If a traditional mortgage is not your thing, or if you’d rather skip getting a credit check, or if you’re looking to buy cheap, (most likely raw) land, then you might consider searching for owner financed land, also known as seller financed, seller will hold, or owner will carry. A property that is for sale by owner does not necessarily mean it will be owner financed. In this chapter, I will walk you through the steps of locating and investigating owner financed land.
Owner Financed Land May Not Actually Be Cheap.
Owner financed land is not always cheaper than a traditionally financed property. The price of owner financed land depends on the contract agreement between the buyer (you) and the seller (the landowner). You will most likely have to negotiate with the seller to get the deal you want.
When an owner finances his own land, the buyer makes payments directly to him, as opposed to taking out a mortgage with a bank or lender. The buyer might work directly with the seller or use a title company or attorney to broker the deal and set up payments.
Generally, buyers can negotiate a low monthly payment when buying owner financed land, but the interest rate will probably be higher than that of a traditional mortgage. Expect to pay an average of 4-10% interest.[1] The interest is how the landowner makes money. The down payment can be as high as 20-50% of the purchase price, though you may be able to negotiate lower.[2]
[1] How Does Owner Financing Really Work? (2021, March 15). reali. https://reali.com/resources/owner-finance-homes/
[2] Meggitt, J. (2018, November 21). What Is the Down Payment Required to buy land? SFGATE. https://homeguides.sfgate.com/down-payment-required-buy-land-82649.html.
Where to Find Owner Financed Land
You can search for owner financed properties on almost any database that hosts real estate listings, and if you have access to an MLS, then you can also search there. Craigslist and Facebook Marketplace are increasingly popular places to locate owner financed properties that may not be listed elsewhere. There are also databases specifically for rural land, such as Rural Vacant Land, Compass Land USA, and Land.com.
You might also want to check local newspaper listings, which may be available online. If not, consider traveling to your counties of interest to collect as many local newspapers as you can. Then, spend some time searching through the classifieds for owner financed properties.
Investigating a Property
Buying an owner financed property can be risky because you don’t have the protection you would otherwise have in a traditional financing situation. For example, the seller may not actually own the property, or he might be trying to unload a property with liens on it, or he might believe that he owns the property but actually doesn’t, or he might co-own the property and be trying to sell it without the permission of the other co-owner(s), or…insert your worst-case scenario here.
You do not have to be a victim when buying owner financed land. Do your research. Ruthlessly Investigate the property. Then, hire a title search company or a real estate attorney to investigate further.
Most of the information you will need to investigate a property can be accessed online or by making a few phone calls, so doing a preliminary investigation yourself is feasible, and it can save you the time and grief of further pursuing a property that is unfit for purchase. The remainder of this chapter explains how to investigate a property.
You Must Confirm the Title.
This might sound strange, but before you buy owner financed land, you must confirm that the person selling the land is, in fact, the owner. Even if you inquire about a property, and the seller shows you the title with his name on it, you must must must must must confirm that the seller is the legitimate titleholder.
There are several services you can use to confirm the title. The best—and free—thing you can do is investigate the county tax records through the county assessor’s office. You will need the name of the county in which the property is located and the lot number. The seller of the property should be able to provide you with the lot number.
Many counties keep up-to-date tax records online, but if the county does not have online records, or if you want to verify that the records are current, then simply call the assessor’s office during operating hours.
Once you locate the tax records for the property, check that the name on file matches the name of the person selling the land. If there is more than one owner on record, make sure everyone listed has consented to the sale of the property.
You will also want to make note of the property’s parcel number, officially known as the Assessor’s Parcel Number (APN). You will need the parcel number to investigate the land further.
There are services that collect county record data for you, such as AgentPro247, LandGlide, or the HUNT app from onXmaps. These apps are available for purchase, or perhaps can be accessed through a free trial period.
Know Your Landowner
Now is the time to play sleuth. If the landowner has a Facebook page, spend some time getting a feel for who (s)he is. Search for any criminal records that may be available through the police department or state records. Does the landowner have a history of lawsuits? Ask around town. Does the person have a good reputation? You basically want to protect yourself from a scam, especially if incriminating evidence about the landowner has already been documented.
Check for Back Taxes and Debt.
When financing land through the owner, you don’t want to get duped into paying back taxes or debts that you did not incur. You can check online with the county’s treasurer department, using the parcel number, that the seller owns the land outright, and that there aren’t any back taxes, mortgage payments, liens, or debts owed on the property. If you can’t locate the information online through the treasurer’s office, then you will have to make a phone call.
Determine the Zoning.
To verify that you will be able to use the land as you wish, you will want to investigate the zoning or land use code (LUC). You can find the LUC for a plot through the county assessor’s office or the planning and zoning department. You should be able to locate the information online or by calling around.
Basically, you need to determine whether or not you will be able to use the land as you’d like. You want to know which uses for the property are allowed and if any uses are conditional or denied.
Investigate the Road Access.
Before buying any land, you need to figure out how easily you will be able to get to it. You should be able to see if the property has road access through the county GIS maps (Geographic Information System), or you can call the county assessor or clerk with your inquiry. You can also use the property’s coordinates to view it on Google Earth. You will want to see if the roads are paved or dirt, and you will want to confirm that they are wide and long enough for first responders to fit through and for meeting your homesteading goals.
