IS OWNER FINANCING LAND A GOOD IDEA?
A lot of real estate investors owner finance their properties, but is owner financing land a good idea? Does this strategy work just as well for vacant land?
Today I’m going to discuss your question, “Is owner financing land a good idea?”
In my opinion, owner financing is a good idea, and before we finish, I’ll give you an example.
There are many instances when the profit from the owner financing will exceed the profit on the land sale.
Why that happens is probably just one of your questions. There are many answers, and they are all positive.
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IS OWNER FINANCING LAND A GOOD IDEA? – LAND OWNERSHIP
I’ll start with the idea that almost everyone has wanted to own land at one time or another during their lifetime.
Thousands of individuals purchase land, and sometimes they subdivide the land and make it into different and unique parcels that they like to sell for profit.
They are able to sell with small ads in local newspapers as well as online via the many electronic internet marketplaces.
IS OWNER FINANCING LAND A GOOD IDEA? – FINANCING
Financing is really an element of the sale. People see the land as an investment in the future, and land is affordable for young people compared to expensive real estate.
If the seller offers financing at the time of the sale, many buyers will take action.
IS OWNER FINANCING LAND A GOOD IDEA? – FICO SCORES
Some of those buyers will have questionable credit reports and FICO scores. However, they will apply and many sellers will accept installments from these credit-challenged buyers.
Real estate on the land is a whole other ball game that requires a lot more money and a lot more detailed information about the real estate.
In many cases, home inspections, appraisals and surveys may be required. You’re getting the idea.
IS OWNER FINANCING LAND A GOOD IDEA? – TITLE
Purchasing land may require a survey and a title company to investigate if the title is clear of other liens.
The county will require written documentation, and title companies are prepared to provide that documentation. Of course, an attorney could do the same.
IS OWNER FINANCING LAND A GOOD IDEA? – SUBDIVIDING LAND
Today I’m answering the question, “Is owner financing land a good idea?” and my answer is I believe so because land can be subdivided.
A surveyor could create maps, usually called plat maps. Those could be accepted and approved by a local county, then many smaller lots could be sold using seller financing.
Subdividing opens up a whole new business. However, approvals and inspections are required, and zoning must be approved.
IS OWNER FINANCING LAND A GOOD IDEA? – A WIN-WIN DEAL
Is owner financing land a good idea? Most will say yes. It’s another income source if you are the seller.
If you are the buyer, you’re getting full value of the land, though you’re probably only paying a small down payment and small monthly installments. However, the full value of the property will be appreciating.
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IS OWNER FINANCING LAND A GOOD IDEA? – TAX LIENS AND TAX DEEDS
For the past 30 years, I’ve been involved in the business of tax lien and tax deed properties.
These are properties that a previous owner has walked away from. They’ve decided they don’t want the property, and they neglect or refuse to pay property taxes.
Local county governments are authorized by the state legislature to mandate the treasurer of the county, under the supervision of the board of supervisors or county commissioners, confiscate property for unpaid property taxes.
The county government is authorized to levy taxes, attempt to collect taxes, and if still unpaid, the treasurer will confiscate the property and evict anyone on the property.
IS OWNER FINANCING LAND A GOOD IDEA? – TAX DEFAULTED PROPERTY AUCTIONS
These tax delinquent properties are sold at public auctions to the highest bidder for pennies on the dollar.
As many as 25% of the auction properties are vacant land, although some are residential vacant lots.
Most auction bidders want houses which are bid considerably higher than the residential buildable lots.
IS OWNER FINANCING LAND A GOOD IDEA? – AN EXAMPLE
Is owner financing a good idea? See for yourself. Here’s an example. My student purchased a large piece of land at a tax defaulted auction for $6,000. It was zoned for residential homes.
A short time later, the county installed a water main from downtown past this residential property. This improvement increased the property value.
The local county tax assessor valued the property at $23,000.
My student placed a rather ugly, low-priced, handwritten for sale sign on the property. The for sale sign also included the words ”installment sale available” and “seller financing available.”
A number of people inquired, however none of them made an offer.
IS OWNER FINANCING LAND A GOOD IDEA? – SELLER FINANCING DEAL
Almost one year later, a buyer appeared requesting financing. A deal was reached with no negotiation to lower the price. In other words, a full price sale.
Down payment: $5,000
Installment payments over 10 years term: $200 per month.
The low down payment allowed the buyer to build a new home on the property. This also increased the value of the property along with the land. Utilities and water were at the front of the property.
IS OWNER FINANCING LAND A GOOD IDEA? – PROFIT
Here’s the math.
A $200 monthly payment x 12 months = $2,400.
The buyer now has financing and must pay $2,400 each year plus taxes and insurance.
The total money received by the student is 120 months x $200 = $24,000. Add the $5,000 down payment back into the equation.
Total received payments and down payment = $29,000
The student only invested $6,000.
CONCLUSION
We hope you enjoyed Ted’s lesson, “Is Owner Financing Land a Good Idea?”
There is a market for land, particularly for young people since it’s more affordable.
There’s also a huge demographic of buyers interested in purchasing property via owner financing because their credit scores don’t enable them to get bank financing. Additionally, banks are reluctant to finance vacant land.
As a seller, you can profit from owner financing land, especially if you know where to purchase land at a deep discount.
At tax defaulted auctions, you can buy property for 10, 20, or 30 cents on the dollar of the assessed value.
About 25% of the properties at the auction will be vacant land, and most bidders are there to purchase homes rather than land. So there are great deals to be found.
Once you’ve purchased your land at the auction for pennies on the dollar, you’ve got a large profit margin to work with. This enables you to sell at a discount for a quick sale to generate cash flow fast, or provide owner financing to receive an income stream for years!
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