Southeast Michigan · Member since 2018 · 16 posts · 2 votes
I am looking at my first "large" real estate investment. I have a seller who wants to sell 3 duplexes at 140K each where I would buy outright... finance with a bank either separately or all together on a commercial loan and 2 duplexes at 25K down at 5.5% for twenty years where he wants to do a land contract. Each duplex brings in about $1650 gross a month. The numbers look good but I am nervous I am missing something. I don't know much about land contracts and what would happen if something should happen to him/ or his loan. After running the figures it appears the whole $700k purchase of all 5 duplexes would cashflow $23K a year. Is there something I need to know before I get into a land contract? Running the numbers through biggerpockets calculator looks even better than the proforma he has given me. Has anyone dealt with a deal like this?
@Leah Roberts I am not a lawyer but my understanding is a land contract title does not transfer until all payments are made. If the owner gets in trouble with the IRS and they put a lien on the property they are still the owners and you would not get clear title. I think a promissory note secured by the property would then transfer title to you and they would have a note secured by the property.
@Leah Roberts I am not a lawyer but my understanding is a land contract title does not transfer until all payments are made. If the owner gets in trouble with the IRS and they put a lien on the property they are still the owners and you would not get clear title. I think a promissory note secured by the property would then transfer title to you and they would have a note secured by the property.
Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
7y
@Leah Roberts Congrats on finding a workable deal! Regardless of what anyone tells you here you need to hire a lawyer for this deal. Someone you pay who is acting solely on your behalf here. All the best!
Southeast Michigan · Member since 2018 · 16 posts · 2 votes
7y
Thank you for your insights. I will have a lawyer take a look at the land contract. The land contract definitely helps in financing for me but I want to make sure that it doesn't come back on me in the future.
Southeast Michigan · Member since 2018 · 16 posts · 2 votes
7y
@Anthony Wick I am working on financing the other part with the bank. The terms with the seller is he is selling at 280k with 25k down (less than 10% down) leaving me with 255 left at a 5.5% 20 year pay down term. The seller originally wanted to sell all 5 duplexes on a land contract with an asking price of 775k 20 year paydown at 6.5%. I think he wants to lock in some mailbox money as he just retired and wants to move out of state.
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
7y
@Leah Roberts
The 20 year amortization is a tough one, especially at 10% down. Hard to have cash flow. Any early penalties for payoff on this deal? I like the idea of 3-5 year balloon with no early penalty.
Southeast Michigan · Member since 2018 · 16 posts · 2 votes
7y
@Anthony Wick the seller said I could do a buy out 10 year buy out at a small premium if I was interested.... looking at this and breaking it down it seems to me I would be taking a hit on the two duplexes that would be under a land contract and would be making up for it with the ones financed conventionally..... If your willing I have the pro forma I can send you...