- Personal Finance»
- Mortgages & Loans
Definitive Guide to Owner Financed Land
Purchasing Owner Financed Land
With today's mortgage issues, bank bail-outs, and loss of jobs, the prospect of purchasing owner financed land has become more and more enticing. There are a few different aspects to consider when making the decision to purchase owner financed land, as with anything there can be scams from both sides of the coin. But if done correctly it can help all parties involved and be a solution for many good people who are caught in this tough economic time.
I am writing this hub to try and shed some light on the whole process of buying land that is owner financed. I have provided some very interesting links that I hope you will enjoy and that will help in your quest to becoming a land owner.
I personally have purchased owner financed land on four separate properties and would like to share some of the issues that could possibly make your buying process a little less stressful. There a several steps leading up to becoming a land owner and I will try to go over all of them, I am sure I will miss a few. So please feel free to offer stories of your experiences (good or bad)that will maybe help someone else have a good experience.
Finding the Properties Where The Owner Will Carry The Note
I am going to list a few avenues that have worked for me in the past. You may want to explore all of them as you might be surprised when one of them has just the perfect listing for you. Even if the first time you look, you don't see a listing that suits you, always check back a couple of times as listing change quite often.
- Online listings
- Real Estate Agencies
- Real Estate Auction Companies
- Newspaper Ads
- Swapper/Trader Publications
Now I am going to try and list some of the pros and cons of buying owner financed properties, and then I will try to address each one individually as I go on. Please remember most of this is either from my own personal experience or someone close to me, so please share your stories as well.
Issues or Cons Of Owner Financed Land
- Usually overpriced
- Hard to find listings
- Not always surveyed
- Land Contract vs. Deed
- High Down-payments
- Does not build credit
- Restrictions or Covenants not clearly defined
- Shady landowner preying on hope/Scam Artists
- Land with Short term Balloon payments
Benefits of Buying Owner Financed Land
- Usually Easy to Qualify
- Not a lot of paperwork
- No long wait to close
- Low or no closing costs
- Usually Fixed Interest Rate
- Usually No Pre-payment penalty
- Can negotiate down payment, term of loan and/or payment amount
Now on finding owner financed property, it can be both exciting and exhausting at the same time, but hang in there it will be worth it! Again I am providing several links to get you started on your search but here are some other options to consider:
Real Estate Agencies- call agents in the area you are interested in and let them know you are looking for owner financed properties, approximately what price range, whether you are looking for restricted or unrestricted property, how much (just a lot or several acres). There is no need to really get into the down payment or terms to start, first see what they have, investigate to see if any of them interest you, then you can take more steps to finding out the exact details. Remember even though some owners will not budge, some are very flexible.
Real Estate Auction Companies- Many times these auction companies buy up the land that is going to auction and then turn around, sub-divide it and owner finance it in tracts.Even if you do not see the property advertised as owner financed, you can always call the company to find out if it is a possibility. You never know until you ask, sometimes they will even put you on a list to call even if they do not have any property at that particular time.
Newspaper Ads- These ads usually clearly state if the property offers owner financing and can be a great source because many individuals list their properties here as opposed to listing it with a real estate agent.
Local Swapper/Trader Classified Publications- This can be a gold mine for listings because they usually do not charge individuals for private listings (as opposed to paying the newspaper) and it will usually include listings from Real Estate companies as well because these publications usually reach a large and targeted market.
Road Signs- I think I failed to mention this in my list earlier but it is a very good source. BE AWARE of the roadside! When you start looking for land, you will realize how many times you have actually driven by "Owner Financing" signs and never even noticed.
Cons of Buying Owner Financed Land
Over-Priced- As I stated before the first issue is the property is usually over-priced but this is one of the trade-offs for the Easy Qualifying.
Hard to Find-These properties can be hard to locate sometimes but with the sources I discussed in this hub, it should make it a little easier. You may sometimes have to look out of the exact area you would prefer but again this is a sacrifice for the benefit of easy qualifying. Just do not give up, there is more out there than you may think.
Not Surveyed-This can be an issue when buying owner financed land. A lot of times this land has been split into smaller tracts from very large tracts and although the larger tract or outer boundaries may be there, the smaller tracts will not be marked. This can become a real problem if you decide to build or fence or when the neighbor starts telling you he owns the land you thought you just bought. So the best practice is to try and find land that has been surveyed or see if you can negotiate that into the financing. It will save you headaches in the long run.
