A rural land deal that paid off in month 14 instead of year four is a good case study in terms pricing

Early payoff is normal on rural land paper, not an anomaly to plan around. The buyer profile that improves a parcel is exactly the buyer profile that becomes bankable once there is a driveway, a well and a septic permit. Your model should assume a distribution of payoff dates rather than a single one.

On the return question marlow raises, whether you did better or worse depends entirely on what you do with the returned capital. Getting $43,300 back in 14 months only beats 120 months of payments if you can redeploy at a similar spread. If your deal flow is one parcel a quarter and you are sitting on cash for five months, the annualized figure on this deal overstates what the year actually produced. Run it at the portfolio level.

Two mechanical points. First, whether you can charge a prepayment penalty, and whether your interest rate is inside your state's usury limits, both depend on state law and on whether the transaction is treated as consumer credit. That varies by state and by how many owner financed sales you do in a year. Confirm both in writing with an attorney licensed where the land sits before you set your next rate.

Second, cairn's easement fix is the load bearing part of this post. A recorded easement description that does not match the traveled route is common on parcels that have not changed hands since the 1950s. The survey cost $1,450 and the alternative was an unsellable parcel. Price that check into every rural acquisition where the access is by easement rather than frontage on a maintained public road.

I am reading this twice and still stuck on the mechanics. When you sold on terms, did the buyer get the deed at closing or only at the end? I have seen both described and I cannot tell which one you did.

What happens to the numbers if the buyer defaults in month 3 instead of refinancing in month 14? The seller is up $3,500 plus three payments and owns a parcel with a half built driveway and possibly a lien from whoever built it. That is the version worth hearing before anyone copies this.

Survey before listing is the whole post. I stopped doing terms on anything under about $20,000 because the servicing and the paperwork cost the same as it does on a $60,000 parcel and the interest does not cover it. Yours is well above that line so it makes sense.

Dumb question I have been sitting on for a month. When the buyer sends $444 a month, does it come to you? Like your mailbox? Or does someone in the middle handle it and tell the IRS what the interest was.

The 14 month figure is doing a lot of work here. Same deal with payoff at month 60 is a materially lower annualized number even though the total dollars collected are higher, because the interest keeps arriving after your cash is already recovered. The right way to underwrite this is at three payoff points, looking hardest at the worst one, which is usually the buyer who pays perfectly for eight years and never refinances. That is a fine outcome and a slow one. Cairn, did you underwrite a cash resale price at all? What a straight cash buyer would have paid for the same 18 acres matters, because the $38,500 minus that number is the premium you got for being the bank, and it is the only clean way to judge whether the terms were worth the capital lockup.

Everything in this post that worked is unglamorous. Absentee heir, small tax bill, one survey, one signature from a neighbor. That nothing clever happened is the part worth studying.

What did you think the parcel was worth for cash when you paid $14,000? At the low price point end of rural land the hard part is knowing whether a buyer is paying 50 percent or 80 percent of what a local would pay, because a good share of these counties do not publish sale prices at all.