OfflineHi DG Family-
This New Year has really been a busy one for real estate. We just put our fourth deal under contract which is a duplex for 20% down and the rest is seller financed at 9.9%. The property already has established renters bringing in $1825/mo. The seller would not budget on price or interest rate, but they were flexible on the monthly payments. We were able to negotiate so that if we do our own property management (which we intend to do) we should net about $600/mo after insurance, taxes and our reserves.
Here is my question - the contract they sent us is a "land contract" and they are proposing to keep the property in their name until the note is paid in full. They feel like this will protect them if we default. I explained that they are acting as a bank and so the title to the property is in the buyer's name and then they the seller could file a first position lien on the property with the county, just like a bank would do. Their "mortgage" is then recorded. They replied that they have another contract like this and it is what they are comfortable with.
Our third deal was also seller financing but we were able to write the contract and terms so we did not run into this. Is this a deal breaker? What do we need to be careful about entering into a contract like this?
Thanks everyone for your insight!
Committed to Success!
Nicole and David Rhodes
What did your attorney have to say?
Michael Mangham
Mentoring/Team Building Nationwide
MD Home Acquisitions LLC
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http://www.mdlodeals.com Tenant/Buyer site
First, what state you are in determines what kind of teeth the land contract has.
Does your state require the time and expense of a judicial foreclosure with default after a certain period of time or will a simple eviction suffice? Is the property owned free and clear? What happens if the land contract is not recorded and the seller's liens attach to the property down the line.As Michael said, questions for an attorney. The seller may feel more protected and may feel that the land contract will give you added incentive to refinance and pay him off. It all goes back to the basis for a good deal...motivation. Who is motivated here, are you motivated to buy or is he motivated to sell. The second question is the financing. You mentioned the seller was firm on price and rate, but flexible on the payment. How was the payment established, by making the term longer, or varying the amortization and creating a balloon? Is this a negative amortization loan? What are the actual terms of the deal and how much did you figure for expenses?
Hi-
Thank you both for responding. I was trying to get a little bit of insight before I talked with too many people. As it turns out since we are in Florida this type of contract is not used. Though it is common elsewhere, because we are a homestead state we would have no rights to the property since we are not on the deed or living in the home. It would have meant we could not collect Section 8, pull permits or do evictions. That would not have worked for us! Luckily the seller was understanding and we are in the process of pulling together a Purchase Agreement.
Thanks for your insight it was really helpful to get my thoughts in order! I will keep you posted in how it turns out.
Thanks!
Nicole and David
www.creativeoptionsinvestments.com
in regards to land contracts. There is always something new to learn. Tammy
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