160 ACRES AND BANK ?

[ND]

here's the deal 160 acres- $100,000.
bank gave me this deal- the payment first 5 years- $16-17 thousand. the payment for the years 6 through 30 - $4600. So this is $17,000 x 5 = $85,000. $4600 x 25 = $115,000. That then equals $200,000. So I will be paying $100,000 on interest for a $100,000 loan! He has to do it this way because I don't have enough collateral. My cattle and machinery are payed for now but will be used against the loan for the first 5 years. After 5 years I own cattle and machinery free and clear with all the titles, just like I do now! What is your input on this (not very fair) deal?

 

[Scotty]

First thing is banks want all the security in the world. Sounds like you need a bigger down payment. the deal IMO stinks. I would also say that if you do not already own the cattle and mechinery you will have a hard time paying for it. Cows connot buy land and pay for themselves. And one thing I have experienced is that no matter how many times you crunch the numbers they will never add up. My advice is to wait. I know, it sucks. You feel like you will never get anywere. But it is not true. Be patient. My hardest thing to do also.

 

[ND]

my cattle and machinery are all paid for now. But he will be taking the vehicle titles and using the cows as collateral for the first five years. I do have a pretty good town job. i do know the cattle cycle is on the down swing and that my calves will be not fully responsible for these first five years.

 

[llcupit]

oops!

 

[llcupit]

If I were you, and I know I'm not. I would put that $17,000.00 in the bank for seven years and then pay cash for a piece of land. My grandfather always said paying yourself the interest first would always end up making you more money in the long run. Besides how else do you think the banks pay the CEO's big bucks. JMO!

 

[ND]

another thing i forgot to mention- this land is 5 miles from the home place. the pasture i have been renting is 60 miles away. I have been renting there for 6-7 years and now the owner wants to sell it!

 

[1848]

I think I would do some thinking about how bad I really wanted it, cause it sounds like you could be in line for a hard fall especially if your own family stands to be affected. Unless you have something else to fall back (if you should lose it all to extenduating circumstances) I would not recommend it

I would weigh the pro's and cons or convienence/ inconvienence of leasing vs owning.

I would also take into account if the land can give me return (through crop production, livestock, lumber, hay etc) in the first 5 years, and/or if the land itself will increase in value where it sets in the next 5 (pending development etc).

What are your goals for 5 or 10 years down the road?

Try asking the bank if that each time you made a lump sum payment that the principal of that amount could be used to pay for a portion of the land (equal in value) that you could survey out and get clear title too (probably would need to know the loaner officer real well to get a deal like this because the larger portion of the first few payments will be mostly interest payments). No matter what though, the bank will still get their money back if the property was improved or increased in value in the 5 years...even with you owning a portion outright. That way if you get in a bind you would still own some, and have the right to sell it. Just start the buying from the roadside back (access).

 

[auctionboy]

Can't you refinance after the five years when you have more equity? It would be easier to sell out your stock and use that money to buy the land, if you have enough cows.

 

[Jogeephus]

This is a sucker loan. Heck you are paying the loan off in less than six years and they are trying to lead you to believe you are getting your money for 2.4% which is BS. They don't have to do it this way. Giving your equipment as collateral - why? They got the land don't they? No better collateral than that! I'd go somewhere else, folks you are talking with are not like any ligitimate bankers I know. Seems to me they are charging you around 11.75% for the money and holding land and holding your cows and equipment. BS Is this actually a bank or one of those finance companies?

 

[tom4018]

If you really want it shop around, possibly Farm Credit. Got to make your own decisions about whether or not you want to be in debt.

 

[KenB]

here's the deal 160 acres- $100,000.
bank gave me this deal- the payment first 5 years- $16-17 thousand. the payment for the years 6 through 30 - $4600. So this is $17,000 x 5 = $85,000. $4600 x 25 = $115,000. That then equals $200,000. So I will be paying $100,000 on interest for a $100,000 loan! He has to do it this way because I don't have enough collateral. My cattle and machinery are payed for now but will be used against the loan for the first 5 years. After 5 years I own cattle and machinery free and clear with all the titles, just like I do now! What is your input on this (not very fair) deal?

If you paid $17,000 per year for 8 years at 8% interest it would be paid for.

If you found one bank that would finance it with the terms you mentioned, you should be able to find one that would do it with more reasonable terms.

