Expert: Matt Heisler - 9/29/2008

Question
We want to buy a piece of property for which the seller is asking $255,00, but his terms sound unusual and questionable to us. He wants us to pay him $80,000 up front under one contract and then do an amended contract for the balance with an interest free loan and payments of $3500 a month until the balance is paid in full. He would hold the title until the balance is paid in full, with the title as collateral, calling in the property if we defaulted on payments. I am not comfortable with this, but my husband thinks it is a good deal, since our money can be drawing interest while we are paying an interest free loan. I am afraid that we could lose the property as well as our initial investment of $80.000 and this creative selling arrangement sounds illegal to me. We have the cash and can pay in full and I think we are taking a risk that might wipe out all of our life's savings in the end. This is our total life's savings and at our age, we could not stand to lose the $80,000, and certainly not the $255,000. Where do I go to find out if this kind of sale is legal and what precautions do I need to take to protect the purchase and our investment. We have no real estate experience and need some advice. Please help us if you can. Many thanks and blessings to you, Tommy

Answer
Tommy:

Some quick thoughts.

1) The seller is offering to loan you the money, the same as a bank would.  That's not illegal.

2) If you have no real estate experience, and this is your life savings, I think you need both professional financial advice, and real estate advice for this transaction.  I don't know many financial planners that would advocate this.

3) How do you know the land is worth what he's asking?  Why are you buying it?  Are you planning to develop it?  Today's market is very risky for new construction.  As a newcomer, this is not the market to fool around in.  Look (at the least) at the assessors value of the property.  Is it worth $255,000? Go to the town hall and find out if it's conforming.  Another question to ask, can I build and sell a home for $750K here?  If you can't, the land is over priced.

4) Many builders, land speculators are DESPERATE to sell their land or have someone else hold the title.  YOU have the leverage.  Have you used it?

5) Lastly, at 255,000, an "interest-free loan" isn't worth very much if the land is worth $50,000.  You need to do much more research here.

So to sum up:  Get a real estate agent.  2.5% commission is only $5000, and I bet they can save you that in the purchase price in two minutes. Not to mention, they can tell you if what you're buying is worth the money in the first place.  But first, I would get a financial planner, and make sure that your plans for this are sound.  There are deals out there, but there is no easy money in real estate today in most of the country.