Seller Says "I am Your Bank" - HELP - Posted by LE

Posted by JPiper on November 13, 1998 at 10:39:50:

I think Karp gives you good advice below. Better to question and listen to the seller (especially since he evidently knows what he?s talking about) than to try to reinvent the wheel.

One other avenue I would pursue is at the courthouse. You mention this gentleman originally had 325 acres, which he has sold off with the exception of this particular parcel. Why not do some homework?? Go to the courthouse and find out how the other parcels were sold. If he has been equally accommodating with the other buyers, you just may find a technique used that you know in advance would be acceptable to him. This may well give you plenty to discuss with this seller. I would be particularly interested in discussing the situations that MAY NOT appear in the courthouse records as having been sold. Perhaps this will open a frank discussion with the seller which leads to an obvious method for purchasing.

Frankly, one of the components to structuring a deal is the exit strategy. In your case, you have no effective exit strategy. There?s a big difference between structuring a deal that could be mutually beneficial to both of you, and structuring a deal that enables you to acquire the property, build a house, and live on it. The latter requires that you actually be able to afford it, and it will also later require a loan to build with. This requirement will mean that you will need to be the owner, and that the seller will need to subordinate his financing to the bank, since the bank will have no desire to be in second position. Your assessment of your own situation needs to precede any solution to this situation. I notice that in one breath you say you can afford a $50K downpayment and a $50K loan (payment here might be under $400 over 20 years. But there is no plan as to how to build the house. In another breath you mention buying the house with $20K down and paying a $180K mortgage at 4% over 20 years. This is a payment of $1090 per month?.a big difference from $400. Again no plan as to how to build the house.

Then there is the question of whether this is a deal at all. What I?m hearing is that you want to live here, and that you?re not evaluating it as a deal at all. Perhaps I?m wrong. I?ve been in the position many times of evaluating properties that I had no desire to live in, or couldn?t afford even if I wanted to. The exit strategy with these types of deals is that you need to resell in some manner at a higher price, or in a manner where your own underlying payment is covered. Living in a property is vastly different than investing in a property.

I?d love to come up with a magic bullet for you, but based on the information you have provided I would have no way to do so. Again, I would take a look at the courthouse to see what magic bullets he may have accepted in the past.


Seller Says “I am Your Bank” - HELP - Posted by LE

Posted by LE on November 12, 1998 at 21:19:03:

Greetings Again,

On November 4, I posted a plea for advice, and received several responses. My original post is quoted at the end of this posting.

Short Story: I’m trying to purchase a $200,000 asking price property, but can only afford $100,000. The seller is very motivated to sell to me personally, and tells me to come up with all suggestions. “I am your bank” he says; Seller is also 89 years old and will have a large estate.

The posts in reply suggested that I offer a LC for 10 years; also suggested were tax free municipal bonds offered to seller; offer a memorial plaque and land contract. There were several others but I can’t access them from the board at the moment.

I’m reposting again with a followup and request for more suggestions. I’m preparing several options for the man. First, I think I’ll offer $100,000 cash. That, I think, will be unacceptable (I have $50k and can get a loan for $50 and afford that). I could also offer $200k, with 10% down and $180k on land contract at 3% or 4% interest for 20 years. Will the man laugh me out the door? I don’t know, but that’s what I can afford.

I’m still looking for more options. I just feel that there’s another way out there. This man doesn’t need the money to live at all. Is there a way I could pay less by finding a way to reduce the estate taxes his relatives would pay?

Does anyone know the ramifications of leasing the property, then buying it? Could the property then be depreciated by him, increasing his income and perhaps lessening the amount I’d need to pay him to get that net $200k to him. How about settling out when he dies, or at set intervals, with reduced payoff for reduced taxes? Would depreciated property reduce his estate taxes?

I also haven’t learned enough about the tax free bonds to understand how to go about this or if it’s applicable here. More advice on that would be appreciated as well.

Finally, it’s worth mentioning again that the property can NEVER be split in any way, and all charitable contributions for the property have been taken by the current owner (it’s under conservation easement). I want to build a single family home on the property and live on it indefinately.

Any one with ideas again? I’m still hoping for a miracle, and working for my education regardless of the result. Thanks, AGAIN,


Origninal Post on Nov. 4 - Pre-Newbie Seeks Land Puchase Advice:

I recently found 10 acres of property with a unique history and aesthetic. The seller, an 89 year old man, has sold all of his 325 acres except this parcel. He appears to have been looking for someone he felt “deserved” the property he has tended for almost 50 years. Problem: he’s asking $200,000 (reasonable in this market) and I can only afford $100,000. This man has made his fortune from various land deals across the country, and he tells me I can manage this acquisition. But he wants me to educate myself and offer him the solution. I am totally ignorant on all this, but I’m trying to learn fast.

The seller states, "I am your bank. Tell me how you want to buy this, any way besides giving you the land,

and I’ll listen." He will lease, lc, mortgage, or “other” He has said he will lease and sell to me at today’s price in

10 years or more if I wish, as one option. But he wants me to give him at least 3 options. I hope to live on the

property and not have to sell it to make payments in 10 years, but…

I know this is a pre-basic question to many of you, but I really do want to educate myself and pursue this. Can anyone offer advice?

Re: Seller Says “I am Your Bank” - HELP - Posted by Bud Branstetter

Posted by Bud Branstetter on November 13, 1998 at 16:46:38:

I have been trying to put myself in the mindset for which you describe the seller. You come to me asking for me to sell you my property but want me to tell you how. You tell me you can’t afford the amortized payments on the 200K that the property is worth. I think I would ask if you can afford interest only payments. If not then you would have to convince me that you would do something to care for the land or improve it it some way. Maybe what your plan will be will show me you deserve the property.

200K for a parcel to put a SFH on is saying that it has to be a special piece of land. Will the house do it justice? Will we have Thoreau on Walden Pond?

At the same time he says give him three option and he will be the bank. I could give him many options that I can’t afford. The ones that I can give him involving money means him giving me something. Do you want to deed the house to a foundation when you die for a nature center?

Re: Seller Says “I am Your Bank” - HELP - Posted by Eduardo (OR)

Posted by Eduardo (OR) on November 13, 1998 at 12:44:01:


Concerning the portion of your post stating, “…$180k on land contract at 3% or 4% interest for 20 years.” Two questions: 1. Why would you buy on a land contract where you don’t get title for 20 years instead of a trust deed or mortgage where you get title right away? 2. All else being equal (monthly payment), why would you choose to offer a below market interest rate and, therefore, a higher loan amount instead of the opposite, higher interest rate and lower loan amount when the latter would be to the buyer’s advantage (in terms of mortgage interest deductability and lesser amount to be paid in the event of early payoff? --Eduardo