Land Contract for a Quad?

Question

Thoughts on a land contract vs traditional financing when buying a fully paid off Multi Family (4unit) from a private owner? No liens or current financing on the property - just trying to get the best financing available. This would be our first investment property.

Chris Seveney · Answer

@Claire McCormack

What state is it in? If I was selling a multifamily I would not want to sell it on a land contract as I don’t want my name on that asset anymore

Many states land contracts are considered a mortgage and still need a foreclosure so they have zero added benefit

Tom Gimer · Answer

As buyer I would prefer owner financing (deed + mortgage/DoT) over contract for deed. That would likely accomplish the seller’s goals as well… in the short term.

Jonathan Klemm · Answer

Hey @Claire McCormack -  I think if you could provide a bit more information on your thinking that would be super helpful.

- What's your reasoning for considering a land contract?

- I could be wrong, but how do the financing options differ?

- Is this a property that you already have under contract?

I am with @Tom Gimer having the seller hold a note is likely your best option since the property is paid off in full.  Curious, what area of chicago the building is in?

Tom Gimer · Answer

DoT = Deed of Trust

With seller financing there is a deed to the buyer recorded along with a security instrument (either a mortgage or deed of trust). Using this method, if the seller has any financial issues such as judgments or liens they do not affect title to the property because it has changed hands.

Claire McCormack · Answer

Thanks Tom, I haven’t heard of DOT - but we’re very new. Any chance you could elaborate on what it is, and pros & cons to both sides of the deal?

Claire McCormack · Answer

This one’s in Chicago, IL. From what I’m reading - the biggest Con to us as buyer is that the property wouldn’t be in our name. The pros would be potentially lower (negotiated) interest rate and down payment. The pro to the owner/seller is: mitigating large capital gains all at once since the property is currently paid off, and continuing a stream of income with interest.

Thoughts?

Land Contract for a Quad?

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