Contract for Deed for a Commercial Property

[Eric Mauricio]

Ok. Let me apologize for my ignorance first since I'm still crawling as a noob. So, there's this commercial property for sale that the owner has owned since the early 90s and he stated he will carry a contract for deed.

Asking Price: $190K

Required Down Payment: $30K

APR: 6%

Loan Term: 20 years

NOI: $15K - $20K per year

The property is a couple hours away from where I live and I do not know how many businesses lease from the building (obviously I will ask). The population's town is about 12K and the location looks to be good with other commercial buildings surrounding it when I checked Google Maps. Looks as if it's just street parking.

Does this look like a potentially good deal? What kind of questions do I need to ask the seller? Appreciate the feedback.

[Christopher Telles]

A contract for deed is a land contract. Essentially the way it works is like this...

The buyer puts forth the agreed to down payment, if any, and then takes possession of the property making monthly payments as per PSA.

The seller retains title to the property until such time as the contract for deed is paid off or their is an earlier payoff per PSA agreement. 

The buyer receives an unrecorded equitable interest in the property. The seller is obligated by contractual law to obide by contract, but s/he still retains legal title.

The economics of this property appear to be fine. As a new real estate investor I'm not sure it's the best real estate transaction to cut your teeth on. There are fairly substantial risks in plunking down $30k without receiving fee simple title.

There are multiple alternative ways to structure this transaction. I'll give you two: negotiate (demand) seller financing with the same down payment and financing terms. Find a financing source that will provide X % on a 1st TD basis with your down payment + the seller carrying a 2nd TD for the remainder. 

Remember you don't have to buy this property. The seller does not have their fingers on your control panel. If s/he isn't agreeable then be comfortable walking from the deal. The goal isn't to make a deal rather the goal should always be to only make a profitable deal. 

If you walk, and unless you're buying on terms favorable to you, I hope you do, then your next deal is a mere hour or two of searching away.

All the best in'16