isn't the case based on my research. It would basically be whatever the 2 parties agree to.

What else do you consider?

 

[bwoods11]

I have contracts for deed right now, and I paid off a third one a few years back. Great in my opinion on the buyers side. Set the interest and make the payments comfortable to you.
Make sure it is recorded, I would use an attorney to review it and make sure you factor in pre-payment clause if necessary.

Also, don't be late on any payments (obviously!!)

 

[wiscwhip]

Any other info on this? I would be interested in learning more about this type of transaction for obtaining land. Any resources you land barons could point to?

 

[bwoods11]

Any other info on this? I would be interested in learning more about this type of transaction for obtaining land. Any resources you land barons could point to?

This is often an ask around topic. Most contracts are sold because the seller does not want the gains all in one year. I would not shy away from them.

Some investors search them out, plus they are rarely tied to credit or income/debt ratios.... If you know what I mean.

 

[slugger]

As opposed to financing a purchase you do not receive the deed until it is paid for. Generally a seller puts a limit on the amount you can spend on improvements so they aren't stuck with a mechanics lien.
As a buyer have a title search done to be sure there are no liens on the property. If the property isn't owned free and clear most mortgages have a due on sale clause which means seller has to pay off his mortgage when he sells. Have an attorney read the contract. Know who is paying the taxes. Know what happens if you miss a payment. In MN if there is a septic involved it needs to be inspected and be compliant for the deed to transfer. Terms are totally negotiable. Can be amortized with a balloon or just agree on a monthly payment. Interest rate is generally higher than mortgage rate as seller is taking risk. If you have at least 20% down it may pay to check with a lender like Agstar. Interest would probably be cheaper and you would receive the deed at closing.
As a seller I would ask for some sort of proof of funds.

 

[Freeborn]

As opposed to financing a purchase you do not receive the deed until it is paid for. Generally a seller puts a limit on the amount you can spend on improvements so they aren't stuck with a mechanics lien.
As a buyer have a title search done to be sure there are no liens on the property. If the property isn't owned free and clear most mortgages have a due on sale clause which means seller has to pay off his mortgage when he sells. Have an attorney read the contract. Know who is paying the taxes. Know what happens if you miss a payment. In MN if there is a septic involved it needs to be inspected and be compliant for the deed to transfer. Terms are totally negotiable. Can be amortized with a balloon or just agree on a monthly payment. Interest rate is generally higher than mortgage rate as seller is taking risk. If you have at least 20% down it may pay to check with a lender like Agstar. Interest would probably be cheaper and you would receive the deed at closing.
As a seller I would ask for some sort of proof of funds.

Why does the seller take the risk? If the land is the collateral seems the risk is minimal. I guess there could be damage or removal of trees/value from the land.

 

[slugger]

The seller takes the same risk that a lender takes when they mortgage a property. Buyer could damage property. Could default on payments and have to hire attorney to start foreclosure. Could not pay taxes and be stuck with back taxes. It costs money to take the property back after default with attorney fees. There are many bad things that can and do happen. In the case of a land only purchase less likely than when a house is involved.

 

[wiscwhip]

Thanks for the info guys. Sounds like one would for sure want an attorney that specializes in this type of thing, it seems like it could be a bit loose ended if one wasn't familiar with this type of land transaction. I have heard of a few guys doing it, but I never inquired about the specifics. I'm not sure if I understand what the advantages would be over a traditional sale. I suppose if you had the down money but your debt ratio was skewed, you wouldn't have to worry about bank refusal on those grounds? If the interest was appreciably higher, one would definitely have to do some serious number crunching to see if it were the better option.

 

[slugger]

Thanks for the info guys. Sounds like one would for sure want an attorney that specializes in this type of thing, it seems like it could be a bit loose ended if one wasn't familiar with this type of land transaction. I have heard of a few guys doing it, but I never inquired about the specifics. I'm not sure if I understand what the advantages would be over a traditional sale. I suppose if you had the down money but your debt ratio was skewed, you wouldn't have to worry about bank refusal on those grounds? If the interest was appreciably higher, one would definitely have to do some serious number crunching to see if it were the better option.

Generally it is a way for people to buy who can't get qualified for a mortgage. There have been a lot of bankruptcies and foreclosures in the past few years. Those people can't get a mortgage for 2-7 years depending on the situation. Or it could be a seller that won't sell any other way for tax reasons.

 

[bwoods11]

Some buyers and sellers get comfortable with it. In my area there have been many land sales on contract for deed.

 

[Deer Kar]

I was able to buy my first 60 18yrs ago CFD. It was a win win for us both?