Land Contract Tips ?

[Stocker Steve]

I got started by renting a very very run down property from the retired owner. After a couple years of hard work by my entire family to get fences and forage and corrals right - - I approached him several times on ways to transition ownership and got totally rejected. I felt bad about all the work we had done on a rented property but decided to move on and purchased another place. Recently I got a letter saying he had some health issues and asking if I wanted to buy his place, but we have all our money tied up in fencing and watering systems and stock on the deeded property... I am tempted to ignore the past and offer him a contract for deed. Any tips on how to make this fair and flexible?

 

[bigbull338]

all you can do is contact him,an see how much he wants an ac for the place.an if its with in reason an you can get the money an make the payments then id buy it.

 

[bird dog]

I would feel honored he is giving you first shot at it. It sound like he wants you to have it. I would surely investigate into what he wants for the property. Reality has set in for the man.

 

[Aaron]

If property comes up and it is within reasonable distance or even better, is so close it can be added to the value and size of your entire land holding, then it is worth investigating.

Time and time again, I tell people never to invest major time and money in rented properties. Just do enough to get by and MAKE IT WORTH YOUR WHILE.

I have two examples of my own case. One 160 acre parcel that we started renting in 1998. About 80 acres clear, 80 acres timber. Rent was $350 for the summer. Single perimeter fence in reasonable shape. Since started renting, have pushed in posts on almost the entire perimeter to strengthen it and added a single electric line to one 1/2 mile section to separate bulls from two different herds. That's it. Have not spread fertilizer, re-dug dugouts, put in new fences or worked any of the land. TOO MUCH RISK. Rent nowadays is $450 and the land is supposed to be going up for sale this year. Haven't had to invest much into it, but I was able to run one group of 20-30 cow/calf pairs on that place since 1998 for the entire summer. I have first option to buy, so if it's a good buy, say 20k, I'll go for it. But if not, I'll focus more on my own deeded parcels.

The other place is a new 160 acres that I will be renting starting this year. Rent has yet to be determined, but about $500 has been suggested. Most of the land is in bush and not it use in any form. But there is about 50 acres of quality hayland that will produce at least 200 5x5 bales. Only stipulation is that fertilizer must be applied once every two years. So that works for me. I also have first option to buy this property if it ever becomes available.

I never let landowners get too greedy with the demands or rent value. I just walk away. I know that scares some people because a place that isn't being pastured or hayed becomes a tinder box for a fire to start.

 

[Kathie in Thorp]

I got started by renting a very very run down property from the retired owner. After a couple years of hard work by my entire family to get fences and forage and corrals right - - I approached him several times on ways to transition ownership and got totally rejected. I felt bad about all the work we had done on a rented property but decided to move on and purchased another place. Recently I got a letter saying he had some health issues and asking if I wanted to buy his place, but we have all our money tied up in fencing and watering systems and stock on the deeded property... I am tempted to ignore the past and offer him a contract for deed. Any tips on how to make this fair and flexible?

Follow every smart thing everyone else has said. BUT, his health issues may be such that others are actually handling his affairs. Make sure you are dealing with the people that can deal with it.

 

[TexasBred]

I got started by renting a very very run down property from the retired owner. After a couple years of hard work by my entire family to get fences and forage and corrals right - - I approached him several times on ways to transition ownership and got totally rejected. I felt bad about all the work we had done on a rented property but decided to move on and purchased another place. Recently I got a letter saying he had some health issues and asking if I wanted to buy his place, but we have all our money tied up in fencing and watering systems and stock on the deeded property... I am tempted to ignore the past and offer him a contract for deed. Any tips on how to make this fair and flexible?

I woudnt' do anything on a "contract for deed" unless you think you'll want to bale someday and not pay for it. Get title in your name even if you have to get a loan.

 

[Stocker Steve]

I am tempted to ignore the past and offer him a contract for deed. Any tips on how to make this fair and flexible?

I woudnt' do anything on a "contract for deed" unless you think you'll want to bale someday and not pay for it. Get title in your name even if you have to get a loan.

Back in the "Farm Crisis" days there were 3 different outcomes here for folks who had been expanding at that time:
1) Those with contract for deed purchases walked away from some recently purchased ground and keep the rest.
2) Those who were "too big to fail" often got special treatment by some local banks.
3) The smaller operators with deeded property that was under water gave it back or got foreclosed on...

I am not 100% confident in this economy so I see some advantages in option #1. I also think I could get a lower interest rate. What problem do you see with contract for deed?

 

[jedstivers]

By Contract for Deed do you mean seller financing? Never heard that term before.

 

[Stocker Steve]

By Contract for Deed do you mean seller financing? Never heard that term before.

