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REAL ESTATE Land Contract on a Commercial Loan?

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triple J

New Contributor
Aug 8, 2007
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Utica, NY
Hello,
I was wondering if a one could do some sort of a land contract on a commercial building (since it's not assumable?) as a way to avoid paying all of those fees for a new loan? And having the seller avoid the prepayment penalties thus being able to offer a lower price. Is this possible? Too risky?

Thanks!
 

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ProInvestor

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Aug 15, 2007
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Australia
*Please note - This is only an opinion and liable to be wrong.

It really depends on your state, however you do have one advantage in the fact the property is commercial Not residential , however there are a few 'warnings' about them. First up you have to hope/pray that the old landlord keeps up to date with repayments, if he fails the bank will repo the property. And one of the reasons people sell property is because of 'bankruptcy'.
Setting up a 'property management account' (with 2 signatures) would reduce any risks.

Another reason one must be careful is because lenders can and do pull the finance (land contracts may a breach of conditions). if the lender does find out you will have to arrange financing meaning yu wont save that much.

In my opinion you should probably only purse a land contract if you cannot get finance because you own too many properties, rather than the cost issue. If you want to buy a property with vendor finance give the seller a second mortgage, caveat or lien (while you qualify or the first), the seller (through equity) can just increase his loan, meaning you might have some extra funds to pay for closing costs (cashback at close perhaps).

Some states have very long contracts for buying property. You want those rather than a short contract (banks tend to read large contracts less for some reason... probably less work).

Rgds.
ProInvestor
 

SteveO

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Great inputs ProInvestor.

I have done a couple of land contracts on apartment buildings. There was a partner of mine that had a lot of money and connections with many banks. He did not want to mess with the operations of an apartment building but wanted profits from them. He provided the downpayment and took out the loans. We put together a land contract where I paid him a monthy amount that we agreed on. The bank was fully aware of the process which is very important.

The risk was in the fact that if he did not make the payment, I would be in trouble. There was no money given to him at the beginning by me so I did not have a lot to risk. He put all the initial money down so the biggest risk was on his side.

He was eventually refinanced out and received his back-end payout. We were both happy!!!:cheers:
 

SteveO

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The fees are inevitable for doing business. You can work to minimize them but, some of the best loans have the highest fees. A land contract will usually involve higher interest rates.
 

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