Real Estate Reference Real Estate: Financial Considerations $$$
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  by Dan Auito

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Real Estate: Financial Considerations $$$


Raw land as opposed to improved property is much more difficult
to finance through traditional lenders. The main reasons are that
it generates very little income, development costs can be
expensive, there are no buildings or improvements that can be
used as collateral, and it is often considered speculative.

For those reasons mentioned we find that sellers are often our
first choice regarding financing. It is typical for a seller of
raw land to accept 10 percent down and the rest to be paid over time at
a specified (below market) interest rate. This would be an
example of an installment land contract. Other forms are contract
for deed, mortgage and note and purchase money mortgages. In
these cases, a real estate attorney usually drafts these
contracts and a bank will act as an escrow agent to facilitate
verifiable records of payments received. The seller often retains
the deed until the property is paid for in full.

If you want to investigate bank financing, then you may start out
by offering 30 percent down with a seven-year mortgage, with the bank
getting an extra percentage point over and above the current
interest rates for standard loans. This may not be accepted, but
 
     
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