4) Buying Land with a Partner
Two or more people can join together to share in the cost and/or responsibilities of purchasing a property, taking on the benefits and the risks together.
- Shared costs: By sharing costs for a land purchase, partners can get into a property with less money, and they can buy a larger piece of property together than they could on their own.
- Shared responsibilities: One partner may purchase the property while the other takes on the day-to-day maintenance of the land, enabling each to do the part they’re capable of doing while the other partner takes on the aspect they weren’t capable of.
- Shared risks: Someone else is investing with you, thus you both have a share of the risks associated with the purchase rather than one person taking on all of the risk.
Cons of buying land with a partner:
- You share decision-making . Even when partners know and trust each other, there are a lot of factors they have http://paydayloansohio.net/cities/logan to agree on: what to spend money on, when to sell, insurance, taxes, and so on. Each partner must meet deadlines to make payments, and if one defaults, it can lead to a sticky situation. “Being partners with someone is like getting married. I’ve been in partnerships that have worked out extremely well, and partnerships that didn’t work out well at all,” says Weidenhaft.
- Unequal financing can result in disagreements about the investment timeframe: Walters explains: “A wise investor once told me, ‘Always be equally yoked with your partner.’ What this means is, partner with someone who has similar finances to yourself. You don’t want a poor partner for all of the obvious reasons. A very rich partner can often weather the storm longer than you can and can be very resistant to sell or change when you are experiencing difficulty. Additionally, the richer investor will usually always want to hold out for better gains down the road. Both parties need to have the same investment timeframe.
5) Pros and Cons of Buying Land with a Traditional Bank Loan
While many traditional banks shy away from land loans due to inexperience with land, some will offer loans for land purchases.
Pros of buying land with a traditional bank:
- Simplicity of working with your bank for all your needs: If you already have a relationship with a bank and have other financial matters connected to that institution, it can be convenient to continue working with them. You have the peace of mind of working with a bank you trust and, as a trusted customer, they may be more willing to work with you than an unknown buyer.
- Protection for the buyer: A traditional bank is highly regulated by the federal reserve, explains Reneau. “The consumer has someone on their side from a regulatory standpoint.”
- More options : Banks may be able to offer different types of financing depending on the length of time the buyer needs to repay the debt. The longer the term, the higher the interest rate typically will be.
Bank Loan Tip: “Commercial banks usually have more flexible terms than regional banks and other institutions,” Walters says. “They can sometimes do loans with as little as 10 percent down payment and can loan money for improvements to the property. Commercial banks also usually have less rigid credit requirements.”
Cons of buying land with a traditional bank:
- Banks are less familiar with land: Since traditional banks do not typically work with land purchases, they will have a more difficult time dealing with any out-of-the-ordinary issues that could arise with the property purchase.