Going to look at an acreage in 10 days - 80 acres and I am hoping the owner will agree to financing

Hello,

I am going to go look at an acreage in 10 days, and I think I know enough about the owners that they might agree to financing. I am hoping this is true, because my fiancee and I are both on government financial help right now (EI), and once we sell our houses in Alberta, we can't get a "traditional" mortgage. Has anyone tried this with much luck?
The property we are looking at is bare land - the 80 acres I mentioned in another post that already has beavers. Some flat, some hilly parts of the land. In just over a week we will meet the owners and visit the property, and I want to prepare myself for the conversation where I ask if they would be interested in monthly payments as a way to purchase.  

Here's what I know:
The owners are two sisters who say they inherited it too late.
Their brother inherited two properties when their parents died, then they inherited the two properties when the brother died.
They live on their own property about 20 km away.
They sold one of the properties already (160 acres)
There is a creek on the property.
There is a beaver dam blocking the creek and flooding the flat areas.

What do you think?

I'm assuming you mean the owners financing you?

I don't like to be the voice of negativity, but without knowing more of the situation, I can tell you the concerns I would have if I owned the 80 acres.

You say they "inherited it too late".  That to me means that they are probably late middle age or older.  I'm in my late 50's, so maybe they are my age?  I can tell you why I wouldn't do owner-financing at my age.
1)  Most mortgages are 20 years or longer.  If I think I inherited the property too late to do anything with it, probably means I am cognizant of the time I have left, want to enjoy it, and would want the money from the land to do that.  If you spread the money over 20 years, I may not even live that long, and if I do, I may not be in the same health I am now to be able to travel or whatever to enjoy it.  
2)  I'm not familiar with EI, but I wouldn't owner finance land to someone that didn't have rock solid credit, assets, and a stable (as in for many years) income, and be willing to pay down a large percentage of the total as a down payment, simply because
 a)  I don't know if you are going to have a means to pay me
 b)  I would question someone that didn't have that rock solid income, credit, and assets to back it up wanting to buy a piece of land that large and go that far in debt

Please don't take that as any kind of slight about people getting any kind of assistance.  I have no idea what your situation is, and it isn't any concern of mine.  I am simply giving my point of view from the owner side of it.  I happen to own 80 acres and it would be pretty much impossible to convince me to do owner financing on something this expensive.  In most cases, if someone agrees to owner finance, it is on a much smaller, less expensive piece of property so the owner has much less vested interest, or the owner has so much money that if you stop paying and they have to put your off the land legally and get the property back that it doesn't affect them financially.  I have another property that is 2 acres in the country, and I would be willing to do owner financing on that property.  That one wouldn't hurt me if you defaulted on the loan.

The other side of the coin is that you never know until you ask.  Maybe the owners don't need the money and they would be happy to take payments so they don't have to keep paying taxes on a place that they don't want.  Since they inherited it, maybe they will look at any payments coming in as additional income and they are fine with that.  Maybe they have plenty of money from the sale of the other property.  You simply won't know until you talk to them.  I wish you luck.

PS.  I wish I had beavers on my land.  I would let them flood any low parts they wanted.  I would like to have more water on my land anyway.

Hi Trace - yes I am going to ask if the owners will finance me for about 2 years, up to 5 years. NOT 20 years. My fiancee is starting a renovation business. He has done this before. He is starting it now, and within 2 or 3 years we will be able to get a mortgage.

they inherited too late - I think they are in their 60's or 70's, from the conversation I had with them.

We will have a hefty down payment to give them - and the property is not very expensive - under $250k.

And we are going into this with zero debt, before we buy the land anyway.

I appreciate your reply. All of what you said, I have thought about.

And yes, you don't know until you ask, and I plan on getting to know them a lot better before I ask. I'm hoping they will appreciate a monthly income for a few years.

Thanks so much for your input!

Lana Berticevich wrote:Hi Trace - yes I am going to ask if the owners will finance me for about 2 years, up to 5 years. NOT 20 years. My fiancee is starting a renovation business. He has done this before. He is starting it now, and within 2 or 3 years we will be able to get a mortgage.

they inherited too late - I think they are in their 60's or 70's, from the conversation I had with them.

We will have a hefty down payment to give them - and the property is not very expensive - under $250k.

