Owner financed land is a smart thing to look out for when buying land. It is beneficial for both the buyer and the seller and has so many advantages. Read on the get the low-down on owner financed land- when to use it, what to beware of and how it can work for you….
For most typical land purchases, it is difficult to get a mortgage or bank lending.
In some cases, banks might lend if the parcel in question is an established multi million dollar business like a successful ranching operation plus a large chunk of land like 1000 acres or more. It becomes worth the banks time to do thorough due diligence if the deal if valued at $500K or more.
There are some construction loans around (eg VA loans) that sometimes will lend on a package of land and home. There is strict criteria on what you can and can’t build. But we have had clients who have worked with them and secured lending for a home/land package.
However if you are looking at alternative off grid living like an earthship home, or passive zero energy home, these may be more tricky to swing by some lenders.
The amounts involved are generally too small.
A bank will not even want to talk to you for any amount less than $50K and many banks require much higher amounts wanting parcels of $100K minimums. A loan of $5K or $10K is not worth the paperwork to them.
Many land deals that we come across at Vacant Land USA range from $5K-$25K and almost certainly will not be financed by a bank.
So what are you to do if you want the land, but you have only managed to save up $4K?
Do you wait another 3-5 years scrimping and saving trying to save up another $10K?
Some people choose to do this.
But for others the wait is too long, the dream becomes out of reach and simply gets shelved. It will become one of those sad items on the list of regrets… “if only I bought land in 2018”.
“I knew that land was the thing to buy in 2018”
Did you buy some then?
So is owner financed land the alternative?
Owner financed land (also called seller financed land) is a genius solution to the problem of lack of finance for land deals.
Basically the owner/the seller of the land becomes the bank and will “loan” you the money. The owner will accept a down payment for the land and allow you to make payments over time to own the land instead of insisting that you pay the full amount upfront.
Effectively you are gaining a loan from the seller instead of the bank.
Here are the nuts and bolts of using seller finance to buy land:
In most cases the buyer deals directly with the seller and most sellers are open to being flexible on the owner financed land deal.
Let’s say property “x” is on the market for $15,500.
You might be interested in it as land for you and your buddies to go hunting on weekends and to keep as a smart investment over time. But you do not have a spare $15K lying around.
So you tell the seller “I can give you $5K now and pay you $500 a month for the next 21 months”.
The seller might say yes.
Or they might come back with a counter offer like: “I will accept $7K down and $1000 a month for the next 9 months”… or some other variation.
Basically it is a negotiation. You work it out between you to try to strike a fair deal.
Imagine the above scenario where you have saved $5K but the purchase price is $15,500.
What if you come across 3 properties you are interested in buying? So now you need to find $40K-$50K.
It is still unlikely you can borrow this from a bank. However you may be able to strike an owner financed land deal to purchase all three at once.
You might be able to get a few thousand from friends or family but what about the rest?
You could forego your expensive lattes each morning but even then, by the time you have saved up, prices will have risen anyway and that deal will be gone.
It is better to ask if the owners will consider an owner financed land deal.
For example perhaps you offer each owner $1K down on each property with $750 a month for x months.
Some sellers will accept this, others will not.
Some may want a bigger down payment or higher monthly payments or impose a higher interest rate.
But if you can work out an owner financed land deal with each of them, (and provided you can afford the repayments) this gives you ownership over 3 parcels rather than just one. You can see how owner financed land deals are very attractive. In some cases you may want the land for your own recreation. In some cases you may want to land to do a project. For example maybe you wish to by 40 acres, and subdivide it into 4 x 10 acre parcels, then sell 3 parcels for a profit and keep one for yourself.
Some owners may allow you use the land while you are paying off the owner finance land deal, others will insists 50%-75% is paid off before construction. Most land owners will allow you to make plans, get approvals, perhaps install septic and water while you are paying off the land.
Owner financed land deals have many more advantages. Here are some of them:
Generally, properties on the MLS and through realtors will be cash deals( though there are some exceptions). Generally you have a better chance of finding owner financed deals when you are looking at land for sale by owner. You might find these through searching places like Craigslist, you come across home made signs on the property itself or you might find them on buy vacant land specialist sites like ours.
