Lease Option or Seller Finance Vacant Land!!!

11 Replies

I currently have another vacant land under contract for $35,500.  ( I am trying to wholesale the land).  I received an offer from a buyer to purchase the land.  He says he has good credit but his debt to income ratio is to high.  (He owns Rental Properties).  He said he can put $20,000 down on the property. 

It sounds a lot like I could do seller finance or lease option on the land.  But I am not sure how I would structure this with vacant land.  Also the owner owns the vacant land outright!

Has anyone on BP structured a creative finance deal on vacant land?

@Seth Williams - Could you add any thoughts on how you would structure a deal like this?  I know on the podcast you said you have not gotten into wholesaling vacant land, but have you ever structured a creative finance deal as the seller?

So you have the property under contract for $35K.  What's your sell price to the buyer with $20K down? It is possible to create a note on your buy and then resell, but there has to be enough of a spread to make it worthwhile.  

I actually put the vacant land under contract for 25,500.  My sell price to my buyers I started off at $35,500.  I had one buyer express interest but he does not have all $35,000 to pay for it in cash but he said he could pay $20,000 for it cash.  So without going back to the seller and asking her to drop the sell price, I first wanted turn this into a creative financing deal of some sort like you would an actual property.

Originally posted by @Jermaine HILL :

I actually put the vacant land under contract for 25,500.  My sell price to my buyers I started off at $35,500.  I had one buyer express interest but he does not have all $35,000 to pay for it in cash but he said he could pay $20,000 for it cash.  So without going back to the seller and asking her to drop the sell price, I first wanted turn this into a creative financing deal of some sort like you would an actual property.

If it were me I'd find a way to close with the seller with my own funds or short term bridge funds.  Then resell, taking $20K down and a $15k note with 5 year terms.  

@ K. Marie Poe I love the note idea!  Thanks!  Could there be a way to structure this deal were I am not tied down multiple years?

Originally posted by @Jermaine HILL :

@ K. Marie Poe I love the note idea!  Thanks!  Could there be a way to structure this deal were I am not tied down multiple years?

  1. Well, yeah.  Structure the note so the buyer/borrower pays off in less time.  If it were me, I'd focus first on how you are going to get your seller paid the $25,500.00 you went into contract for.  You owe $25K and your buyer has a $20K cash down.  What's your plan?

My plan was to wholesale the deal.  But I realize quickly every lead that comes through A are pretty good leads but, not necessarily whole deals.  I will take your advice @K. Marie Poe and try to see how I can first cash out the seller! Once I figure this portion out this should make closing the deal easier. Thanks a lot for your advice!!

Anytime you think seller financing, the first question is; Does Dodd Frank apply? The original Act includes lots or raw land that may have a residential dwelling built on it.

Next, valuation of land is still done from comparable sales, the fact that no house is on it isn't really an issue structuring the deal.

Next issue, in seller financing, has to consider predatory lending matters, like it or not, you don't get to set any terms you like. You said the buyer has cash, but his debt ratios are too high to obtain a loan. I understand investors wrenching their hands wanting to get their hands on some potential buyer's money, but you need to consider whether or not you have a qualified buyer, while this has been beaten to death on BP, some refuse to get it.

Another matter as to predatory dealing and lending, is selling at an inflated value. I don't know if the property is actually worth 35K and you're getting a great deal or if you're buying close to the true value and simply adding an arbitrary amount of 10K on top. Since your initial concern was in arriving at value I assume you simply added 10K out of the blue. Finding some idiot to pay a significant amount over market value is not a reason to sell at a significantly higher price. You're sales price is 40% over your buying price, if the value is close to what you're paying, the increase is predatory dealing. Small money amounts of a sale price have nothing to do with inflated sales pricing, 25K or 250K, the issue is the same.

For the sake of argument, let's say you are getting a great deal at a distressed value and that you are selling near a reasonable market value. Let's assume too, that the buyer thinks his ratios are high, but he can afford say, $188 a month (that's 10K fully amortized over 60 months). You could buy and have the owner carry back 5K to you, at 5% for 25 months. You could then use the 20K to buy and sell subject to the first mortgage. There can be different combinations here as to amounts, but this way you'd be entitled to all the payments after the 25th payment. Your note on the sub-2 should be as a second, not a wrap  adding interest as has been suggest on BP, but the underlying mortgage paid under agreement. You can play with your calculator keeping more of the 20K and financing with the owner and taking less under your buyer's payment schedule. Understand that you're responsible to the owner lending side and the delivery of good title.