 

[dun]

Sounds like a sweetheart deal to me, but you aren;t the sweetheart. If the bank holds the paper itself you may be stuck temporarily, if someone else holds the paper, shop around.

dun

 

[Scotty]

I still want to know if the bank is going to finance 100%. No bank I know of will. Mine always wante 15% on notes over 15 years. Less on shorter notes. Pencil it in and if you think you can make it work go for it. Befor you get in trouble take action. Not that you will. Do not miss payments. And 30 years, I agree is too long.

 

[tulsagreenhorn]

What about buying the place that you are renting? If you have been there 7 years it seems like it works for you, have you talked to the owner about that?

 

[mitchwi]

Find another bank that will help you, the majority of your problem is going for 30 years...

Educate yourself a bit, and on-line you can find tons of "calculators" find an amortization calculator. Put in the amount you want to finance, seperate equipment from the land purchase. Try and do the land on 15 years, usually for a small amount additional over a 30 year will save you 10's of thousands of dollars in interest.

Equipment then try some other financing deal, maybe a line of credit on your home you already have for a much lower interest rate, (usually).

Otherwise, as someone noted about saving up the cash first. The only thing I would change, is try to purchase the land now, and save for the equipment, or buy it only as you can pay for it, one piece at a time.

Michele

 

[Alice]

I've gotten real suspicious as I've gotten older. My suspicious mind tell me that this banker has smelled himself a deal he'd like to get in on. If you were to default on the loan, the bank would take it and your collateral, and he could most likely buy it from the bank for cents on the dollar. Like Jogeephus said, there's no reason to have to put up your cattle and machinery for collateral.

I have a hard time trusting slick, young, neiman suit cladded bankers. Do some background checking on the guy who made you this "deal." He's not doing anything illegal, but he sure doesn't sound like to me he's trying to help out his fellow man.

Shop it around...and tell another lender what you've been offered. Watch closely for his/her reaction. And, if you are told the same thing, then wait on it...save up and when you find something else you will have a bit more leverage.

Alice

 

[Running Arrow Bill]

That bank's terms are outrageons!

IMO if I were to try to purchase the land I would not contract for more than 10-15 year note.

Other options: Farm Credit, VA Loan (if you are a Vet), Owner finance, etc.

Bottomline: "Land" is adequate security! It's not going anywhere and will appreciate (not making any more land). I would not allow any lender to encumber my vehicles, equipment, livestock as more "security" for a land purchase. Another issue: Livestock will not pay for the land. Your "day" job could be terminated, downsized, etc. and you could end up losing everything. Many small and medium-sized ranchers have to use "other income" to supplement care and feeding of their livestock: often a break-even and/or playing "musical chairs" with one's money & income for an agricultural lifestyle (priceless!).

 

[bigbull338]

That bank's terms are outrageons!

IMO if I were to try to purchase the land I would not contract for more than 10-15 year note.

Other options: Farm Credit, VA Loan (if you are a Vet), Owner finance, etc.

Bottomline: "Land" is adequate security! It's not going anywhere and will appreciate (not making any more land). I would not allow any lender to encumber my vehicles, equipment, livestock as more "security" for a land purchase. Another issue: Livestock will not pay for the land. Your "day" job could be terminated, downsized, etc. and you could end up losing everything. Many small and medium-sized ranchers have to use "other income" to supplement care and feeding of their livestock: often a break-even and/or playing "musical chairs" with one's money & income for an agricultural lifestyle (priceless!).

ive read this whole thing an something dont set right on the deal.the land for $100,000 isnt bad.but the $100,000 in interest is to high.according to what you say your payments the 1st 5yrs would be $1500 a month for 8yrs.an then $350 a month more or less for 22yrs.if you want that place look for another bank.because they have you hoggtied.if you deal with them make sure you can make the payments without killing yourself.

 

[gberry]

Why don't you sell a few of your cows and use that for a down payment? Find a new bank and use the $7-8000/year that you save by having a down payment to replace the cows you had to sell to come up with the down payment.

 

[TheBullLady]

Not commenting on the deal with the bank.. but someone mentioned putting the $17,000 in the bank and paying cash for the land in.. what, 8 - 10 years? Unfortunately you need to take into consideration what the price on the same property will be in that time frame! Many times the land value is going to go up quicker than the interest rate.

If it's a good deal for you at this time, I'd definately shop around for another lender.