Full Rehab - Land Contract

6 Replies

I identified a property off-market through a relative that I want to do a BRRR on. Given that it's family, the purchase price is reasonable and the property has been vacant a while and is in rough shape, so it needs a full gut rehab. Family member also isn't looking to get cash quick since she's already been sitting on the vacant property for awhile so I talked her into doing a seller financing/land contract.
She agreed to a cheap 18-month interest only @ 6% per annum that will convert to a 10yr amortized loan at 8% with a 3.5 year balloon that I plan to cashout refi right after the interest only period.

The only reason I was looking to do the land contract was to keep my cash for contingency/having on hand to buy more property while I rehab this one.

However, she started asking some questions and it's causing me to rethink a little. Has anyone else done full rehabs on a seller financing deal or is there a different way I should try to structure this in an attempt to protect myself and keep cash on hand to continue scaling?

I assume your family member and you are on good terms so this should go-over pretty easily. I see no issue having a RE attorney draft up an agreed upon land contract or 1st position mortgage (assuming free and clear) that is favorable to both parties if she is ok with no/low down payment and the terms you proposed.  Having stuff filed at county and allowing you to progress with rehab (barring and city or state specific details) would work just fine in my opinion. good luck @Jonathan Mason

@Jonathan Mason I would Never do a rehab on a land contract deal….you don’t own it yet and 20 different things could go wrong. 
On a straight up seller finance where you get title, and the seller gets a mtg….no problem. 

Originally posted by @Wayne Brooks :

@Jonathan Mason I would Never do a rehab on a land contract deal….you don’t own it yet and 20 different things could go wrong. 
On a straight up seller finance where you get title, and the seller gets a mtg….no problem. 

 So that's essentially what I was thinking and realizing. I guess the confusing part is when I described what I want to do my attorney just immediately said land contract. What is the difference between other forms of seller financing and doing a land contract when the seller owns the property outright, no liens or mortgages?

Originally posted by @Wayne Brooks :

@Jonathan Mason The difference is in a land contract the seller still has title which is the issue. He could change his mind, get judgments/liens against him and the property, all sorts of other possibilities. 

 Got it and yes this is essentially my understanding which is why I began questioning moving forward with this structure. So how does a straight up seller finance situation work? No one seems to know what I'm talking about, are you referring to a promissory note and a Deed of Trust situation?

I sent a note to my lawyer, waiting to hear back from him still, but our initial conversation I asked about this and the answer I got was we'll do this as a land contract..

Originally posted by @Jonathan Mason :
Originally posted by @Wayne Brooks:

@Jonathan Mason The difference is in a land contract the seller still has title which is the issue. He could change his mind, get judgments/liens against him and the property, all sorts of other possibilities. 

 Got it and yes this is essentially my understanding which is why I began questioning moving forward with this structure. So how does a straight up seller finance situation work? No one seems to know what I'm talking about, are you referring to a promissory note and a Deed of Trust situation?

I sent a note to my lawyer, waiting to hear back from him still, but our initial conversation I asked about this and the answer I got was we'll do this as a land contract..

Yes, title passes to you, the seller gets a Note and Deed of Trust.