Raw land, in our opinion, is by far the most underrated investment currently available. It is so overlooked by your average investor and it's always for the same reasons. We often hear, land just sits there and doesn't provide me secondary income. For one, that's not always the case and secondly that's kinda the point, the maintenance free aspect of the investment is key.
Post Covid, the CARES act took effect, a renter in your investment home was allowed to not pay rent and you couldn't evict them. Could you imagine, taking a mortgage loan that costs you $2000+ month while you already have a loan to pay on your primary home. Anyone who buys an investment rental depends on the rent to pay the mortgage down, that's the point of it. Renter pays off your loan and eventually that can provide you an income. What a nightmare, and it's lasted for years, many people had no choice but to let their rental property go. Aside from that, yes rental homes can be great, but it requires money to keep them up. Also, it's not exactly an entry level investment, you need credit, banks and collateral.
The savvy ones who invested in land prior to covid or even during the crisis had one obligation and worry. To pay annual taxes, which for land is usually under $100 for the whole year. That's it, they owned an inflation resistant asset that had no maintenance and it costs them on average of $0.27 a day to keep it. We are now in an inflation period, land values and cost of goods are all up. Some land investors saw their property values go up as high as 14,000%, that's not a typo, it happened to a buyer of ours and most over the years had great returns as well.
The Unique Opportunity of Owner Financed Land
Getting a land loan from a bank simply doesn't usually happen unless you're buying massive farm land as a company or putting up major collateral. Also, not everyone can afford a rental property, so how can they get started in real estate with an affordable method? This is where owner financed land comes in, it allows you to pay an affordable monthly payment where you eventually will own the land outright. This way you don't have to empty your savings at one time to get started. Eventually making you a real estate investor with an asset you can liquidate in cash and potentially flip for gains. In the meantime it doesn't cost you much to hold the investment and you don't even have to worry about it or keep an eye on it.
How to Find Owner Financed Land
There's usually two methods, using a company like ours, LandZero.com or getting owner financing from a private party. A company like ours is built on such a model, we have several loans out, have transferred tons of properties and adhere to laws specific to running an LLC and lawyer written owner financed land agreements. In our opinion it's safer than using a private party person, as this person may have one property, no experience, flexibility and overall dependent on one person. You just never know, maybe the person will collect for a few years and then move countries leaving you in the dust. While there are laws to protect that, lawyers cost money and even then they may have cheated you on the contract.
The Process of Financing Land
Owner financing for land, also known as seller financing or owner carry, is a method where the seller of the property (land, in this case) acts as the lender and finances the purchase for the buyer. This arrangement can be beneficial for buyers who may have difficulty obtaining a traditional mortgage, which with land is almost always the case. Here's a step-by-step guide on what to expect when owner financing land:
Step 1: Find a willing seller or land company:
The first step is to find a seller who is open to the idea of owner financing. This might involve searching online listings, working with a real estate agent, or even directly approaching owners of land you're interested in. Specialized land companies who allow owner financing allow you to easily pick from monthly terms with transparent APR and costs.
Step 2: Negotiate the terms or choose options available:
If you found a private owner, you'll need to negotiate the terms of the deal. This includes the purchase price, down payment amount, interest rate, length of the financing period, and any other relevant terms. Both parties need to agree on these terms before moving forward. When using a land company, these prices and terms are upfront, making the decision as a buyer much clearer with no negotiations needed. This is often an easier and less involved method to finaince land.
Step 3: Down payment and contract:
In most owner financing deals, the buyer will pay a down payment to the seller upfront. This amount is typically lower than the down payment required by traditional lenders, but it can vary depending on the agreement. After agreeing on the terms, a purchase contract or land contract is drawn up, outlining all the terms and conditions of the sale, including the payment schedule. Our company is unique in this case as we don't require a down payment, you just pay off your first month to get started. Down payments can be quite high at times with other companies and that doesn't even start paying off your land. It's basically non-refundable collateral.
Step 4: Closing the deal:
During the closing process, both parties will sign the purchase contract and any other necessary paperwork, such as a promissory note and a mortgage or deed of trust (depending on local laws). The deed to the land will likely remain in the seller's name until the buyer completes the payment. Some people or companies will allow you to build on the property during payments being made. It should be noted you will lose everything you build should you default on payments. Out of safety for the owner, many owner financing companies and people don't allow it till the land is paid off. This is to avoid any damage to the property or even people using the land for illegal methods while they don't technically own it.
Step 5: Making payments:
After the deal is closed, the buyer will make regular payments to the seller according to the agreed-upon schedule. These payments will typically include principal and interest, just like a regular mortgage. The buyer should ensure that payments are made on time to maintain a good relationship with the seller and to avoid potential issues. All contracts in owner financing require regular payments or the land contract will go into default. There is never a money returned should you default, it's the cost of renting the land in a way because the owner held it for you during that time. While they would have rather sold it to someone who will pay or buy it in full.
Step 6: Fulfilling the contract
The buyer will continue making payments until the full amount of the purchase price, including interest, is paid off. At this point, the seller will transfer the deed to the land to the buyer, making them the official owner.
It's important to note that the specific details of owner financing can vary depending on the agreement between the buyer and the seller, as well as the laws and regulations in the location where the land is located. Therefore, it's advisable to read contracts and make sure they are fair to you as the buyer. Other than that they are pretty straightforward, make your payments till you pay it off and get the deed.