Even though you may be able to use the land right away,it is likely that you will not be able to build on it immediately. Many sellers insist that you have paid 75%-100% of the property before you build. If you build a partial structure, then walk away, the seller does not want to have to pay to have your debris removed. Wait until you own it in full before erecting structures and make sure you have all the correct county permissions.
Many counties (who issue the building permits) will want to see the land in your name before building permits are granted. If you are seeking funding from a bank for your building project, the bank will require that the land is in your name also. For your own protection as well, it is best to own the land outright and ensure the deed is in your name before investing hard earned cash in the building project.
The interest rate will be clearly documented on the promissory note. Make sure it is one you can live with and make sure you aim to pay it off as soon as you can
Some loans will make you pay a penalty for paying off the loan early. Check this status so you know in advance. Many owner financed land deals will not have a penalty for early repayment.
For some people this is no problem. But for many people, the last thing they need is more credit checks. Some people have poor credit for a variety of reasons which can stop them getting access to lending of any kind, getting a house, land or a vehicle. Many of these people have money, cash, jobs but they have just poor credit rating for many reasons.
Like any loan, make sure you can afford it before you go ahead with an owner financed land deal. If you run into difficulty later on and default, you will lose the land and all the monies you have paid towards it. You will be signing a legally, enforceable contract. Make sure you do your research and always budget for contingencies.
Some seller financed deals offer low monthly payments but then a ballon payment to pay the final amount in one go. These are more common in property real estate deals where the idea is to seller finance and keep costs low until you can refinance to a different lender. With low value property deals or owner financed land deals that are purely between 2 individuals, there is rarely a balloon payment involved- though it is possible. So always check.
Check if there are any avenues to get private lending. Perhaps you have some family or friends who are happy to loan you $5,000? Perhaps you can get a 0% interest on a credit card for 12 months ( Make sure you pay this off super quick before the 0% term is up). Perhaps you can check out companies like Prosper that crowd source loans. If you are looking for recreational land, perhaps you and your buddies want to buy it together and split the cost.
Yes, all sellers want the full amount now. If a seller has a choice between someone offering the full amount in cash or seller finance drip feeding it a bit at a time, they will accept the full cash payment every time.
So if you know you are in a bidding war on a popular piece of land and there is a lot of interest in it and you really want it, make sure you offer as close to the full amount as you can and you will be more likely to secure it.
In the example above where the land was on offer for $15,500. If one buyer could offer $10K deposit and pay the rest off slowly versus another buyer who could only put $5K down, the owner financed land deal will go to the person who could offer $10K.
Sometimes if you have a lot of cash, you can get better deals or even discounts for paying upfront and moving quickly.
In the example above where the land is on offer for $15,500 on seller finance, you may offer the seller $13K cash as the full amount and get an immediate $2,500K discount on the land. Some sellers will take this, others will hold out for the full amount.
It is all about negotiation.
Asking questions, giving a little bit here and there and trying to get to a place that both parties are happy with. There are many ways to be creative and offer solutions that result in the seller being happy to sell and work with you, and the buyer being happy that they can secure the land they want on the terms they can afford.
In general, owner financed land is a very efficient, very fair way to transact land deals. It allows land deals to be done quickly, fairly and in the interests of both parties.
Remember you can always make an offer and the seller can accept, reject or come back with a counter offer.
Owners do want their money and will typically not agree to a loan for more then 5 years. So it will give you more flexibility than having to fund the deal upfront, but you wont be able to string out the loan over 30 years.
To be fair, many buyers do not want the loan hanging over their head either and are looking to pay it off as soon as possible, get their land in their name and full control of the property.
At Vacant Land USA, most of our land is available owner financed land deals. Check out our current listings here.
We charge zero interest, zero early re-payment penalties and are happy to negotiate with you to find a repayment solution that will work for you. If you find a land parcel you like, please feel free to get in touch or make an offer.
Any questions, please ask: Email Us