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NOTE:
Each issue of
LAND RUSH OnLine will bring you
closer and closer to a thorough understanding of owning mountain
land - to a comfort level which can make your mountain land dreams
come true.
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THIS
MONTH'S TOPIC:
"Your
Money or Someone Else's?"
Buy a tract of mountain land and there are three ways you might
choose to pay for the property – cash, bank loan, or owner
financing. Let’s take a look.
First, cash is an alternative – obviously. Although
buyers have historically borrowed from some source to pay for land,
more recent transactions reflect a great increase in cash purchases. It
appears that many buyers now feel their cash resources are more
profitably invested in land than in the stock market. Tired
of being pummeled by stock losses or squeezing out 1-2% returns
on their CDs, land buyers want their money placed into a solid
investment they can see, feel, touch, and enjoy.
Buyers may also choose to borrow from a traditional lender – a
bank. Because unimproved land carries some amount of risk
to the bank, these lenders usually require about 30% down with
the balance payable over no more than 10-15 years. Current
rates seem to be in the 6-8% range depending on the lender.
Bank loans also carry with them certain expenses. The lender
may charge for an appraisal, credit report, a loan origination
fee (about 1% of the loan amount), plus closing costs such as title
search, title insurance, and recording fees. The lender may
also require a survey – always a good idea anyway.
Banks usually require a financial statement, employment verification,
and debt information to determine the buyer’s ability to
repay the loan. In other words, when borrowing from a bank,
you must “qualify” under their terms.
Finally, you may choose to ask the seller to be the bank. Instead
of borrowing money from the bank, thereby providing the seller
with cash payment for the property, you simply ask the seller to
do the financing. Here’s how that might work:
Let’s say you want to purchase a $200,000 property. You
have about $50,000 in cash to invest as a downpayment, leaving
$150,000 unpaid. You can make your purchase offer based on
the seller financing the $150,000 over some reasonable length of
time, secured by a note and deed of trust (just like the bank would
do).
Keep in mind that sellers who are willing to finance do not want
to wait 20 years to receive their money. They agree to finance
in order to make your purchase decision easier. They don’t
require all the background checks like a bank, nor do they charge
all the fees you will encounter with a bank. In fact, seller
financing is very simple. You simply say, “Will you
do thus and such?” and they reply, “Yes.” (or
occasionally “No.”).
The most likely format for such financing might go like this: You
offer to pay $50,000 down with the balance of $150,000 payable
based on a 10, 15, or even 20 year amortization schedule at some
acceptable rate of interest. You also include the stipulation
that a “balloon” payment will be made at the end of
5-7 years. This means that although the payments are structured
as though it were a 10,15, or 20-year loan, in fact the entire
remaining balance is due and payable at the end of the 5-7 year
period.
Now, before you panic, consider the benefits. You are able
to buy land now, with payments spread out over a long period of
time. You have no extraneous costs, no qualifying, no unreasonable
paperwork. At some time within the 5-7 year period, you’re
going to decide exactly what you will do with the property, i.e.
build a home or cabin. When you do, chances are you will
get bank financing at that time and pay off the seller’s
note anyway. In effect, this type of financing allows you
to purchase the property you want, have reasonably economical payments,
and have 5-7 years to make other plans.
To the seller, this type of arrangement accomplishes three benefits. First,
the property is sold. Second, receiving payments over time
may spread the seller’s tax liability. Finally, the
sellers know they will receive all their money from the sale in
a reasonably short period of time.
Although not all sellers are willing or able to finance their
property, many will. Our company encourages seller financing,
and many of our property owners agree to do so. If financing
is important to your land purchase, tell us. We’ll
do everything possible to structure a purchase to meet your requirements.
Best regards,
Paul Christian Breden, Broker
The purpose of Land Rush is to educate and inform
you in such a way that, once you arrive here in the mountains,
you'll be prepared to make your purchase. If you haven't
already, please – before you come - take time to download
our buyer's
guide – “Carolina Dreaming” - from our website.
It's short, easy to read, and will provide you with the
basic information needed to make your trip a roaring success.
For your free copy, go to:
www.ncmountainland.net/manualdesc.html
Ready to come to the mountains? Call us at all reasonable
hours, seven days a week, at 800/849-9225. Ask for David, Chris
or Paul and we'll set up a time and place convenient for you. We'll
take whatever time is required to help make your land ownership
dreams come true!
ARCHIVE:
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BUYERS CHECKLIST:
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LAND
BUY OF THE MONTH!
50.05± Acres!
Wilkes County
Elevations up 1,800+
Ridges & Hollows
South Facing Slope
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