I need advice please

6 Replies

I purchased 2 duplexes on a land contract.
6.5%
$1600.00 payment.
7 yr contract
15 months into it.
Talking w bank real mtg. Now that I have enough equity & seasoned I am able to refinance.
Closing costs $2200.00 each. No Pts
4.5%
30 fixed
$1060.pmts.
Called the owner to inform him that I would be switching from land contract to a promissory note and a mtg. and paying him off in a few months.
He doesn't want me to do this, says it will cost him 20%, put him in a higher tax brackets and affect something to do with his Medicaid. He asked what would it take to keep the land contract in tact?
"Match what the bank is offering".
He countered with 5% and wants me to sign a contract stating I won't refinance for 5 years.
Not sure what to do???
Suggestions welcome!
Sue

He just saved you $4400 out of pocket and if amortizing like a 30 yr, your payments will only be a little higher than with the bank but still much lower than now.   Let him continue to receive the (lower) cash flow. 

 "If you help enough people get what they want, you will eventually be able to have anything you want." 

(I have some questions about how the owner reported the sale and his loans on his taxes.  Seems like receiving principal back on a loan would be a non-taxable event and not receiving interest would lower his income. Unless there is some special treatment for owner financing where the capital gain on the sale is due on payback or spread over the life of the loan.  No experience with seller financing, but seems odd.)

I'm not one to kick a gifted horse in the mouth, but why would you want to limit your options for his benefit?    He as a lender doesn't get the option as to when you pay him back.     If it were me, i'd let him do the deal at the same rate as the bank.     As for the no prepayment clause, i'm not even sure that is legal btw, he can put a penalty if you pay it back early, but he can't stop a payment from coming.     What if for example the city decides to change the width of the roads on that street and they take the property by eminent domain.   Are you expected to keep a loan on it still?    If he wants you to "promise" not to refi him out in the next 5 years tell him it costs him a point more, that way if things change and rates go down (not likely) you aren't stuck.     For every risk you should be compensated.


My only confusion is whats with the land contract to promissory note switch.  

@Sue Bladek   it seems likely that he is paying capital gains taxes and getting a lot in one year would really raise his taxes.  If you are sure you will not be selling in the near future it might not be a bad idea to0 agree not to pay off early.  I would avoid an agreement like that as you cannot sale during that period.  You are in the drivers seat here.  If the guy is that worried he will negotiate more on the interest rate, and on the length of the no payback loan.  It's great to have options.

The land contracts are in an LLC, in order to get the loans refinanced on the secondary market lenders are requiring that I have them transferred into my name.
He will be in a higher tax bracket due to capital gains if I pay him off.
Sound like I have to put on my big girl panties and get this deal going back in my direction.

The land contracts are in an LLC, in order to get the loans refinanced on the secondary market lenders are requiring that I have them transferred into my name.
He will be in a higher tax bracket due to capital gains if I pay him off.
Sorry Doug C I do not have an answer re: the taxes.
Sound like I have to put on my big girl panties and get this deal going back in my direction.

Is your note full Am over the 7 years?

Ae you cash flowing with a 7 year duration?

If so I would negotiate the rate down and keep the duration, in another year you would be almost halfway through the mortgage with a little over three years left, why string that out for 30 years?  

In the current scenario it looks like you save $600 a month for 3 1/2 years then pay and extra $1,000 a month for the next 26 1/2 years.

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