You could also try hiring a real estate photographer to visit the property for you. Not only will you get photographs out of the deal, but you will have the chance to ask the photographer about the road access.
Research Utilities.
If you plan to be on-grid at all, then you will need to see if the land comes with utility hookups and, if not, how difficult it will be to get utilities. The closer your land is to civilization, the easier it should be to get utilities. You can see if there are houses or buildings near to your desired plot by using the world images layer of the county GIS map or by using the property coordinates to search Google Earth.
For more information about your utility options, you will need to contact the county planning and development office or the utility providers directly. The county should be able to tell you the requirements and permits needed for a well, septic system, or sewer, and they should be able to give you the name of the power company that will service your property.
It’s also not a bad idea to inquire about internet service, especially if your livelihood depends on the internet. When inquiring about utilities, you will need to provide the county and your service providers with the property’s address, or you will have to give them a way to zero in on your lot, such as the nearest main intersections or proximity to a landmark.
Calculate the Slope.
If you plan to build a house or other structures on your land, you will want to buy a plot with a gentle slope of 10% or less. If you want to calculate the slope of a property, please see the link in the footnote for an in-depth article and a video tutorial on how to find the elevation and calculate the slope of a property.[1]
[1] Cristofaro, F. How to Check Property Slope and Elevation for FREE in 2021. Compass Land USA. https://www.compasslandusa.com/check-property-slope-elevation/
Hire an Attorney or a Title Company.
Once you’ve done your homework, and your property checks out, it’s time to hire a real estate attorney or a title company to broker the deal. You might also decide to handle the deal on your own. If you can afford it, however, I highly recommend hiring a trustworthy professional to help.
Within a few weeks and for a few hundred dollars (or upwards of 1000 dollars for complicated properties), a title company should be able to turn up all the information you need on your desired property.[1] A real estate attorney should be able to do the same for a flat fee of 750-1250 dollars.[2]
If you go with a title company, check with your state licensing website to make sure the company is licensed. Also, if you plan to buy title insurance, check that the title company has a legitimate underwriter, such as Fidelity National, First American, Old Republic, or Stewart, who will be able to play a claim should you ever have one.
Before settling on a title company, ask for an estimate of the title search cost, which they should be able to obtain with the address of the property, and inquire about any and all fees they charge.
Once you’ve hired your company or attorney, they will investigate the property as you did, hopefully even more thoroughly, which is why you’re paying them. Then, they will help you to negotiate your contract with the seller and close the deal.
[1] Perry, N. (2021, 14 December). How Much Does a Title Search Cost? Orchard. https://orchard.com/blog/posts/how-much-does-a-title-search-cost
[2] Friedlander, J. (2020, 7 August). How Much Does a Real Estate Attorney Cost? Ownerly. https://www.ownerly.com/real-estate/real-estate-attorney-cost/
Further Considerations for Owner Financed Land
If you buy owner financed land, find out if the seller will be reporting your payments to any or all of the top three credit bureaus—Equifax, Experian, TransUnion. If not, your payments will not count toward improving your credit score.
You can report your own payment history if you are a data furnisher. No worries if you have no idea what that means. Or you can simply report your payment history through a third-party service, such as RentTrack, PayYourRent, or Experian Rent Boost. You might also want to look into UltraFICO and Payment Reporting Builds Credit (PRBC).
In addition to inquiring about credit reporting, you will want to make sure your contract spells out when you will be able to move onto land and start building. Some sellers will not let you build until they receive most, if not all, of the payment for the land. There may also be constraints about when you can move onto the land or start doing certain activities on it.
Also, before signing a contract, ask about balloon payments and early penalty fees. Balloon payments might require you to make a large lump sum payment at some point, and an early penalty is a fee you could be charged for paying off the property earlier than expected. Finally, have a plan in place in the event that the landowner fails to uphold his end of the deal. A good contract can safeguard you from many hardships, but you also need to prepare yourself for any worst-case scenarios. To whom can you appeal if things go south? Is the title company or attorney required to help you, and if so, what kinds of issues will their help cover? Will your title insurance compensate you for any losses? Does your state have certain requirements for your contract that will serve to protect you in the event of a breach? Plan for the worst, and pray for the best.
[1] How Does Owner Financing Really Work? (2021, March 15). reali. https://reali.com/resources/owner-finance-homes/
[2] Brumer, L. (2021, June 9). A Guide to Owner Financing Land. Millionacres. https://bit.ly/3NNfIM7. Shortened URL from bitly.
[3] Cristofaro, F. How to Check Property Slope and Elevation for FREE in 2021. Compass Land USA. https://www.compasslandusa.com/check-property-slope-elevation/
[4] Perry, N. (2021, 14 December). How Much Does a Title Search Cost? Orchard. https://orchard.com/blog/posts/how-much-does-a-title-search-cost
[5] Friedlander, J. (2020, 7 August). How Much Does a Real Estate Attorney Cost? Ownerly. https://www.ownerly.com/real-estate/real-estate-attorney-cost/
EVANGELIZE GEORGIA 