Selling direct with payment plan.

Hi guys,

I recently had an offer on a piece of land I’m selling but the guy wants to pay it off direct rather than in full or through a bank. The land is only worth $52k and he wants to pay it off in equal installments over 5yrs.

What do you think the pros and cons of selling this way?

If I was to even consider this kind of deal I’d be including an interest rate, as well as other clauses a bank would require including him not getting his money back if he defaults or tries to walk away. The title would stay in our name. And have a solicitor involved.

I think he may just be looking for an interest free, deposit free, credit check free investment opportunity.

We want to purchase another couple of investment properties in the next 5yrs so need to take into account the consequences of a deal like this. We have already said no, but I’m just interested in your views in case I’m missing something or if this could work in our favour.

 

Who will own the land in the 5 years period?

 

You could retain title until final payment so potentially less risky if he doesn't pay, but it can get messy legally because he would have an equitable interest and could lodge a caveat to prevent you from selling.

 

Yes we own it outright. He was speaking about sending us docs from his solicitor but we would need to engage ours and not sure what that would cost.

We would funnel those payments direct onto our current mortgage or it’s offset account and not touch it. I’m just concerned about it impacting our borrowing capacity - it would increase our cashflow but we were hoping to get the sale amount as a deposit for our next purchase, as we only have 22k of equity in our current ppor property which is our only property apart from the land.

I personally do t thinknthe land is worth 52k which we have it advertised at. It’s prob 40k MAX. So it would be one way to get more for it..

We could ask for a small deposit to cover the legal costs I guess?

 

Yea good point I’ve run into caveats before when buying. The can be a real pain.

 

We would own it, just like the bank owns your land til you make final payment and get the title. But if he builds on it and then defaults I’m not sure how it all works.

 

Not sure i understand the bank bit.

 

Someone with a bit more technical knowledge may need to explain it.

 

I Know people that do this,they buy unpaid rate land 200 klmsfrom Brisbane then on sell on vendor "F" ,I don't know of anyone has ever had the title transferred into their name most default and the land goes through the same process again..
As you have a Solicitor then just ask a simple question,don't worry about plan a ,what's plan b when the s####
hits the high speeds fans..

 

A bank doesn't own your land, even while mortgaged. You do. You might be thinking old system title where title was transferred to the mortgagee until payment.

With an installment contract vendor finance the house will generally stay in the name of the legal owner until the purchaser makes the final repayment. It is just like a 42 day settlement spread out over up to 30 years with early access granted.

If they build on your land and they default you won't be able to keep all the benefits to yourself because they have improved the land. Courts would probably make you account for the profits to them. Look at the branch of law known as 'equity'.

 

If I was a vendor in this situation I wouldn't bother with something so potentially complicated over a $52k lot.

So many potential legal issues, as Terry has touched on.

 

First question is why would someone pay 25% above the current realistic market value?
Marg

 

The lawyers on here have raised some good points, I would say make it worth your while, e.g. a 5% loan rate,
also it begs the question why he can't get a loan, also I would want a deposit and its going to cost you a fair bit to setup comparative to a standard sale (to structure yourself to protect yourself)

over the loan term its an extra $40,000 best case, is that worth it?

 

Thanks for all the input guys. It’s not something I would generally consider, just wanted to make sure it wasn’t a better scenario than my assumptions dictated . Appreciate your time!!

 

Let us know in a few months how it works out and what costs were involved in setting up the legals etc......eg. give back to the community and don't be a one way leech

 

After weighing it up I don’t think I’ll actually go down that path. So hopefully we all learnt something from the discussion. if I do pursue legal advice, I’ll update you all. Peace.

 

If this land is on the Bay Islands? If it is then you're going to get all sorts of funky offers . When I sold my block I even had a builder call me up and offered to take my block as a deposit in a new build ( Alarm bells!!!)....

You are able to join two or three blocks together under the one ratings scheme over there...so technically you can own say one house on 3 blocks of side by side land and only pay lot of rates for one block. It is cheap and easy to do and the increase in rates is minimal....it could totally be worth your while approaching the neighbours....

 

Time value of money. Over 5 years, it would only be 5% pa interest if the final payment was at the end and 10% pa for progressive payments, so in this case somewhere in between these figures. For a 100% LVR, not a terrible deal!

 

Yep on the bay islands. We have one block in front of us, which would we great to join to ours