And we are going into this with zero debt, before we buy the land anyway.

I appreciate your reply. All of what you said, I have thought about.

And yes, you don't know until you ask, and I plan on getting to know them a lot better before I ask. I'm hoping they will appreciate a monthly income for a few years.

Thanks so much for your input!

It sounds like you are in a good position to do this then.  Hopefully it will work out and you'll be posting pictures of your new property and projects soon  I'll look forward to seeing them.

Maybe meet with someone so you understand what the income tax ramifications will be for the sellers. Then you can explain it them as part of your pitch, so there's less for them to worry about, and so it looks like you've really got your shit together. (Not that I'm saying you don't 😁) You also don't want a situation where they agree to financing, you move in, they go to do their taxes and get a nasty surprise. Resentment can make for an unpleasant relationship.

And no, the lawyer dealing with setting up the financing will probably not talk about tax consequences. My (engineer) husband has a joke he likes. What's the difference between an engineer and a lawyer? A lawyer doesn't think they're an engineer. Ba dum chh. Well, lawyers also don't think they're tax accountants.

Jan White wrote:Maybe meet with someone so you understand what the income tax ramifications will be for the sellers. Then you can explain it them as part of your pitch, so there's less for them to worry about, and so it looks like you've really got your shit together. (Not that I'm saying you don't 😁) You also don't want a situation where they agree to financing, you move in, they go to do their taxes and get a nasty surprise. Resentment can make for an unpleasant relationship.

And no, the lawyer dealing with setting up the financing will probably not talk about tax consequences. My (engineer) husband has a joke he likes. What's the difference between an engineer and a lawyer? A lawyer doesn't think they're an engineer. Ba dum chh. Well, lawyers also don't think they're tax accountants.

Yes - I think that since they already sold one property this year, they might be more inclined to finance this one. Federal Canada Taxes us 50% on the profit of a sale that is not our residence, and for these owners, that is the entire amount (because it is inherited). Agreeing to 2 to 5 years of payments reduces the total tax, and I will calculate that amount they save on taxes before I meet with them.

I agree - lawyers will barely say much at all - they will just prepare the land transfer, charge the fee, and walk away. So you have to pay $100k+ in taxes? What do they care?

Thank you for your insights.

Lana Berticevich wrote:
). Agreeing to 2 to 5 years of payments reduces the total tax, and I will calculate that amount they save on taxes before I meet with them.

.

This actually depends on how the sale is set up legally. In some cases, they would need to declare the full sale price, even though you haven't paid all the money yet. They can claim a reserve to defer tax payment on some of the sale, but there's a formula to follow based on amount received, amount owing, amortization period, etc. It's not as simple as pay tax on what you received that year. Not necessarily, anyway. If you're planning on paying them off within a few years anyway, it might not make much difference either way. Still, it might be a good thing to sit down with someone and run the numbers to see what the options are, so they get the lawyer to set it up in a way that won't be a tax shock, if that's a concern for them.

What if you did NOT sell the existing proerty and used THAT to secure the mortgage? You could rent it out for income to service the debt caused by having a mortgage? Just a thought...

OR would they possibly consider a short term "rent to own" scheme in which you would pay of (with a mortgage) the balance within 5 yrs, if you don't you walk away forfeiting the "rent" paid for five years?

Lorinne Anderson wrote:What if you did NOT sell the existing proerty and used THAT to secure the mortgage? You could rent it out for income to service the debt caused by having a mortgage? Just a thought...

OR would they possibly consider a short term "rent to own" scheme in which you would pay of (with a mortgage) the balance within 5 yrs, if you don't you walk away forfeiting the "rent" paid for five years?

OK I had not thought of using my property to get another mortgage. Interesting. However I would have to "qualify" for another mortgage, which I wouldn't qualify for since I don't currently have a job. My fiancee does renovations and painting and doesn't qualify either.

YES to the short term rent to own scheme - that is what I'm talking about. Paying off the amount agreed to in 5 years. Monthly payments, some balloon payments, and the remainder due at the end of the term agreed to.

Thank you for your thoughts Lorrine.

Often times "rental income" will count the same as "job income"...I would look at what the rental market might offer, you might be surprised. This eliminates the need for a job, to a certain degree, as there is "income" and the home is the collateral - so the banks needs are met.