Owner financing

[Howboutthemdawgs]

Any have any experience with being a seller in this situation? I have the opportunity on my farm to do this and just want to get a full understanding of how it works from the sellers side.
Thanks

 

[Tree Spud]

Are you talking land contract?

 

[Howboutthemdawgs]

Are you talking land contract?

Yeah I’m talking like, I received an offer on my land but they want my to finance about 40% of it. I’m interested but I don’t know a ton about the ins and outs of it. My understanding is you amortization it for a longer period of time and then require a ballon payment and the end of a term. I’m also pretty sure that you don’t pay capital gains until the very end of the terms?

 

[Buckly]

I’m sure you could make the terms any way you want. 5 or 10 year loan then a balloon or amortize the whole thing. I’d consult a lawyer of course in any real estate transaction. Personally I’d be concerned if they approached you about financing as opposed to you offering the financing. Also in this market right now if you were really interested in selling you’d probably find an all cash buyer or someone with their own financing. No risk that way but if you do take on risk, land contracts are usually quite a bit higher on the interest rates. Just protect yourself.

 

[Tree Spud]

Only bought a property once on a land contract. It was 5 years with a balloon payment at the end. Worked out well for both parties.

Concern from sellers stand point with LC is how what collateral will they secure the 40%? Also, what happens if they default and have damaged buildings, had the land timbered, etc., how do you recover? What if they don't pay and you are chasing payments?

Why are they not financing 100%?

Personally I would not sell under a LC. I'd talk to an attorney to see how to construct contract and what are the risks for you the seller. Big issue is how do you foreclose on LC if they default. Doing anything with the courts is a slow & expensive process.

 

[Howboutthemdawgs]

Only bought a property once on a land contract. It was 5 years with a balloon payment at the end. Worked out well for both parties.

Concern from sellers stand point with LC is how what collateral will they secure the 40%? Also, what happens if they default and have damaged buildings, had the land timbered, etc., how do you recover? What if they don't pay and you are chasing payments?

Why are they not financing 100%?

Personally I would not sell under a LC. I'd talk to an attorney to see how to construct contract and what are the risks for you the seller. Big issue is how do you foreclose on LC if they default. Doing anything with the courts is a slow & expensive process.

Great points. Especially the timber part

 

[yoderjac]

Any have any experience with being a seller in this situation? I have the opportunity on my farm to do this and just want to get a full understanding of how it works from the sellers side.
Thanks

My only experience with it is from the buyer side. It worked well for me and the seller. In general, it benefited the seller in that it was a buyer's market at the time and we benefited from it because we did not need to pay for PMI because the credit union was only exposed 80%. The owner financed just enough to keep the banks exposure under 80%. It was amortized over 30 years at a reasonable rate at the time, but had a 5 year balloon. Even before the 5 years had passed, we refinanced to a single loan as the house had gone up in value enough that the new lender was exposed less than 80%. We had a real estate attorney look over all the paperwork to make sure there were not got-yas.

Some food for thought. The bank will want to be the primary so the seller stands behind the bank of the new owner defaults on the loan. This generally is not a problem in a rising housing market but can be in a falling one. I'd just make sure you understand why the buyer wants owner financing. If it is because they can't afford the place, I'd be hesitant. Both the selling price and interest rates would need to be high enough to cover any risk I was taking if I was the seller. For example, if the buyer was asking for me to finance 15% and I knew why, and he was willing to pay an extra point in interest over market rates and he was offering me a purchase price 10% above what I expected to sell for, as long as the buyer was sound financially, I'd be interested.

If someone wanted me to finance 40% and the offer was in line with the current market, I'd be real skeptical...

Thanks,

Jack

 

[buckdeer1]

I would also think about foreclosure clause to get it back,are they doing part of it through the bank or putting down a down payment and making payments to both the bank and you.I wouldn't do that.If they were giving you 60% down and then you carry the rest say for 5 years at 2% over prime,I would also put down if they are ever 60 days behind you take land back over and stipulate taxes and insurance.

 

[buckdeer1]

I did buy my first 2 parcels on a owner carry but we had an escrow account set up at the bank and I would go there to make my monthly payment.

 

[MadMadHoosier]

Yeah I’m talking like, I received an offer on my land but they want my to finance about 40% of it. I’m interested but I don’t know a ton about the ins and outs of it. My understanding is you amortization it for a longer period of time and then require a ballon payment and the end of a term. I’m also pretty sure that you don’t pay capital gains until the very end of the terms?

Two thoughts. 1: Make sure the buyer has skin in the game and are not financing 100% (40 with you and 60 with the bank). When they have nothing to lose, it easier to walk, so I'd want them to have at least 20% down. 2: Even though the bank will require a lien on the property, see if it can be structured where the deed does not change hands until you are paid in full. If not that, make sure the contract requires the deed go back to you should they default. Good luck.

 

[S.T.Fanatic]

General contract for deed doesn't hold much risk. They default on the contract you get the property back and are ahead whatever payments they have made to you.

 

[bwoods11]

As long as they don’t wreck your property. The capital gains at the end, .. hmm ? I though it was paid with each payment .

 

[Telemark]

I wouldn't do it with inflation rates the way they are.

 

[cbw]

I’ve done it several times, on both sides of the table. Always worked out well.

However, in today’s overheated, sellers market, really no need for you to do so, unless it is with a family member… And that would be a wholly different discussion. :-)

If you do move forward, as was mentioned before, make sure that they have some skin in the game.


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[b116757]

Do not under any circumstances let them talk you into giving up the first mortgage position if you do proceed forward. If you give it up and it’s foreclosed the first mortgage holder gets paid first the second place mortgage holder gets paid second. Let’s say for whatever reason they walk away and it’s get foreclosed and the market value for whatever reason decreases or even if it doesn’t the first mortgage holder will require the place to be sold quite possibly at auction the first mortgage holder will likely get their investment back the second mortgage holder may not.

 

[Howboutthemdawgs]

After weighing my options I decided to pass. To me the juice isn’t worth the squeeze. If I were super flush with cash maybe, but it doesn’t work for me right now. Thanks for all the insight