Buying Properties on existing LC

[Warren Foster]

In the course of searching for buy and hold rentals, I have been offered several properties that are currently under existing Land Contracts which leads to a couple of questions for the experts here.

First, what are the pros and cons of buying existing LC as part of a long term buy and hold strategy?

Second, how do you evaluate these?

Here is an example of one such offer:

Sale Price = $29,900
LC Sale Date - 11/1/10
First Payment - 12/1/10
Sale Price of Property - $55,500
Down Payment - $2000
LC Balance - $53,000
Interest - 10.5%
Amortization - 30 Years
Balloon Due - 10/27/15
Principal & Interest Per Month - $484.81

Thanks for your help,
Warren

[Jon Holdman]

That makes more sense. You're buying the note.

You still need to understand the value of the property. Not unusual for properties to be sold at a premium when being sold with owner financing. There's a very real possibility of you getting the property back, so you want to be sure value is there.

You're buying a brand new note. No, at least very little payment history. What do you know about the borrower? Good credit? Good job? A complete deadbeat with trashed credit?

With the discount, you're getting about a 20% interest rate. You're also hoping the balance of $51,347 will be paid off in five years.

This buyer has very little skin in the game. $2000 down is very little. If this property is really worth $55K, you can resell it if you take it back. If its really worth $30K, this is not a good deal.