Need input on selling property to relatives

[Andrew Taylor]

I own 4.5 acres in a rural community. I paid 125k for the land and have since put about 100k of improvements into it, including a well, electric service, fencing, and a 2200sf barn/workshop with living quarters. Intent was to build a house, but plans changed and we ended up purchasing a home nearby.

We've paid cash for everything, so I have no mortgage except for a 50k home equity loan we took out against the property a year or so ago. Total monthly cost is 250 equity loan, 300 taxes, 50 HOA, 75 insurance, and about 30 electric.

We've been planning to sell it, but I don't see a lot of people spending 225-250k (my target range) for a property in this neighborhood with no house on it. I think I'll be lucky to get my investment back.

My dad lives nearby in a rental, and he mentioned yesterday that they'd be interested in buying the place to build a home on. His proposal was to buy it for the equity loan amount (50k), then build a house. They'd live there until they die, then will the property back to me (instead of splitting inheritance between me and my brother).

I think the property would easily be worth 500k after they build (and I'm being conservative). At 4% appreciation, and assuming it's 20 years before I get it back, it should be worth about $1.1M, with a mortgage balance of about 150k. So I'd net something like 950k.

Is 150k now better than 950k in 20 years? (There's no way that 150k is getting invested, either. I'll have to use 50k to remodel our current house, and the rest will get applied to our current mortgage.) Is there a better way to structure this deal? Anybody have other ideas? My knee-jerk reaction is that it's a win-win for all parties, but I'm open to suggestions.

Thanks in advance for your input.