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No. of Recommendations: 6
The deal offered to SD is a land contract at 2% interest ,30 year term. It also includes an additional payment that starts at 2000 a month and reduces to 1000 ending in 12 years. The contract makes the additional payment optional. The owner cannot take back the building if it is not paid.

I would have an attorney look over the land contract. Some land contracts don't actually transfer ownership until the debt is actually paid off. So it wouldn't actually be necessary for the owner to 'take back' the building if it's not paid, because they still own it.

Are there any pre-payment penalties if she, for example, decides to sell the building, or refinance it to take cash out for repairs?

That said - a commercial loan at 2% for 30 years is a great deal, IMO. Very few commercial loans have a 30 year term, and most are at higher rates than residential mortgage rates.

Does the extra payment decrease the term of the loan? If not, then I wouldn't bother with the extra payment.

I might mention that the SD has been the defacto property manager for few years now. The other tenants are used to coming to her if there is a problem and she knows how get things taken care of.

Since she's already acting as the property manager, she may as well get paid for it. And since she has already been getting maintenance issues taken care of, she should understand how much she needs to budget for that. Does she know if there's any deferred maintenance that is going to need to be done after she takes over? She should probably have the building inspected to see if there's something that a professional notices that she hasn't.

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