Using Land Seller Financing to Increase Buyer Demand
Why you need to offer financing
Justin Ignacio
5/20/2024
The Demand Problem
If you’ve been around the land flipping game for a while (or even if you’re just jumping in), it’s apparent that the game has changed. Youtube gurus and flipping courses abound. The constant mantra: “Send More Mail!” – as if increasing the volume of mailers will solve a saturated market. As Return On Ad Spend plummets, cost per lead skyrockets and margins decrease, it would be an understatement to say that the days of doubling your money in 3 months are coming to a close.
It’s easy to blame increasing competition or a softening market but thinking of the fundamentals of economics, it’s easy to see how we’ve got a much larger problem (of our own doing…). Each market varies but overall, demand for vacant land remains steady. Gone are the days of COVID frenzy. Data on sold vs for sale listings for vacant land isn’t publicly available or not tracked by the big data aggregators. However anecdotally, just because an entire niche of investors discovered that you could get insane returns in a short amount of time doesn’t change the fact that the number of end buyers has not increased.
As supply increases and demand remains the same, the predictable result is a decrease in price
The number of builders looking for infill lots or the number of weekend hunters looking for a quiet hunting camp has remained relatively the same despite a significant increase in land flips taking place. Predictably, without an increase in demand, as we flood the market with land flips, prices decrease.
The land gurus will be quick to say “there are millions of parcels of land, send more mail and get more deals!” But the fundamental problem remains. Even if you secure a “deal”, we’ve created a more efficient market with increased supply and relatively unchanged demand.
So what can be done?
The demand problem can be tackled in 4 ways (in order of decreasing difficulty)
- Create demand – It is very difficult, slow and potentially costly to create demand where it doesn’t exist. Sites like Landio.com have used social media to reach buyers who might not have considered purchasing vacant land had it not been for the idyllic images in their instagram feed.
- Meet demand – Subdividing to create smaller, more desirable lots. Rezoning agricultural land to residential to make it easier to build on. Clearing overgrown land to create curb appeal. These are all value-add strategies to meet existing demand.
- Find demand – The “easy” solution is to only flip properties where demand already exists. Find the hot markets in Texas, Florida, South Carolina, Colorado etc. I’m sure you’ll be the only flipper in those markets and you’ll make a killing…
- Expand demand – Think of this strategy as a hybrid of creating and meeting demand. What if there are buyer pools that are motivated to purchase vacant land but have barriers that prevent them from buying? Some examples include:
- Foreign Language services – offer properties for sale in multiple languages (that match the language spoken by minorities in the area), utilize title agents/attorneys fluent in your buyer’s language.
- Offer seller financing – banks don’t finance vacant land (at least not residential land under $100,000). By far, one of the easiest ways to increase your buyer pool is to advertise and offer seller financing.
Advantages of Seller Financing
For a basic breakdown of seller financing (aka owner financing) see our blog post here. Here’s how seller financing can help to expand your business:
Broader Market Appeal
As mentioned, seller financing opens up the market to individuals who don’t have the cash on hand or may not qualify for traditional financing due to less-than-perfect credit. Offering owner financing creates a larger pool of potential buyers and distinguishes your listing from the competition.
Higher Sales Price
Buyers utilizing seller financing understand that there’s a trade off to financing and are generally willing to pay a higher price. Oftentimes, monthly payments are a bigger consideration for buyers than overall sales price. Additionally, the true power of seller financing is the compounding interest!
Faster Sales Cycle
With flexible payment options, properties can move faster off the market, enhancing liquidity and providing continuous cash flow. Additionally, owner financing may allow a single buyer to purchase multiple properties from you. Imagine the builder with $100,000 to invest in buildable lots. With owner financing options, the builder could purchase 5 lots with a $20,000 down payment each as opposed to just one lot worth $100,000.
Setting Up Seller Financing
The advantages of seller financing are obvious and while it won’t solve the demand problem entirely, it’s a small step towards remaining solvent in a niche with rapidly shrinking margins. If you’re interested in the nuts and bolts of Seller Financing check out our other blogs here.
Additionally, if you need help setting up or funding a seller financed deal we’re happy to help. We can assist by connecting you to a note servicer, referrals to note friendly title companies/attorneys and can help with the required documentation. If the process is overwhelming or you prefer a cash payment as opposed to a note, we can partner with you to fund the deal. We can also purchase the note directly from you immediately after closing.
Please contact us if you have any questions!
Disclaimer: Consult your attorney, accountant, and/or financial advisor for individual financial decisions. Justin Ignacio and The Land Helpers are not giving legal, accounting, investing or tax advice. Justin Ignacio is not an attorney, CPA, or tax professional.
