Analyze: Fix up and sell on 10yr land contract.

[Darius Davis]

Hello all,

I'm structuring a deal and would like some insights and point of views. Please share with me your thoughts, first impressions, pro's/con's, and advice regarding pitfalls.

The home is in a rural area in the midwest. County has 115k residents, city has 600 residents. There is a small city 15 miles in either direction.  Employment opportunities in the county are ample with trucking, manufacturing, and a government facility all nearby. Town is directly on major interstate.

Details:

PP- 7000

Closing Costs- 2000

Back taxes- 3100

Inspection- 210

Repairs- 15,000

ALL IN- 27,310

ARV- 55,000 (Conservative estimate, I'm having a problem with ARV, since no comp sales have made in past 180 days. Current listings are 69-80k, but include basements and garage. There are a dozen plazes for sale in this small area.)

Local rents are 600-800/mo for a 3/1.

I've identified an interested buyer wanting a land contract.  This is of interest to me because of the obvious lack of sales volume in the area. As this my first deal in 5 years, I was hoping to identify a fix and flip to build some cash reserves, but a flip in this rural area could be hard since there are already a dozen homes for sale within town limits.

Here is my specific query: considering that this is a rural area and property management is seemingly a bit hard to come by, I am very interested in doing a land contract.  While I don't get the quick cash injection that I could make from selling at or a lesser price than the other dozen (12) homes in this small town, I could still make a sale and reduce my management need.

I would ordinarily do this contract with a typical 3-5 year balloon, but in order to satisfy cash flow desires, ease of management duties, and to make home ownership achievable for this couple, I am considering these terms instead:

Sale price of $55000.

Interest @ 10% amortized at 10years.

Payment Term 10 Years.

Result: 120 payments of $727 = $87,219.  

I would increase each monthly payment to include 1/12 taxes and home insurance, to be paid out of a non-interest bearing escrow account. I would consider adding a few extra months to the term to keep payment as close to $725 as possible.

Buyers receive a gov't issued check that clears housing payment and are willing to do automatic withdrawals. They have been in current residence for 5 years.

I absolutely plan to use a lawyer to draft docs and plan to record with the state. Contracts are permissible in the subject property state, also I'd structure deal as such so that any default results in forfeiture of property and any payments made are considered merely as rent payments.

So, let me know your thoughts BP. I look forward to your responses.

Cheers,

Darius

Some additional questions you may be able to answer:

Is 10 years too long? Aside from default This is an all cash deal, so the cash flow would be amazing to have.

What should I consider if I wanted to cash-out and carry a conventional loan? Is HELOC and option?