Let’s Talk About Owner Financing of Raw Land – Miyagi Mornings Epi-127

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I am not going to say not to do this, I am going to say it should in most cases be your last resort not your first choice. I am also going to come at this from a stand point I have never heard anyone do before. I am going to put myself into the position of being the land owner you want to buy from, and tell you how I would view this and how I would right the contract to benefit me, not you. Then you can understand what to look out for, and what to negotiate if you end up doing this.

Some Advantages of Owner Financing for the Buyer…

Generally Anyone with a Down Payment is Approved, that’s it any other advantage comes back to this.

Some Disadvantages for the Buyer…

Interest rates are higher
Term of loan is generally short 5-10 years vs. 15-30
Almost all have ballon payments
Many have “penalties” for early pay off
The number of available property is much smaller
Terms of foreclosure are generally faster then a conventional loan
Often owners are employing certain strategies and don’t want early pay offs, etc. and hence don’t want to negotiate

In short you should only buy this way if you can clearly articulate the advantage or you have no other option. When you do this right this can work well in a few situations….

You are a “raw land flipper” who comes in and makes land more desirable, markets it and sells it rather quickly.
You are going to build a home on the land that will qualify for a mortgage and will be refinancable for said purpose or after the build is complete.
The land is relatively low cost and you are fine with the real price (what you pay) vs. the stated sale price and it fits your long term plans.

All it this falls under it isn’t always bad but it is bad more often then it is good. In the end once you have a contract in hand it absolutely should be reviewed by a real estate attorney to make sure it means what you think it means and always remember laws and terms differ widely by state. What is true in Texas may not be true in Oregon, etc. Finally nothing in the video today is legal or financial advice, just how I personally view this concept and what I would watch out for if I chose to use it myself.