2) Buying Land with Owner Financing
A buyer who purchases land through owner financing essentially uses the seller as a “bank,” making payments over time to cover the cost of the property. If the buyer fails to pay, the seller can foreclose on the property.
- Poor credit is not a problem : Buyers who are most attracted to this form of payment have poor credit, thus receiving a traditional loan may be difficult if not impossible. “The buyer can get into a land purchase with a lot less money upfront,” explains Weidenhaft. “In most cases, if you’ve got the down payment, you qualify.”
- Down payments are typically lower than banks would require: Reneau says they’re usually between 5 and 10%.
- For the seller, it ensures regular payments: Assuming the buyer makes reliable payments, the seller can count on a steady income over the life of the financing, which is attractive to some sellers.
- For the seller, there can be a higher return: “Generally speaking, the interest rate the buyer will be paying is much higher than what the seller would earn with another investment, such as a CD [or, Certificate of Deposit],” Weidenhaft says.
Cons of buying land with Owner Financing :
- Higher interest rates : In exchange for taking on the risk of owner financing, sellers charge higher interest rates, ultimately collecting more on the property than they would have with alternate forms of payment. “We’ve seen, in the end, it’s usually a lot more costly than if the buyers had saved the money or gotten their credit scores up instead,” Reneau says.