So I am interested in a multifamily 5 unit property. I contacted the listing agent to ask about land contract financing (as it was advertised in the listing that the seller was open to it) and she said that the current owner has a land contract on the property. Below is what the agent described:
"Land contract would be drawn up by Jack XXXX attorney who would also do the closing I have everything worked out on it. Current owner has a land contract and I have had deed-holder also sign listing agreement. Their current mortgage and the current land contract and the new buyers land contract would all be done proportionately correct for your buyer and I have reviewed the details with Jack XXXX. The current owner’s land contract was based on 5 or 6 years with natural amortization payoff. The new buyer’s will be based about 6 or 7 years amortization. and that is with the property paying off with current owner rents."
Can anyone decipher what this means? Is it a bad idea? What should I look out for? This property is a 5 unit with potential for over 20% cap rate. Thanks!
Personally, I don't like land contracts as a buyer. If you pursue this, have Your attorney review all documents, and talk to you about risks. I don't know if recorded land contracts trump judgments, etc. of current title holder. What happens if one the "sellers" dies?
Yeah that can get hairy. Talk to a good real estate attorney. That situation as-is has lawsuits written all over it. Are you able to finance the deal somehow and cash out the land contract?
5 units is great but won't qualify for conventional financing....
Land contracts don't give you title to the property until it is paid off. Terrible from a buyer's position as @Wayne Brooks points out. There has got to be a medium there in the midwest that gives the mortgagor title to their own property! Find it.
I did think about just buying the property outright, but I don't have enough capital by myself to do that. That was why I inquired about the land contract in the first place. The property is not very expensive and I think if I got a partner we could possibly buy it together with what I have... Although my private lender is already tied up right now in another one of my properties until it is refinanced.
How much time you have on the current property before you refinance?
How much down payment is required? Land contracts are pretty straight forward as long as the deed holder owns the property outright You would need to do a title search for chian of title and leins If you are getting in with a low down payment and the rents will cover your note, and the property appraises properly then you should have no problems
I am currently going through a refinance right now so the door might still be open. Although my lender mainly wants to only lend short term and probably wouldn't want to hold a buy and hold property for very long. Still doesn't mean something couldn't be worked out though.
Down payment requirement the seller is asking for is 12-15% but would consider 10% down. Gross rent on the property is about $22k/year and would easily cover the note plus cash flow. I am mainly just a little concerned about having a land contract on top of a land contract.
the seller can assign his land contract to you with approval of the owner thus it would only be 1 land contract direct between the deed holder and you Do you mind posting numbers
price,down payment rents etc
Price: 58k. 12-15% down payment. Gross rent for 5 units $22k/year. Haven't researched it much further yet but the seller is claiming about $6000 operating costs per year. Of course I would do my own assessment
It sits on a cul-de-sac with a few other multi-plexes. Not in the best area of town but also not a horrible part of town either. 1 block from a main drag with shops, restaurants, etc.
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