Land Contract Seller Financing - Land Use restrictions

Land Contract Seller Financing - Land Use restrictions

Investor · Portland, OR · Member since 2017 · 12 posts · 3 votes

I am looking at selling 14 acres of raw forested land in the state of Washington to a buyer using a 3 year installment with balloon payment. I need to spread the land purchase payments out over 3 years for tax reasons... ergo, why the installment contract and not a straight sale.

Couple of scenarios I'd like to protect myself from: 

1)  How do I protect against the buyer logging and selling the timber, which is worth quite a lot, which would reduce the value of the land?  Can I put a clause in the installment contract or the deed that it can't be cut/sold until the loan is paid off?  Or that the buyer would need prior permission and agreement from me?

Also, how can I protect against the buyer engaging in costly improvements that he end's up not paying for... resulting in liens against the property?  I don't necessarily want to shut down any improvements, but don't want to be left hung out in the cold with unpaid liens against the property.  Would I be able to put a restriction in the contract (perhaps on the deed?)?  Maybe requiring money be put in escrow to pay for specific improvements the buyer contracts with another party to perform (for instance , to put a road in).

Thoughts?

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  • Investor · Boulder, CO · Member since 2017 · 304 posts · 347 votes
    4y

    @Kerry Malarkey congrats on some creative financing!  Definitely consult a real estate attorney in WA. It's my experience that you can put anything that is legal and not against Fair Housing in the installment contract.  I've not sold on installment, but bought so I'm interested to hear what others have done...

  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y

    @Kerry Malarkey

    Reality is you can put whatever you want in a contract but what if they were to Forest it ?

    You can sue but what if they then file bankruptcy?

    By using an installment contract it’s nearly impossible to protect against devaluating the property over time. It comes to the decision do you want to sell now and avoid that risk or seller finance but take on the risk for whatever reward you are attempting to gain.

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  • Investor · Portland, OR · Member since 2017 · 12 posts · 3 votes
    4y

    Thanks @Chris Seveney for reply.

    Question: what keeps anyone at any time from cutting the timber on my land...?

    Does anyone have examples of use restrictions they've used in a land sale contract?

    Thanks!

  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y

    @Kerry Malarkey

    Why not sell the property outright and 1031 any proceeds?

    Why do you need to sell on installment sale ?

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  • Investor · Portland, OR · Member since 2017 · 12 posts · 3 votes
    4y

    Installment sale to spread gain to take advantage of 0% cap gain rate. Don’t want to find another property for 1031 exchanged. I’m retired.  

  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y

    @Kerry Malarkey

    If you need an attorney to assist writing this up I have one. They will include all the language you want.

    My prior comment was not as much based on contract but trusting the buyer that they would follow it. I am guessing you may be able to put penalties in the agreement.

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