Land Contracts For Commercial Property Explained Winston Rowe And Associates

An agreement to purchase a piece of property at a future date is referred to as a land contract.
By: Winston Rowe and Associates
 
BLOOMFIELD HILLS, Mich. - May 18, 2020 - PRLog -- It is basically a rent-to-own agreement entered into between parties, and the contract is not considered a purchase transaction.

If you would like a land contract to become a purchase transaction you will need to be on the property title with the seller as a lien holder. If you're not on the title you will not be able to refinance with a lender.

In order to refinance out of your land contract with a lender the following is the basic loan structure.

Loan to Value 60%
Occupancy Rate 90% +
Debt Service Ratio 1.25

Other Names for Land Contracts

Trust Deeds.
Deeds of Trust.
Home Notes.
Privately Held Mortgages.
A contract for Deed.

Why Are Land Contracts Used?

As with other types of seller financing, a land contract may be advantageous to both buyer and seller.

Benefits to buyers. There may be a buyer interested in the real estate for sale but who, because of their credit history or other reasons, cannot obtain approval for a needed mortgage. The parties can enter into a sale by land contract so that the buyer makes monthly payments directly to the seller.

Benefits to sellers. The seller does not receive the full purchase price up front, like the seller would if the buyer used a mortgage or paid all cash, but the seller may have more options for potential buyers. Also, the seller may be able to negotiate a higher purchase price on the property by offering a sale by land contract. The seller may also require and receive a large cash down payment.

This article was prepared by Winston Rowe and Associates, a national consulting firm. They can be contacted at https://www.winstonrowe.com

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Industry:Banking
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