Vendor Take Back Mortage Interest Rate

[vermillion2010]

Hi,

Can someone lend some assistance in providing an interset rate that would be suitable for a VTB.

Scenario: I am selling vacant Land for $150K, I have an offer that includes a downpayment of $65K and a request for a VTB.
What interest rate is reasonable to state to the buyer in today`s market for 5yr term open, or 5 yr term closed etc..

Thanks,
VerM

 

[Luxmal]

QUOTE (vermillion2010 @ Nov 13 2010, 10:17 AM) Hi,

Can someone lend some assistance in providing an interset rate that would be suitable for a VTB.

Scenario: I am selling vacant Land for $150K, I have an offer that includes a downpayment of $65K and a request for a VTB.
What interest rate is reasonable to state to the buyer in today`s market for 5yr term open, or 5 yr term closed etc..

Thanks,
VerM

I purchased a piece land last year with VTB.( interest rate is 4%). And also I know some guys did it for 3%-5%

 

[Thomas Beyer]

QUOTE (vermillion2010 @ Nov 13 2010, 10:17 AM) ..
What interest rate is reasonable to state to the buyer in today`s market for 5yr term open, or 5 yr term closed etc..
Whatever you and the buyer will agree on.

Some do 0%, some 3%, some 6% and some 15% or more ..

 

[lanedry77]

When buying, I have gotten as low as 0% with no monthly payments. My next best was 4%, also with no monthly payments.

If selling, I would expect much more.

But Thomas nailed the answer perfectly - the right number is whatever you and the buyer agree on.

What is the buyer offering?


Thanks,

David.

 

[vermillion2010]

QUOTE (DavidSandbrand @ Nov 13 2010, 11:42 AM) When buying, I have gotten as low as 0% with no monthly payments. My next best was 4%, also with no monthly payments.

If selling, I would expect much more.

But Thomas nailed the answer perfectly - the right number is whatever you and the buyer agree on.

What is the buyer offering?


Thanks,

David.

The buyer is offering 3%; my thoughts are that you can`t even get a mortgage at 3% and commercial mtgs for 1 yr are at ~6.5%; one mtg broker told me that I should be asking 10-12%

Thx

 

[jarrettvaughan]

QUOTE (vermillion2010 @ Nov 13 2010, 11:50 AM) The buyer is offering 3%; my thoughts are that you can`t even get a mortgage at 3% and commercial mtgs for 1 yr are at ~6.5%; one mtg broker told me that I should be asking 10-12%

Thx


If you want 10-12, ask for 10-12 and ease up on your payment requirements. Instead of monthly payments, offer to accept quarterly or annual payment in exchange for a higher interest rate. You receive not, because you ask not.

There is no rule.

 

[Thomas Beyer]

QUOTE (vermillion2010 @ Nov 13 2010, 01:50 PM) The buyer is offering 3%; my thoughts are that you can`t even get a mortgage at 3% and commercial mtgs for 1 yr are at ~6.5%; one mtg broker told me that I should be asking 10-12%

Thx
raw land these days is worth A LOT LESS than 2 years ago. Most markets have a surplus of raw land.

Be careful with these high rates !

High rates are only "sellable" if the lot price is low compared to a cash purchase.

It also depends on
a) your purchase price of lot
b) your other assets,
c) intend of buyer (build ? flip ? sub-divide?)
d) your ability and desire to take the land back when mortgage expires or payments are not made. Are you mentally and financially able to pursue a court order, possibly with a semi-finished house on it ?

So consider what happens if mortgage payments stop and mortgage matures and you are not paid out. This is QUITE COMMON in raw land.

 

[Pheenix]

QUOTE (ThomasBeyer @ Nov 13 2010, 03:51 PM) raw land these days is worth A LOT LESS than 2 years ago. Most markets have a surplus of raw land.

Be careful with these high rates ! . . .

So consider what happens if mortgage payments stop and mortgage matures and you are not paid out. This is QUITE COMMON in raw land.

I am assuming this will be a first and not a second mortgage.

How `raw` is it? How long has it been on the market? Is the VTB request a function of a slower market, the nature and/or location of the land, or the purchaser`s plans or circumstances?

Further to Thomas` points; what is important to you,
- do you need the money freed up,
- do you want the taxable interest income,
- do you want to defer tax on some of the gains (if any - but get tax advice)
- or just to get it off your plate?

Would you be interested in discounting the mortgage to a third party (assuming one could be found for raw land)? If so, get a higher rate to minimize the reduction in `principal`. Even if it means a bit longer amortization, but with a `shortish` term, to ease the payments. An open term will make it easier for them to accelerate if they can, is this better or worse for you desires?

Motivations, especially yours, will be key in what you will offer and accept. Get them clear first, then discern the purchasers and do so before spending too much time trying to structure the VTB deal.

Remember the old adage that `pigs lose`.