Land Contracts/Seller Financing

Looking to purchase homes cash…sell via land contracts. Holding some notes for increased cash flow eliminating some of the cost associated with rentals. Also I like the idea of being able to sell the land contract notes at discount for cash to re-invest. The problem no experience…what to look out for? Is this viable…what approach should I take? I’m targeting lower-end homes $20k and below…sweet spot $12k-$17k minimal repairs needed usually cosmetic. Allow tenant buyer complete paint carpet…some sweat equity. All plumbing,electrical,HVAC will be operable no issues. The area of purchase will be more bule collar areas were area rents range $700-$850 per month. The goal to find L/C buyers in these areas who would like to purchase homes on L/C with PITI on average $50-$100 cheaper than rent…any insight as to if this is viable and how/where to start would be helpful. Thanks in advance.

Where are you located? If you are near Pittsburgh I can show you what we have done. We buy homes in the $25K range and perform a fairly complete rehab for under $15K. The homes rent in the $1K per month range.

I would not let the homeowner / buyer do anything more than landscape. I am a very skilled remodeler and I don’t even install carpet. Home Depot is too cheap for the service, and everyone thinks they can paint until they get started and the floors, cabinets, apppliances, etc. end up looking like modern frickin art. Not to mention I have watched weeks and weeks go by and stuff never get done.

Good luck with your ventures.

Gridcorp,

I’m buying in Atlanta…thanks for the advice,makes good sense.

Anyone else selling homes via land contracts…anything good-bad to share

With the new rules regarding seller financing in Texas I would imagine that at least here most people have gotten out of the business but i know in other states that this practice is used a lot. I have siblings in Ohio that have purchased their home on a land contract.

You must check your local laws. Land Contracts are considered a full-on transfer of title in California and require a judicial foreclosure in the event of a default. Yes, theoretically you could hold back a Quit Claim Deed from the buyer to oneself, but this likely won’t fly in court.

Meantime, unless you’re buying very, very cheap, putting in very little money, and have very short fuses on your notes and/or high interest rates, you’re going to discover that unseasoned notes are impossible to unload for a profit.

You need to talk with some VERY local, experienced, note brokers/buyers and get their opinions on the note market. The buyer’s credit, his down payment, his interest rate, his payment history, and the LTV of his note all influence how much his note is worth to an investor.

The note buyers I know want an 18% return, and more if the note is not seasoned, or the property is not in a “A” location. I would buy with low resale expectations.

Thanks Javipa…great insight! We are buying cheap…scenario 1: Total cost/purchase/closing/repair=$16k. Land contract sell terms $49000 loan amount @ 10% int 15 year note PITI $659.88. PITI payment is $100-$200 cheaper than area rents…why type of discount on the note will make this attractive? Less say borrower has credit problems/minimal down-payment

I don’t understand your question.

Unless you have a 3-5 year fuse, these notes will be hard to sell.

In a nutshell if there is no Balloon payment in 3-5 years…we will be in a tough spot. I guess my question would be based on the above scenario what would be a typical discount on the note to make attractive? I understand it will be difficult to sell but if we could sell the note…would it be at a 50% discount, 6 months seasoning?

Frankly, I don’t buy/sell discounted notes. I could probably pull out my financial calculator and figure out what the present value would be at an 18% annual return, but that’s what you’ll have to learn to do …or simply put your note terms out for bid, and see what you get offered.

It all comes back to the marketability of the note. I still suggest finding a local note broker to either make an offer, or give you some guidance on how to structure a note to make it profitable for both you and a note buyer.

That’s all I’ve got.

I understand you…thanks