Land owner financing is typically less common for a financial institution. But, it plays a major role in the investment real estate market. One of its most prevalent uses is for buyers or properties that might not receive financing through traditional means.
What are the Requirements?
Most owners require some security in return for land owner financing. Hartsel buyers should be ready to put at least 10 percent down. However, some sellers will require down payments more in line with what local banks often require. In addition, you should be ready to provide some personal financial information.
What are the Benefits?
One of the benefits for both parties is that it allows both to find terms that work well for them. One popular option is interest-only financing, which reduces the payment amount, which is to the buyer’s benefit, while also deferring principal payments, which lets the owner defer paying capital gains taxes. Owners also can offer amortizing financing at terms that allow for fast payoff, such as 15-year term loans, or for payments over a long period.
What are the Drawbacks for Borrowers?
Because you are not using a bank, you do not need to meet a bank’s standards. Although this can help you to buy a property you otherwise could not buy, it also means you are buying something for which a bank would not issue a loan. This could mean you are making a mistake. As such, it is important that you do your due diligence to ensure you are making a solid investment.
Drawbacks for Owners
One major risk is that instead of getting a lump sum of cash, you get a promise of a string of payments extending for years into the future. In addition to this risk, even if the buyer can make the payments, you take the risk that he may choose to stop making them at any time. Given that the value of land tends to be volatile, the risk of the buyer walking away from the land is highest when its value is lowest, putting you in the position of taking the land back when it is worth significantly less. For more detail visit Avannah Properties. You can also connect with them on Facebook.
