From the desk:Seller Financing (Capital Provider)

The buyer wants me to finance 40 acres, and land makes me nervous as collateral

I've had 40 acres of mostly wooded ground for a long time, no improvements, a gravel access easement, and county zoning that allows one house per 10 acres. Asking 62k. The only serious buyer wants to owner finance because no bank around here will lend on raw land at any number he likes.

His offer: 10k down, the rest at 9% over 12 years, which I make roughly 590 a month.

Two things I'm stuck on. First, if he stops paying, what I get back is 40 acres of trees, and 40 acres of trees is exactly what I was trying to stop owning. It doesn't improve, it doesn't rent, and it takes a while to sell. Second, I've heard people talk about a contract for deed instead of a note and a mortgage, and I genuinely don't know the difference or which one I should be asking my attorney about.

I'm also curious whether a land note like this has any resale value at all, since everything I read about note buyers is about houses.

He wants an answer next week and I haven't countered yet.

Answer

2derekj19SB1B

On the two documents, the plain version. With a note and a mortgage or deed of trust, he gets the deed at closing and you hold a recorded lien against the land. With a contract for deed, you keep title until he finishes paying and he holds a contract right to get it. They behave very differently on default, and the process and timelines for both are set by state law, so which one is even available to you and what you'd have to do to unwind it is a question for a real estate attorney licensed where the land sits. Ask them that in exactly those terms.

On the money side, 10k on 62k is about 16% down. On raw land I've heard people want a lot more than that, because a buyer who walks away from bare ground doesn't lose much and doesn't feel the way he would about walking away from his house.

2 replies

0luis_carrera Get yours

Run the payoff schedule before you counter. 52k at 9% over 144 months is about 590, and after three years he still owes roughly 43k. So year three default hands you back land you were asking 62k for, with 19k of his money collected and whatever the process cost you.

That's not a bad outcome. It's just a slow one, and you should decide now whether you'd be willing to do it twice.

On resale: land notes do trade, and they trade worse than house notes. Small balance, no structure to insure, and the buyer's recovery is a piece of ground somebody has to want. Assume a heavier discount than the numbers you've read about houses. If you're mainly after the 590 a month, that doesn't matter much. If you want the option to cash out in year two, price that in by asking for more down.