Which Vacant Land Qualifies for Seller Financing

Transcript of Module 7, lightly edited for readability. The video was recorded before we passed 250 notes; the figures on this page are current.

Welcome to module seven. At this point, you know how to find buyers, screen them, check credit and structure deals. But before any of that matters, you need to start with the right property. Not all land is suitable for seller financing. In this module, I'm gonna show you which properties work well for seller financing and the critical minimum requirements. Let's start with what works.

Most rural and residential land is good for seller financing. If you have land that people can reasonably use for building a home, recreation, investment, or future development, it's likely a good candidate. Good properties are marketable properties. They have features buyers want, they're in locations people desire, and they have clear utility. These are the properties where seller financing works beautifully.

Now let me talk about something that can dramatically increase both your property value and your note value. Perc tests on properties under 10 acres. A perc test, that's a percolation test for septic systems, proves that the land can support a septic system and is buildable. This is absolutely massive for residential land under 10 acres. Here's why this matters so much.

First, it removes the biggest uncertainty for residential land buyers. When someone is looking at vacant land, their number one question is, can I build here? A passing perc test answers that question definitively. Yes, you can build. The land will support a septic system. Second, it dramatically increases your property value.

A property with a passing perc test can command $5,000 to $20,000 or more above the value of similar land without a perc test. Sometimes even more depending on your market. Third, your property sells much faster. Buyers who want buildable land will prioritize properties with perc tests because they don't have to take on the risk and expense of testing themselves.

Fourth, and this is critical for seller financing, properties with perc tests are worth significantly more to note buyers. When I'm evaluating whether to purchase a note, if the property has a passing perc test, I'll pay more for that note. Why? Because if I ever have to foreclose, I know I can resell that property quickly. Buildable land with a proven perc test is highly marketable.

The cost to get a perc test is typically 500 to 1500, depending on your area and the complexity of the testing. That investment can increase your property value by 5,000 to $20,000 or more, and it makes your note dramatically more valuable when you go to sell it. If you have properties under 10 acres that could potentially be used for residential purposes, Getting a perc test is one of the highest ROI investments you can make. Don't skip this step. It's the difference between a good deal and a great deal. Now let me talk about a critical rule. Do not offer seller financing on properties under $25,000. If a property is worth less than $25,000, it should be a cash only sale. Here's why. First, if a buyer can't save $25,000 for a cash...

cash purchase, they probably can't afford the property. Think about it. If someone can't save up $25,000 over time, how are they going to reliably make monthly payments? The inability to save that amount is often a sign of financial instability. Second, foreclosure costs will eat up all your equity. If you finance a $20,000 property with $4,000 down, you have a $16,000 note.

Now the buyer defaults. You have to foreclose. Between attorney fees, title company fees, and time, you're spending $3,000 $5,000 just to get the property back. Then you have to resell it. You'll likely need to list it with a realtor, which is another $1,000 to $2,000 in commission at minimum. Maybe the property needs cleanup. Maybe you have to hold it for months while it sells. By the time you add up all these costs, you've spent $5,000 to $10,000.

on a $20,000 property that's 25 to 50% of the value, you could easily lose money on the entire deal. Third, lower price properties attract higher risk buyers. This isn't always true, but statistically buyers purchasing lower price properties tend to have more financial challenges.

default rates on properties under $25,000 are significantly higher than on properties above that threshold. So here's the rule, properties worth 25,000 or more can be considered for seller financing if they meet the other criteria. Properties under $25,000 should be cash only. This protects you from deals where the math simply doesn't work if there's a default. Let me emphasize this one more time.

Bad properties don't get better with seller financing. Seller financing is a tool that makes good marketable properties sell faster and for better prices. It doesn't fix fundamental property problems. Start with quality land, make sure it has the features buyers want, price it fairly, and if it's under 10 acres and suitable for residential use, invest in getting that per test done.

When you do these things, seller financing becomes a powerful advantage that helps you close more deals faster at better prices. Remember, most rural and residential land works well for seller financing. Perc test properties under 10 acres are game changers. Invest in getting them tested. Never offer seller financing on properties under $25,000.

Those should be cash only. Start with good land, price fairly, and seller financing will work beautifully. In the next module, we'll talk about closing the deal and what documents you need. Let's keep going.