How should i structure Land Contract?

10 Replies

I am closing on a house today that my concrete contractor wants to buy on a land contract.

Frankly, i dont know if i want to sell any of the houses that we have, but he keeps pushing me to sell it after we close.

can you help me structure the deal based on the information below?

Purchase price - 51k

ARV - maaybe around 90k (not sure since i don't care about ARV for the most part)

Michigan's allowed apr on land contracts - 11%, i believe.

not sure what else is needed to make the numbers work

Any help would be appreciated

If you like the guy then maybe 5k down and 60k note with 5.8% interest for 15 years ($500/mo) or maybe 80k note at 6.4% for 30 years if you want more money out of it (still 500/mo).  Figure out what kind of mortgage payment he is looking for and tailor it around that. Also consider taxes and insurance.  I typically won't buy a house on a land contract unless I can pretty much make 2-3 times my holding cost in rent.  

Originally posted by @Jassem A. :

If you like the guy then maybe 5k down and 60k note with 5.8% interest for 15 years ($500/mo) or maybe 80k note at 6.4% for 30 years if you want more money out of it (still 500/mo).  Figure out what kind of mortgage payment he is looking for and tailor it around that. Also consider taxes and insurance.  I typically won't buy a house on a land contract unless I can pretty much make 2-3 times my holding cost in rent.  

i like him and he has gotten a lot of business from me. i told him i'd hate to lose his "businessship" if he stops paying.  

that's a good point to see what he wants to keep it at. 

however, i dont want to wait for 30 yrs to get my money on a house like that. i thought the most you can carry it (maybe it's state specific) is 10 yrs, no?

@George P.

I don't think there is a year limit but I wouldn't go past 30 years just because it would be odd.  You could do 10 years but in either case if the payments are the same (500/mo), the money you invested will be paid off in about 8 years.  With a 30 year loan you will make a "profit" for another 22 years instead of another 7 years.  Assuming you don't have to foreclose on the property of course.

Be very cautious about entering into land contracts with owner occupants. You may (I believe you will) be subject to the provisions in Dodd-Frankenstein and the SAFE Act. The potential penalties are onerous. Most private and hard money lenders no longer make any loans to owner occupants. Many in our area have exited the business completely.

i talked to one of my 10 agents (that i use) and she asked if he has a green card. i dont know if he does.... so i clearly have lots of questions and not enough knowledge.. 

Green card? Owner financing to a noncitizen?

Why don't you make an arrangement to lease it to him for 30 years and then he'd  own it, 

if he defaults on the lease that he loses the right to buy it

More of a right of first refusal with a Long term lease

The CFPB protects consumers and you really don't want a headache owner financing someone with inferior knowledge

I wouldn't give him a 30 year lease , I'd give him a 12 month lease with extensions

@Bill Gulley

Originally posted by @Brian Gibbons :

Green card? Owner financing to a noncitizen?

Why don't you make an arrangement to lease it to him for 30 years and then he'd  own it, 

if he defaults on the lease that he loses the right to buy it

More of a right of first refusal with a Long term lease

The CFPB protects consumers and you really don't want a headache owner financing someone with inferior knowledge

I wouldn't give him a 30 year lease , I'd give him a 12 month lease with extensions

@Bill Gulley

 brian,

this is really a good idea... to lease it to him for 30 yrs and then it's his. this way we have no issues with escrow and such.

one question though.. would there be a "gift tax" issue or it can be done via a quit claim?