Actually, that is risky and not worth the brain damage IMO.

I don't think you have a buyer. I'd bet the buyer is actually making an offer at 20K and simply saying he can't borrow to provide any more and if he does, would want you to carry it. 20K doesn't cut it for you.

I might consider being less greedy in avoiding some prolonged transaction and using an option at 25K, and flipping the option to your buyer for 5K. You could give the owner $2,500 and flip the contract at $7,500 and your buyer still gets a better deal.

Don't know the motivations of the owner staying on title.

I'd also consider simply taking 30K cash if the buyer could come up with the additional cash prior to your contract expiring, that may give him more motivation to find some more money.

Seller finance can not be entered into with some flipped attitude anymore. You can go at it like people did ten yeas ago and it might work out and do anything you can dream up, but if it fails and a borrower raises issues about getting messed over in a myriad of ways, there are consequences for you. The consequences can be far greater than 10K. The difference is too, that messing around in small amounts as you are, is that solutions might be a bit easier to find as opposed to pulling a deal off at $250 K. :)  

@Bill G.  I have been targeting motivated sellers who own Vacant Land.  The assessed value of the land is $62,500. I verified this by looking up the parcel number through the county and calling and verifying if the assessed value was correct. I did a purchase agreement contract for $25,500 and was going to assign it for $10,000.  I presented it to my buyers first but only one wanted to work out a deal.  So I am trying to see if I can do some creative finance before going to the seller to reduce the price and before the contract expires. I agree with you I don't know if if I really have  buyer, but I want to make sure!

I like the flipping the option at $25,000 but want to make sure I am understanding it.  Could you break it down a little bit on how you would structure the deal without a prolonged transaction? Thanks!

Originally posted by @Bill Gulley :

I don't think you have a buyer. I'd bet the buyer is actually making an offer at 20K and simply saying he can't borrow to provide any more and if he does, would want you to carry it. 20K doesn't cut it for you.

I might consider being less greedy in avoiding some prolonged transaction and using an option at 25K, and flipping the option to your buyer for 5K. You could give the owner $2,500 and flip the contract at $7,500 and your buyer still gets a better deal.

In my areas, there are quite a few legit buyers who make offers like this.  They'll take all their cash and put it towards the purchase and ask for payments on the rest.  They really want to buy it, and they really are ok with the asking price. They are not playing games.  They often own cash business or are paid in cash and are diligent about putting cash toward their investments.  Leverage isn't their angle.  They just want to buy what they can and pay it off a quickly as they can.  Give them a 5 year note, they'll pay you off in a year.  I never use prepayment penalties, but there is not a lot of interest to be made on these buyers.

Pretty sure the OP would be challenged to get an option to buy from the seller at this point.  He's in contract to buy.  Going back, canceling the contract and negotiating an option at the same price would take some smooth talking.  

@K. Marie Poe You are absolutely right!  I tried to ask the seller would she be interested in reducing the price or consider a lease option or seller finance early today and she politely said no.  She is looking at it like hey its already $37,000 below assessment why would I go down any lower.  So you are right I still have to find some way to at least close on the seller first. Luckly I have another guy scheduled to look at the land tomorrow.  Hopefully I can work out a cash deal with him.

Didn't imply the buyer wasn't legit, I agree KP we have the same types of buyers here, some on the edge. Issue is, your buyer goes bankrupt, an attorney combs through everything and starts blaming others for his client's demise, if the parties are in agreement and all goes well, predatory won't be an issue, it's a risk of the deal. Now knowing it is under assessment, it sounds like a great buy!

Go get a credit card, second on your place, hock your watch, title loan shark, I'd say dig up 5K! Then carry back your 10K.

Don't know what the minimum loan amount can be for a mortgage in your state, you could assign the contract allow him to buy, loan him 5K along with your 10K assignment fee and take a first from a lender's position. Lots of options, just need to find 5K somewhere.  Good luck!  :)

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