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Owner Financing Family Farm

Posted Jan 22 2024, 21:18

Hello all! This is my first post after several years of being a fan and finally completing my first live in flip. Excuse me if I post this under the incorrect category.

I’ll try to keep this short. I’m looking at purchasing our family’s farm (by farm I just mean land with a house). It is 25 acres and has a 2500sqft 3/2 with an attached 3800sqft shop. 
I am looking to owner finance this from my grandmother for $400k. This is a long term deal for me as I expect to do another live in flip on this home while investing in other properties on the side. Potentially developing short term rentals or selling plots of land from this property. 

My biggest questions are below: 

- My grandmother does not have the best health and is 74. In the case I owner finance and she passes. What would happen to the loan if I am the sole heir to this property? 
- Will she be allowed to charge me a 0% interest on this loan? 
- Will this loan require credit pulls and banks or can this be done with a simple contract and an estate attorney? 

It’s a very weird situation, but to sum it up I live in the home already, helping to care for her.  the property is entirely paid off. She wants me to get the home and land but want to give the money she would receive from my down payment ($80k) and monthly payments to her estranged son’s children. This is the only way she views it as fair to the family without selling the property as I’m getting a much better end of the stick. Any help on this would be greatly appreciated! Thank you! 

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Jeremy Johnson
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  • Price, UT
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Jeremy Johnson
  • Investor
  • Price, UT
Replied Mar 1 2024, 19:55

Garrett,

I wish I had a grandmother like yours! Sounds like a dream come true.

I'm surprised you don't have any comments on this post... Maybe you got your answer somewhere else, but in case not I'll offer my opinion.  First and foremost, I AM NOT A LAYWER, so take this as my opinion and for "entertainment" purposes, or something like that...

A couple of things to consider. First and foremost, if she is going to owner-finance it to you, no, you don't need credit pulls, unless she asks for them as the lender. Most likely not though.

It probably makes the most sense to have her setup a Trust, if she doesn't have one yet, and then hold the note for the loan in the Trust. If she passes before its paid off, the note stays in the Trust, and can be managed by the Trustee(s) and payments disbursed according to the paperwork defining the trust. This could be a way she can give to other family, a non-profit, etc. once she passes away.

The nice thing about owner-financing, is there is no set structure, so if she wants to take the 80K down, and give it to the estranged son, then that is up to her.  You should look at any limitations on gift taxes though, and she may actually want to structure it around any of this. An example is the money goes into a trust and then is paid out over a period of X-number of years at the gift tax limit each year.

She can charge you whatever interest rate she wants. Even 0%. I see this all the time in the creative world. It can even be whatever terms you want for repayment, like 40 or 50 years. Truly the structure is whatever you negotiate with her.  Get creative if you need to.

Finally, use a title company/closing attorney for all the paperwork, make sure they do a title search, (I would recommend paying the money for a Warranty Deed to ensure your protected as the buyer from any unknown liens) and then make sure the Promissory Note is secured, i.e. recorded against the property with the county recorders. The Title company can do this for you.  If you skip this step, the Note is only worth the paper it is written on. Also, if you setup a servicing company to manage the payments (usually like $25-35 a month), they can setup an escrow account for taxes and insurance as well and cut a check to her Trust bank account each month. Plus, this give you proof to the rest of the family that comes knocking that you actually have been making the payments and not taking advantage of her.

Good luck

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Chris Seveney
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Chris Seveney
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Replied Mar 1 2024, 20:02

@Garrett Shackelford

The loan would get passed down to whoever she leaves it too.

She can charge 0% interest but would still be responsible for taxes based on the government AFR rate which is around 4-5%

So at $400k she would be responsible for $16-20k in taxes

You can have a title company originate the note and mortgage

We do this stuff all day long as investors (not attorneys) so happy to help

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