As the name implies, land notes are
mortgages or trust deeds which are secured by land. There
are four categories of land notes: buildable lots,
improved land, unimproved land and commercial/industrial land.
Buildable lots which are located in
prime residential areas will provide the best pricing.
These lots are usually 5 acres or less, are legally platted lots
with a legal description, and feature full utilities to the lot
line (including electric, telephone, water, sewer, and possibly
cable). These lots will also feature paved public roads to
the lot line. Buildable lots may be subdivision lots,
urban lots or second home properties. For buildable lots,
a down-payment of 10-20% with a term around 10 years is
preferred, although notes with terms less than 20 years may be
viable. Balloons (if used) should be less than 70% of the
original note balance.
Improved lots are similar to
buildable lots but are located in more rural areas or outlying
resort areas. They may be developed as resort or second
home properties. These lots are generally 15 acres or less
and should be "improved" with at least 3 of the following
features: structures, well or other water supply, paved
road access, septic or sewer system, telephone, and/or a desirable
view. There may also be a recorded plat map of the lot.
This category also includes working farms of less than 15 acres.
If the property is a working farm, crops are often included as
an "improvement". To be considered sellable, these notes
should have at least 20-30% equity in the property and a balloon
of no more than 70% of the original note value (if a balloon is
included).
The third category, unimproved land,
usually includes 15 acres of land or more. As the name
implies, there will likely be no "improvements" to the land
(i.e. no electricity, telephone, water, sewer, paved road
access, etc). In order for these notes to be marketable, a
down-payment of 30-50% is preferred. Terms less than 20
years will be considered, and balloons (if part of the mortgage
or trust deed) should be less than 55% of the original note
value.
The final category is
commercial/industrial land. Pricing for these types of
notes will be dependent on the recent history of the property
and its viability for its intended use. Information about
zoning, current usage, demographics, and local economics will be
important in evaluating this type of note. Land zoned for
light retail and commercial properties are likely to be more
valuable than land zoned for light industrial activity.
If you are collecting payments on a
land note, First Class Cash Flow Handlers will buy that note
from you. Please feel free to
contact us or call us
at (401)-258-7158.