It is somewhat common here, where a retired farmer/rancher finances the sale at a below market rate with a balloon payment at the end. He gets more interest than CDs and may get some tax benefits, but runs the risk you will trash the place. You get a below market rate and a low down payment but may be asked to pay a premium price. So if you are deemed trustworthy you might be looking at 2 to 3% interest and a balloon payment after 5 to 7 years.

Lease with option to buy is another approach but much less common here. The sticking point is do the lease payments apply to the purchase price?

 

[TexasBred]

By Contract for Deed do you mean seller financing? Never heard that term before.

jed it use to be little more than a scam. People who could not qualify for a loan would fall for it. Pay a few hundred dollars down and sign a "contract for deed" meaning you never get a deed until the loan is paid in full. Miss one payment and they would kick you out. Or you could just move out, the seller would keep your down payment and tear up the note (which was seldom filed for record anyway).
As a buyer my primary concern would be that the owner of the property can sell the property to you on "contract for deed" yet owe a huge amount on the property which he continues to make payments on. He also can borrow additional money against the property and increase teh debt against it without you ever knowing it. IF adn when he defaults the bank gets the property and you get evicted. They might offer to sell it to you at foreclosure sale but if you were able to do that you should have done it to begin with n order to protect yourself. In a "contract for deed" the prospect of you some day getting title to the property can actually depend more on the seller than on you the buyer.

 

[Stocker Steve]

By Contract for Deed do you mean seller financing? Never heard that term before.

jed it use to be little more than a scam. People who could not qualify for a loan would fall for it.

Sounds like some land owners are more aggressive in Texas than in Minnesota. What causes this?

I prefer to think that retiring operators are committed to stewardship and getting younger folks started, rather than burning up the OM and then subdividing for hobby ranches.

Do you think lease with option to buy is a scam also?

 

[TexasBred]

By Contract for Deed do you mean seller financing? Never heard that term before.

jed it use to be little more than a scam. People who could not qualify for a loan would fall for it.

Sounds like some folks are more aggressive in Texas than in Minnesota.

Do you think lease with option to buy is a scam also?

Steve as with contract for deed it depends entirely on the intentions of the parties involved. Both can certainly be done with honor and often are. I just see no reason to take the chance.

 

[Jogeephus]

If he has clear title to it at this moment and you record your papers of the contract for deed would this not put him as primary and any secondary lender or buyer would have to get his permission first before sticking something else on the property? Here, the primary gets his cut of the pie first and all others get the scraps if there is any left. This can tie stuff up but it is normally worked out. I'd defitnitely have it recorded and be sure it is free of any and all liens. You mentioned he is in poor health so you might need to be watchful of a hospital lien. The legality of these is questionable but some hospitals stick them on people's property as soon as they are admitted with or without insurance. Personally, I'm thinking if he is an older guy and in poor health it would be better for him to sell you the land outright and maybe let him do the financing. This, I think, would let him get more health benefits from the gov't.

 

[TexasBred]

joe in one of these deals, even tho there is a contract and it may even be recorded the seller retains title until the contract is paid in full and only then does the buyer get title to the property. A prospective buyer could insist that a title search be done and a section put into the contract forbidding the seller from incumbering the property with any debt whatsoever, including payment of all taxes due IRS annually, however, enforcing it might be hard as you usually learn about these things "after the fact". For me there are just too many uncertainties to warrant ever signing a contract for deed. If the seller really wants to sell the property he should be willing to sell it with owner financing, execution of a warranty deed as well as a title policy insuring title to the property subject to the lien held by teh seller and go from there. In most owner financing situations, the seller incurs most of the closing cost anyway and downpayment requirements are often very negotiable IF you are a good risk. Going this route to me would insure the good intentions of both buyer and seller, create a valid lien in favor of the seller and give the buyer immediate title and possession of the property subject to the 1st lien held by the seller. If the seller ever needed cash he could sell the note or discount it to the buyer and allow him to pay off the note early.

 

[Jogeephus]

Thanks for explaining it better. Never seen such. I've seen owner financing and once considered doing a balloon note when interest was outrageous but now with the low interest, and the seller's ability to get a higher interest rate on his money if he financed it himself and the fact that this could mess him up on his heath costs it makes me why he wants to structure it this way. :???:

 

[TexasBred]

Thanks for explaining it better. Never seen such. I've seen owner financing and once considered doing a balloon note when interest was outrageous but now with the low interest, and the seller's ability to get a higher interest rate on his money if he financed it himself and the fact that this could mess him up on his heath costs it makes me why he wants to structure it this way. :???:

Nothing at all wrong with owner financing. Works great in most situations.