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I have property listed for sale, $76K. It is improved land; there is no house. There is no mortgage.
I have just received a verbal offer for owner financing. The offer is $72K with a $25K down payment, interest only payment. They have asked for a Balloon in 4 years, but offer that they will likely pay it off in 1 year. They requested that there be no prepayment penalty. They offered that the interest rate is negotiable.
Does this sound like a fair offer, and/or what should I counter? I have never sold property, and certainly have no experience with owner financing.
I'd want to know what they expect to do with the land as if they do not pay, you could take it back, but it may be worthless at that point. Will they harvest the trees? Will they use it as a waste site==trash burning, dump, car recycling type activities that may pollute the land and leave it unsaleable? Will they use it as a trailer park with out septic service with the ground denuded and waste sewage everywhere? Will they use it for raising goats, cows, etc. that will eat the vegetation an leave their wastes? Live there as hillbillies, leaving their own waste and trash and shanty town buildings for you to remove?
I would be very cautious if they want you to hold the mortgage. Why can they not get a loan from someone else, even a high risk loan from private lender? If you hold the loan, you really need to control what they do until it is paid off...and make sure that the land can be resold for the same price when they are evicted.
No lender/bank will provide a *mortgage* on land without a house on it. The couple would need to get a bank loan/note (different rules). It would be much better for you it they got the money from a bank and gave it to you, because then the land would be their responsibility.
If you do provide the loan you will also need to establish the term for the loan, just like a bank would. The monthly payment to you will be a lot higher if the term is 5 yrs with a balloon at 4 than if it is 10 yrs with a balloon at 4. You need a contract, no matter what.
Do you know what the property is actually worth? If $76K is the approximate market value, then the offer sounds reasonable--or at least reasonable enough to consider or to counter. Only you can determine if the terms are satisfactory to you.
Personally, I would counter at $75K, provided $76K is a fair value. That would leave an even $50K being financed, with $25K down. It would also be preferable if you would amortize the loan over, say, 10 years, so that they are paying towards the principal, and not just the interest. That way, they'd have more skin in the game. But an interest only loan for 1 year could be acceptable, with full payments due thereafter until the 4-year balloon payment.
Most importantly, if you consider doing Seller financing, go with a Land Contract (aka Contract for Deed) instead of conveying a Deed and taking back a mortgage. It's generally easier to foreclose on a Land Contract.
Since you're unfamiliar with owner financing, make sure to consult with an experienced real estate attorney to guide you through this. Also, make sure that the purchaser submits proof of tax payments while under contract. Depending on the property, you may need to limit what they can do on the property prior to pay-off.
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