Land Contract vs. Deed-The primary difference is that with a deed, there must be an official closing where the costs could become more of an issue if you are on a tight budget. Land contracts are acceptable if you are dealing with a reputable seller, who will probably pay closing once land is paid in full. (*There will have to be a closing for the deed at some point) There may be a small document fee of a few hundred dollars with a land contract but many times the seller will require this but will not require a down payment.
High Down Payments- Usually there is a 10-20% down payment required but remember this is always negotiable. Sometimes the seller is in a position where they just need to start bringing in a payment on this property. There are also the sellers who usually have several properties for sale and will set a fixed down payment on all their properties. So keep an open mind and don't be scared off at first glance of a listing with a high down payment.
Does Not Build Credit-Most sellers of owner financed land do not check credit and therefore usually do not report credit either. There are a few that do but do not count on this as helping to rebuild your credit. There is really more information on the whole credit issue but I will have to cover that in a later Hub. (so look for it soon).
Restrictions or Covenants Not Clearly Defined- This can be very important and so many times overlooked.Say you purchase the property, thinking you can build a fence, or raise dogs, horses or maybe you want to pull up an RV until you build, then you find out that mild restrictions meant you could only have a dog, no horse, a house or double wide mobile home and only a wooden fence 4' high ( that will not possibly keep your large dog in). Make sure you know what your restrictions are BEFORE you sign the papers.
Shady landowner/Scam Artist- Unfortunately they are out there, waiting for desperate buyers who are willing to believe almost anything. So first and foremost make sure you are buying from the person who actually has the authority to sell the property. Just remember "Buyer Beware" - If the deal seems to good to be true (and they usually are) then it probably isn't. Just because you have encountered some financial issues does not make you the bad guy. Remember this can be beneficial for both parties, don't buy without asking questions.
Land with Short term Balloon payments- This may not be a con for everyone, it is just an issue that I felt needs addressing. I feel sometimes people get in such a tight to get into a property they do not realize what some of the terms actually mean. For example the seller wants to finance you for a short term of 2 to 5 years with a balloon payment at the end. You will have to refinance the loan at the end of the term and pay off the balance. The drawback here is that, if you are denied a refinance loan, then you'll have a tough time paying the seller. You would really need to be confident you will be able to get conventional financing, if not you would risk losing the property back to the original seller.
Pros/Benefits of Buying Owner Financed Land
Usually Easy to Qualify- Owner financed land is usually very easy to qualify for, sometimes easier than most rental houses. However there are some sellers who still have minor qualifications. If they do have requirements, it might be proof of income or a background check. Some will even want to look at your credit report, allowing only ones with minor issues to purchase. But for the most part it is as simple as having the down payment and signing the land contract. Most sellers realize if you do not pay for the land, it is very easy to take back over and resell.
Not a lot of paperwork- Most sellers of owner financed land use a very basic simple land contract that will usually outline the terms, monthly payment amount and what restrictions/covenants (if any) are assigned to the property. There is not some mountain of paperwork with terms you do not understand requiring you sign and initial until your arms fall off.
No long wait to close- With only a land contract, there is no scheduling of a closing at some attorneys office who you don't know that will take a commission for the sale as well. There is no waiting on the underwriters, appraiser, inspections and so on. This will probably be one of the least stressful transactions you ever have. The sellers are usually motivated to start receiving a monthly payment.
Low or no closing costs-Without the mountain of paperwork to be signed, the closing costs are usually very low. Some sellers will even cover this cost and just roll it into the cost of the property, especially if you are making a down payment. This is a great thing since you are probably already in a tight.
Usually Fixed Interest Rate-With so many variable rate programs that seem to always make it to the cap, a fixed rate can really be a plus. You always know what interest you are paying.
Usually No Pre-payment penalty-This is a great option! If you have ever had a conventional loan that you wanted to refinance but found out you had a prepayment penalty that was going to cost almost as much as it was going to save you, you know what I am talking about. I do not think I have ever seen an owner financed property that penalized you for paying them off early, a definite plus!
Can negotiate down payment, term of loan and/or payment amount-Remember sellers of owner financed land are the judge and jury. They don't have to meet with the board members that only meet once a month to make a decision. They are also motivated to get money coming in on properties, so you might be surprised at how flexible they can be. Get creative and make an offer, you really have nothing to lose. They are not going to refuse to sell you the land just because you tried to negotiate, even if you end up right back to the original terms. You can then decide if it is something you can do or if you have to keep looking.
I hope you found this information helpful and interesting. I will continue to add to this Hot Topic in additional hubs. I will not only expound on the already mentioned issues but will add more helpful information to my Definitive Guide to Owner Financed Land.