160 ACRES AND BANK ?

[dcara]

I'll play the devils advocate here. BTW - I am not a banker (but try to tell the kids that who often refer to me as the Bank of Dad)

First, buying land almost always requires a 15% or more downpayment. If you have a lender that is not requireing that downpayment then they are going to want something else to ensure that you have a vested interest in the deal (i.e. more collateral). The land itself is not really collateral since if you walked away from it you haven't really lost anything other than the payments you made which were really nothing more than interest on money that you were using anyway. The last thing a financial institution wants is having to go through all the legal costs to forclose on property that they then have to market and deal with themselves. They are in the business of investing money and anything else is a pain in the a$$ that they would prefer not to deal with. As far as the actual numbers go, $100k interest on a $100k loan for 30 years works out to a 5.375% interest rate. That is not a bad interest rate at all for raw land. I know thats not the actual deal but the end numbers are equavelant enough for comparison. In your deal the bank is trying to get enough cash plus collateral out of you up front to get you "vested" in the deal.

The point here is that the bank wants to be certain that you will do everything in your power to complete the deal. Since it would be very unusual for a bank not to require a down payment it seems to me that they are willing to work with you to make this deal happen. So maybe you can offer a counter proposal.

If you can indeed afford the 17k/yr for 5 years then as someone else mentioned earlier just do a straight 8 yr amortization at 5.375% and it would be paid for. The longer the term of the note, the higher the interest rate generally is. So here you are offering them their long term interrest rate (which seems low to me, especially for a bank) on a short term loan. For additional collateral you could offer the livestock. In the worst case, if you couldn't pay for the land due to some personal disaster then you wouldn't have to worry about finding a place for the livestock.

 

[Stocker Steve]

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.

Talk to FSA and shop around. The best deal FOR ME that I have found recently is 7.35% fixed over 20 years with 10% down.

 

[Mo-Joe]

Let's take a closer look at this. I know this sounds like a lot of money, and it is, but if you put pencil to paper it's a little over 8% on the money. Not prime rate, but not out of line either for a purchase like this. I personally don't think I would want to put up my machinery and cattle for the loan, but that is a decision that only he can make.

But let's look at the full picture. You are 60 miles away from your current property. With cattle you should be checking them everyday, but I would bet that isn't really the case. Let's say you check them 3 times a week - that's 60 miles both ways 3 times a week or 360 miles. Take that times 0.30 per mile = $108 per week * 52 weeks = $5616. I doubt 30 cents will really cover your vehicle cost, but it's a place to start. I have no idea what you are paying for rent but if it is around $20/acre * 160 = 3200.

You are at $8800+ and haven't really been taking care of things like you should. 8% on 100K is $8000 so you are already paying the interest, you just don't have the land. If you get land close to home you may also be able to get into some MIG and up the stocking rate to lower your cost per animal per acre.

I don't want to lead you to believe this is a great deal, just that you need to really look at all your current costs vs the cost of owning a little closer to home. Also don't forget the expenses of owning the land - taxes, insurance, etc - just look at everything.

Last, if you do purchase this property, make SURE there is no pre-pay penalty. If you can swing the 16/17K for the first 5 years you should be able to pay at least 10K per year after that and pay it off early. The first few years you are paying mostly interest so keep making the bigger payment then put the rest in your pocket after a few years.

 

[Stocker Steve]

here's the deal 160 acres- $100,000. What is your input on this (not very fair) deal?

Lots of good posts on reducing rates, reducing expenses, and improving terms... but what are your long term goals here?
- If you what to increase numbers and make a certain profit or cash flow then renting more acres usually pencils out much better than buying.
- If you want to improve fencing, forage, and water to increase stocking rates then a 5 to 10 year lease can work with the right owner.
- If you want a deeded home base to go with some rented land then the location and facilities become very important.
- If you want to invest wages in real estate then rental property usually pencils out better than pasture land.

 

[dun]

I wish I could find 160 acres of anything for only 100k

dun

 

[Stocker Steve]

I wish I could find 160 acres of anything for only 100k

dun

With global warming here, you may want to consider buying in ND, northern MN, or Canada before the rush.

 

[hersh]

I wish I could find 160 acres of anything for only 100k

dun

That may be the problem. If the land is only worth 100k it prolly has no calateral in itself. I would deal with the bank a little, sounds like they are stuck with it and trying to unload it before they have to go to auction.

I would go to Farm credit service and get pre approved for the land and wait for auction. Farm credit is by far the best lender on land but they are pickey.

 

[backhoeboogie]

Nearly 30 years ago I was trying to get a loan to put a water well in. It was tough. The very bank that turned me down has been trying to get my business for the last 15 years. They can pound sand.

 

[Alan]

Lots of sharp thinking replies here so far.... Good advice. From what I have read it sounds like there are a few unknowns yet, it sounds like you have no down payment. I guessing this is the reason for $17,000 per year for the first 5 years and the request of basically all you have plus the land for the collateral. Another factor is your and your spouse credit rating, if you have a low credit rating the bank is going to want more security tied up for the loan, although your cattle is a bit stupid on the banks part, uncontrolable asset. The 200K owed for 100k borrowed actually a pretty good deal on a 30 yr note, as mentioned 5.375% is close enough to the interest rate, these days a great rate.

As for the type of loan, getting a loan on bare land, not residental, is hard to get, as mention some farm loans out there but hard to get at good terms. Small business loan is a very tough one to get, lots and lots of hoops to jump through. leaves you with residental or lines of credit. But you still need 15 to 20 percent down.

As for the credit rating, as long as your credit isn't terrible, it can have some recent bad stuff on it you can still "buy" your way into a loan. I'm guessing it isn't too bad with the offer the bank made you. But if you can come up with 25% down the banks will see you in a whole new light.

My opinion: The terms are not that bad, beg, borrow or sell things to come up with a respectable down payment. Check into putting a manufactured home on the property (I'm assuming there is no home, therefore it's bare land), Manufactured home dealer will be willing to loan in most cases if you have land. If you are buying your home sell or get a rental agreement from a someone, even a realitive will do you just want a paper to show someone is will to take your house payment out of the expense/income balance sheet, you just want the paper and to make sure you can make all your payments. You can sell your house later. If your renting, use your rent money to buy a manufactured home.

Most important, you are the only ones who know if you can make your payments, don't take too big of a risk. But life is full of risk, you can stay away from the ones that you can see comming, but some you have no control of... so don't fear those kind. That's part of life, unforseen risk.

I should also add, make sure you know all the terms of the loan, for example, fixed rate or adjustable rate, early payoff penilties.

Good luck,
Alan

 

[frenchie]

walk away ...terrible deal

 

[J&T Farm]

Have the land appraised and then go from there.