fergyr

any chance of having the ideas/suggestions posted for others? I'm trying to planfor the sale of my parents property...its tricky since I'm trying to plan for something in which the answers can't be currently known (i.e. elderly parents). I don't know how much to save nor do I know when I need to have it saved by.
Thanks - Randy

bawanajim

I'm always looking if you care to forward that info.

Thanks ,Jim

GR8atta2d

I don't know that it's confidential..but since it was sent to me via PM..If Bow Hnt doesn't mind..I'd post it

But i'd need his Ok..it's just common courtesy.

gamespooker

why can't you mortgage vacant land? I'm not to familiar with practices in the north, but i just bought a place in georgia and financed vacant land for 20 years.

Double Creek

Exactly, same here.. Not sure where Charlie P got that from....

GR8atta2d

I dunno either..You can it's just a bigger downpayment and shorter terms from what i'm learning.

huntfishwrestle

I put $15,000 on a credit card for 4.9 percent for the life of the loan when I split some land with my brothers. Much better than the 9 percent the local banks were offering.

BOW HNT

Hey guys - here is the info

As far as financing options there are numerous – in my neck of the woods we typically are dealing with ag land and CRP may enter into the mix. Otherwise crop ground or hay ground can lead to a revenue source to assist with the payments.

As stated – 30-35% down for recreation ground is the typical norm that I see from most banks. Depending on the individual bank/banker relationship there may be opportunities to finance the down payment as well; however, with the sub prime loan problems that are being encountered nationally I anticipate there will be much more scrutiny across all real estate backed loans.

For rec or commercial real estate, 5 year loans are typically the norm, but I have seen and arranged some 3 extensions on a 5 year fixed loans (each 5 year note is fixed rate with caps on the increase between notes) based on a 20 year amortization.

Seller financing can be valuable for both sides. From the owners standpoint they get to spread the gain for tax, may get an interest rate premium and if defaulted will get the property back. From the buyers standpoint, possibly a lowered down payment, possible better repayment terms from the standpoint of fixed rate and lengthened timeframe, but may have to concede a little on the interest rate. Also there may typically not be as much red tape, paperwork and all that stuff.

Retirement plans can also be a source of funds. Although land ownership in qualified plans is quite difficult, has tons of pitfalls and I would not recommend at all (have looked at this option extensively for clients and also for myself) there is typically a provision within most 401(k) plans for participant loans. Typically the loan provisions allow for 50% of the account to a maximum of $50,000 as a plan loan. Typical repayment provisions are for a market rate of interest (typically prime) and 5 year repayment timeframe unless it is for a primary residence (15 year for that).

The business route can greatly assist in cash flow regardless of the financing options. I would not suggest purchasing the land in a corporation – LLC’s are a much better entity to own real estate. There are cost involved with setting up the LLC and ongoing annual costs to really optimize (multi member LLC would file a partnership tax return and would want to make sure there are annual minutes etc.) A solid business purpose is a must along with something that will be able to show income and good record keeping which would include a separate bank account for the entity. Additionally most banks would allow the real estate to be held by an LLC (would typically require a personal guarantee from the owners or members of the LLC).

Another option would be to look to a possibly split or share the property with a close friend or relative. This can be the best thing in the world or it can be the worst thing in the world (and typically is one of the two). If this option is utilized, an LLC would be the best thing to hold the property with a well thought out operating agreement that would address exactly what would happen in the case of a disagreement. It is far far better to have everything spelled out when everyone is talking on the front end. Many times on the back end it is too explosive to come to a reasonable solution as feelings are hurt.
An often overlooked source of additional funding for things such as this (not knowing any background etc) is one or two lunches a week. Take a vacation “camping at the farm”. Plant some miniature pumpkins and gourds and sell during the fall.

Insurance – you will need to have liability insurance for sure and depending on the value of the building, may want to have coverage on that as well. Liability is included in the base farm policy and after the base coverage can be increased for a small cost.

Hope this helps – let me know - Mike

LebeauHunter

Lending varies by region, bank style, finance market. Banks will loan you money. They key is
if you don't pay they want to be able to easily get it back. Usually if you aren't developing land,
theycall it a "raw land loan." GR8 is right, there are usually 3 differences from typical home mortgage:

(1) more downpayment - doesn't necessarily have to be 50% as stated, all depends on risk of bank;
(2) higher interest - you are not in the mortgage market, but now tied to prime - so similar rates to HELOC;
(3) shorter terms - I think 10 years is pretty typical. But from what I heard, if you have paid down
a fair amount of principal (again, so the bank feels safe), they would likely refinance it for you down the road.

GR8, also look for ways to get income - mitigation, CRP, quail habitat, farming, timber. That income will
be tax free to the landowner (goes into the basis of your property), and will get you started paying for it.

That's about all I know. Good luck. If the owner is willing to finance it himself, I would definitely
go that route.

Oh yeah, I hear you on the lack of funds - other than my house, I'm not a landowner either.

EDIT: See Bow Hnt's post above, I posted at same time.

Second LLC for liability - just put the property in the LLC.
Also, join QDMA, if I am not mistaken, they have excellent insurance available to members.

isatarak

It's really not all that complicated. The bank will look at your financial situation. If you can make room for a land payment in your budget, if you have a good credit history, if the land will appraise for what you want to pay, and can come up with some money down, it should not be a problem. If you can't do that, you don't want to do it anyway. You would be jeopardizing your financial situation, and supporting your family should come first.

If anything, credit is too easy. People are constantly getting themselves into problems with debt.

My advise would be to lean to the conservative side on debt. You never know when Mr. Murphy will move in with you.