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I have a vacation home that I am trying to sell in a still pretty depressed area. I have had several people interested, but they can't get bank financing. I am thinking of doing a "land sale" where I hold the deed and the mortgage, with a balloon in 2 years. I get a decent rate (8%) and a 10% down payment, if they blow the payments I get the house back and keep any money paid. If they can't get a loan after 2 years, my default rate goes to 12%.


I took back a note when I sold a house about 15 years ago. We took 50% down and could have sold the land for more money than was left on the balance if they trashed the place. We had a 5 year balloon on the note.

Given that your issue is lack of availability of loans in general, you may need to increase your balloon time to longer than 2 years to give the local economy more time to recover. And what will you do if it does not? I would also try to get a bigger down payment on the property. What will you do if they trash the place? Will it still be worth the balance on the loan?

Also think about if you will handle escrows for taxes and insurance. Make sure they put you as the lien holder on the insurance, and that will allow you to receive notifications if they don't pay and tell you of any changes the new owners make to insurance. Since it's rural, I assume it's on a well, so no public water which is also lienable.

Have a lawyer draw up everything.

From a tax POV we simply held a private note, declared the interest earned and gave the buyer a summary of interest paid. We kept it an interest only loan, so that we didn't have to deal with amortization tables and inconsistent interest amounts. Keep it simple.

We faced a similar issue when trying to buy our cabin last year. No financing was available, and the seller finally had to accept a much reduced cash offer. There were insufficient comps for a Fannie Mae mortgage, and it being a vacation home we did not qualify for a USDA loan. Those who can afford to hold on to their properties are doing so, while those who must sell are selling at a huge discount, or having it foreclosed on. Seems to me that there is a perfect opportunity for private lending in these types of situations.

Good luck with the sale. If you decide to hold on to the place, consider putting it on the vacation rental market. You can get some idea of what your market is like on

going to look at two more highly discounted vacation properties this week
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