Land Contract Interest Rate

5 posts by 4 users

Kevin Suksi

Real Estate Investor from Dearborn, Michigan

May 29 '11, 02:27 AM

We are offering our first land contract property and are thinking of charging 8% interest. Does this seem high, low, or just right? We've had a couple of applicants say it's high, but applicants of course tend to say such things. Any opinions or insight out there? Thanks!

Mitch Kronowit Donor

SFR Investor from Orange County, California

May 29 '11, 03:29 AM

Are they putting anything down? What's their credit like?

Think like a bank! They offer different rates for different borrowers. There is no one-size-fits-all when it comes to financing or halter-tops.

Kevin Suksi

Real Estate Investor from Dearborn, Michigan

May 29 '11, 09:33 AM

We are requiring 10% down or very close to it. Generally these folks are doing land contract for a reason and do not have perfect credit. My thought is to quote 8% and perhaps discount to 7% if the buyer can demonstrate credit worthiness to do so. Our underlying note from the bank is at 5.1%.

Josh Sterling

Investor from Southgate, Michigan

May 29 '11, 12:31 PM

Hi Kevin,
8% sounds reasonable to me. We purchased a property on land contract last fall at 9% with 40% down, but it was priced way below market so we were happy to agree to the terms.

I'm in Wayne county also, what city is the property in? We might even have an interest in it. PM me if you'd like.


Bill Gulley

Investor, Entrepreneur, Educator from Springfield, Missouri

May 29 '11, 09:30 PM

8% is very reasonable, most contracts have been at 10%. You have two ends of the spectrum, on the high end, you have usury rates set by state law as the highest amount you can chearge, most are 10%. On the low side you would be concerned about imputed tax rates, too low and the IRS will impute a tax rate that should have been charged.

As mentioned above, rates should reflect the risk involved, but few sellers actually address the issues and just name a rate. 8% is fine!
Talk to a mortgage originator and see when the borrower can refinance, then go about three months beyond that (or longer)as they can't get a loan if they are in default and they need time to get the loan. Failure to do so can present problemsfor the seller too. Good luck

Bill Gulley, General Real Estate Academy (GREA) Training is GREAT Generalrealestateacademy.Com

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