Should I Enter Into A Land Contract? | REALTOR.com? Blogs

Q: I?m strongly considering entering into a land contract with a gentleman that has eight (8) 2 bed, 1 bath single family homes on the same mortgage. All eight are leased (many have been leased for 3-4 years), and they bring in a total gross income of $3774. To me this seems like a solid investment but I cannot seem to get a commercial loan that is willing to finance this deal (I found some that would finance up to 3 income properties on one mortgage), and the Bank (Independent Bank), which the existing mortgage is through is not lending out any $ according to the Realtor I?m working with (not because of credit or anything else they are just on lock down for giving loans). My credit is also not the best being in the low 600?s although I have a decent paying job making $40k net a year. The gentleman that owns these homes just wants out of the residential real estate investing business and is focusing more on commercial pursuits. So with the Banking collapse, and the credit crunch I?m having trouble finding any Mortgage Company to provide financing so right now my only choice is owner financing. A land contract though makes me nervous because I want to know that the existing mortgage is being paid so perhaps I should go to the Bank and pay directly on his mortgage myself? Can I do that? Further, when so much is paid off of this land contract or of his existing mortgage (since I think I?d want to make the payment myself) is it possible that he can refinance his existing mortgage, or get a home equity loan and then possibly foreclose, and then I be out of this real estate deal altogether? Also, I?m planning on hiring a local property management company to help me out too. Could a Realtor(s) please offer some advice?

Thanks.
?Derek, Fremont, CA

A: Derek, Your concerns are very valid, and you should invest a few $$ and speak with a real estate attorney to make sure you are protected in the contract and your financial adviser to make sure the numbers work both gross and net. You don?t say how much the mortgage is and what the vacancy rate is, how much the payment is and how long you could pay it without the rents coming in should you have several vacancies. You need to run ALL the numbers. Also is the value of the property higher than the mortgage? You don?t want to be paying on an underwater property.

Good luck, do your homework! You may need to start a little smaller.
Teri Andrews Murch is a Realtor? with Lyon Real Estate in Auburn, CA.

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4. Can I Sell A House I?m Paying For On Land Contract?
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