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Yes land contracts can be used to purchase raw land. There are basically two types of instruments (documents) 1 is a contract for deed the other is a note and deed. In a contract for deed of the deed remains in the name of the seller until the terms of the contract are satisfied, in a note and deed the deed is transferred to the buyer at the time of sale “subject to” the note. Either one is a negotiable instrument that can be sold at the time of closing or shortly thereafter.
As for the rate and terms that is 100% negotiable between the buyer and the seller I would recommend higher than market interest rates…9%-10%, a thirty-year amortization with a balloon payment in five years or seven years. The most attractive “marketable notes” for raw land are those that have a 50%-60% loan to value, so you may have to create a second if you wish to make the first a marketable note otherwise if the seller is willing to wait… it doesn’t matter anything between a willing buyer and a willing seller is okay.
Presenting Land contracts in Ohio - Posted by Steven Leeker
Posted by Steven Leeker on April 25, 2005 at 09:35:30:
Newbie investor: Home is listed with a realtor and I want to present a land contract. I know some of the mechanics of the deal, but I am fuzzy on how to present and what happens if I trip the due on sale clause. Here is the deal so far:
Offering price: $475,000
My Land contract Purchase plan: 3 year contract, with a balloon payment at the end of the 3rd. year. My first payment to the seller will start 90 days after acceptance. My payment will be based upon 30 yr mortgage at 5.5% interest. Seller has a small mortgage with very low interest payments so this would give the seller a positive cash flow.
Listing agent will receive $1,000 when Sellers accepts and balance of $15,000 when I pay the balloon.
Exit strategy: Sell with land contract to home owner wannabie.
Questions: I will have this transaction notarized. After that, I do not know what to do.
What are the appropriate steps to take and do I only use a land contract or do I have to go through a realtor and use the realtor’s contract AND a land contract?
Re: Presenting Land contracts in Ohio - Posted by Randy (SD)
Posted by Randy (SD) on April 25, 2005 at 09:48:10:
Installment sales longer than two years can be considered a violation of the due on sale provision of the owners existing financings so you may want to consider using a shorter term contract. Secondly be generous with your interest rate, 5.5% is cheap, your seller is probably paying a higher interest rate albeit on a lower loan amount if you want your offer accepted raise the interest rate. Pay the Realtor’s commission sooner either out of your buyers down payment or on a note paying the Realtor interest as well otherwise they’ll kill your deal. Most Realtor’s live from commission check to commission check so expecting them to wait three years for their commission when they could find a more traditional buyer and get cash next month. As for the formal closing process, use an escrow company. They can draw up the contract for deed or note and mortgage be sure to have a lender’s title policy and a buyer’s title policy.