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It's get confusing about the financing with the seller but I will try to explain it. He will finance at 6% for 20 years. For the first four years, there will also be a credit given for each payment. The reason he offered this is because his tenant's rent doesn't cover the mortgage payment and he wants to allow for the rent to be raised over the next five years to get there. The monthly credits will total just under $10K over the the four years.
"His" who? The seller?
What mortgage payment? The seller's?
Will the seller continue to pay on a mortgage while your son makes payments to the seller?
And who gets the rent money while your son makes payments?
Will your son get a deed to the property or is this a contract of sale or rent-to-own arrangement where your son won't own the property until many years in the future?
Sorry, but I have read about so many of those arrangements that blow up after the buyer puts a ton of money into the deal only to lose it all because he never owned the property.
So far, what you are explaining, sounds dangerous for your son.
"His" who? The seller? I was referring to the seller's tenants which would become my son's tenants.
What mortgage payment? The seller's? No, the buyer's mortgage payment. There is no mortgage payment on it it now. It is paid off.
Will the seller continue to pay on a mortgage while your son makes payments to the seller? No, there is no mortgage.
And who gets the rent money while your son makes payments? My son gets the rent money and it will cover the monthly mortgage payment.
Will your son get a deed to the property or is this a contract of sale or rent-to-own arrangement where your son won't own the property until many years in the future?
Good question. It's not a contract of sale or rent to own. The only way he would purchase it would be if he gets the deed to the property.
Sorry, but I have read about so many of those arrangements that blow up after the buyer puts a ton of money into the deal only to lose it all because he never owned the property. This is a legit point and he will make sure that he will be deeded the property.
So far, what you are explaining, sounds dangerous for your son. Thanks for your good points.
I think I would hesitate to allow a buyer with no skin in the game to make improvements to the property without approving specific plans.
No clearing, no construction, no liens.
Because it is somewhat unusual to have a private contract, this is where you may want an attorney to look at it, especially if you are not using very clearly written standard forms. The risk would at the least be in losing the investment if you default. Is there other risk?
In this case, I would also be on the lookout for any limitations on what you can do with the property, in terms of the contract and the county jurisdiction.
Normally, the terms of the sale are proposed by the buyer, so buyer should be able to write an offer that suits buyer's plans... it is up to seller to accept. You'd just have to be alert to the ramifications of any counter proposals. And I would want to be sure there isn't a state or local limitation that gets in the way of what you want to do.
It's not unheard of around here to have private contracts for sale of vacant and non-financable properties such as old mobiles and rustic or inhabitable cabins. I would try to use an agent to help who has experience with vacant land contracts. It is a niche.
Seller is financing land with older manufactured home. No down payment needed. This will give leverage to improve the lot with a dwelling by allowing to have more cash on hand. The catch is the asking price about $30K more than FMV but the seller will knock off $20K at the end of the loan. (Obviously, he is doing it this way to make more money off the interest)
Does this sound reasonable?
Haven't read the responses yet, but here's my comments:
It doesn't sound reasonable to me if I'm the buyer. I'm not signing papers that commit me to paying interest on an amount that is greater than I borrowed. I suggest that you not do so either. Make sure that the loan papers, land contract, or whatever is being used state the financial terms clearly and exactly as you understand them to be.
Otherwise, you might end up getting screwed financially by the seller and perhaps even end up in trouble with IRS for participating in a scheme to defraud the government on taxes.
The mobile home is coming with tenants that the seller would like to leave in place. So yes, my son would essentially become a landlord which he would like to persue. This would also cover the entire payment of the mortgage on the land. Once he reaches a certain point, the home will most likely be removed.
My son wants to build a house on the property as well. He has about 2/3 of the cash to do so. He plans on saving up more along the way. He most likely can't get a traditional mortgage since the amount he needs to borrow isn't enough. He will have to get creative with other types of financing. He maybe able to do a construction to permanent loan. The only thing is the seller would like to be the 1st mortgage.
It's get confusing about the financing with the seller but I will try to explain it. He will finance at 6% for 20 years. For the first four years, there will also be a credit given for each payment. The reason he offered this is because his tenant's rent doesn't cover the mortgage payment and he wants to allow for the rent to be raised over the next five years to get there. The monthly credits will total just under $10K over the the four years.
Yes, the attorney will definitely handle the closing and review everything.
Now that I've read more details of this proposed purchase, I have further advice. Tell your son not to walk away from this deal. Instead, tell him to RUN AWAY as fast as he can.
Now that I've read more details of this proposed purchase, I have further advice. Tell your son not to walk away from this deal. Instead, tell him to RUN AWAY as fast as he can.
Sure! It's because none of it makes sense for the buyer. It's not up to the seller to dictate what the buyer does with the property after he buys it. Nor does the financial part of it (misstating the purchase price and the terms in the contract) make any legal sense either. In fact, it smacks of conspiracy to defraud the government of revenue. IRS doesn't take kindly to this sort of thing.
If I were the buyer (your son), here's what I would want: I'd want a deed to the property and would be willing to sign a promissory note secured by a mortgage or deed of trust which clearly and accurately spelled out the repayment terms to include the total principal amount of the note, the interest rate, and the monthly payment. It should also state that there is no penalty for prepayment of principal.
The mobile home and everything on the property would then belong to your son once the papers are signed and the seller would have zero input after that as long as your son made the payments as called for in the note.
And I don't advise using a land contract if I'm the buyer. They're great for the seller, but not so great for the buyer.
For the buyer, it might be OK. What is the interest rate? Because that makes a difference. Is your son absolutely certain he can make the payments so he won't lose the property?
Everything should be in writing and have a real estate specialist lawyer take a look at the contract before he signs.
If there is a septic or well, those should be tested, verify zoning, verify with the county building department that it is buildable. Check on any new road or development plans for the near future that might affect the property
Note: interest rate for bare land is always higher than a regular house mortgage.
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