Land Contract Homes for Investors

The number of active investors and entrepreneurs who buy foreclosed properties and sell with seller financing is on the rise. Home buyers are unable to get home loans from banks and are willing to put sweat equity to remodel the foreclosed properties if the payments are low and affordable. The entrepreneurs are paid just like a bank for the mortgage and provide homeownership to families who cannot get a loan. An investor who is occupied full time or part time in a profession other than real estate recognizes that they still can participate passively or with minimum effort in real estate and build wealth for the long term.

Investors with retirement funds and private lenders recognize now more than ever before the cash flow in an investment is more important than appreciation. Even when experienced property managers are utilized the rental property can be overwhelming for busy investors whose primary job is not real estate. The benefits that discounted seller financed land contracts have are:. Some real estate investors prefer holding notes or land contracts to rental properties since it provides predictable return without speculation on appreciation.

These investors prefer to free themselves from repairs and expenses of a property and earn a great return on their investment by giving the home ownership and responsibility to a home buyer and both sides enjoy what they want.

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The note investors free their time and invest passively in several notes or land contracts and diversify by investing in multiple markets. I would find a better medium. Do as you all wish. Steve Vaughan judgments and liens may be a problem in some states - not all - which is why you need to have a well-drafted CFD. That said, I was addressing your statement that a land contract is not a sale - which is patently incorrect.

Your post didn't address judgments and liens - nor did I. For my business model CFD's have never been a problem and have been a viable strategy for nearly three decades. For you, they may not work - and that's fine. And Peace right back at ya: Just for the sake of understanding all scenarios, LC's would essentially be "Non-recourse" loans correct?

Now that the original owner would repossess the property, could they sue for property damage? Since they would be re-claiming the property, but in much worse condition than it was sold at? I guess I am just wanting to know what the worse case scenario would look like for the LC owner.. Loans funded by equity under an installment sale has no deficiency allowed as a cash advance, purchase mortgage has. Yes they can sue you for damages to the property as you agreed to keep the property in good condition, not allow waste or its value to decline by your negligence.

A contract for deed is a sale for tax purposes, it is an installment sale and it is not completed until all amounts due have been paid and when legal title transfers. The equitable interest and use of property is what constitutes a "sale" for tax purposes, just as an option may be considered a sale transaction for taxes. A CFD is no longer a good way to go. There can be title insurance issues with deeds executed simultaneously a grant deed the a quit claim deed, deeds can be effective when made, not filed.

Public notice is irrelevant to the purpose of a deed. Some states will require perfection of the deed to be valid, perfection being the filing. Another issue, a CFD circumvents foreclosure laws. Your CFD doesn't have a non-judicial trust arrangement for a foreclosure, so that means a judicial foreclosure. That doesn't mean they are go to go today.

Those giving advice based on experience and historical transactions can be dangerous today. As Steve pointed out, you can have a "performance deed" or use conveyance deeds vesting legal title when conditions are met, better said, rights may revert back if conditions are violated. That's not a contract for deed! Such are state specific.

Now, all real estate is local, but you better check "local" against state and federal requirements, pitfalls and tax matters before going there. And, BTW, going into real estate or transactions with the idea of walking away as a strategy is not a good attitude, really misses the mark as to fair and honest dealing, dealing in good faith and honest intentions. The last thing I would want to do is enter into a LC not knowing the best and worse case scenarios..

Based on your reply, it seems that as long as the contract is well drafted and the terms are beneficial to both parties, a CFD is still a viable option. Especially when considering cash on cash returns, as I the buyer would able to bypass a significant amount of up front costs.

Land Contracts- Another Option For Investors - WILMOTH Group

I could also potentially get as many deals as I have down payments for, vs traditional financing. Join the millions of people achieving financial freedom through the power of real estate investing. If you signed up for BiggerPockets via Facebook, you can log in with just one click! Log in with Facebook. Full Name Use your real name. Password Use at least 8 characters. Using a phrase of random words like: When discussing such a technical topic, I want to reinforce I am not an attorney or accountant.

As a licensed real estate broker and interested investor, I am sharing my understanding and experience. I always will recommend investors put together a team with other professionals who can assist them in reviewing all opportunities from a holistic perspective. I am presenting land contracts as I believe they are an overlooked opportunity and solution for many investors.

There are many great reasons to consider selling your property on a land contract. Like any investment, there are also risks. Lets start with the simple premise that selling on land contract is an exchange of investments. You are trading your real estate asset for a paper asset a note. In that difference lies the pros and cons of this investment as you consider it for your portfolio. A land contract is a sale of the real estate to a third-party and the owner of the real estate becomes the lender or mortgagor. A contract sale document is prepared when the decision is made to sell and the terms have been finalized.

With a land contract, the buyer gets a contract from the seller stating conditions that must be fulfilled for the buyer to get the deed. The seller retains the deed. The buyer makes payments on the contract. Once the contract is fulfilled, the seller hands over the deed. Pretty similar to the process of buying a car with a loan. The lender holds the title until the loan is paid off. The buyer has possession of the car, but not the title. As the potential lender in this transaction, the owner gets to control the terms.

This is a big advantage as you can insist on terms that work for you such as length of the contract, interest rates, payments. You also can complete background screening to determine if anything might show up about your borrower that causes you to decide not to enter this transaction. The seller now holds a note that provides a cash flow stream. The only expenses the seller might incur with that note is in the event of a collection or default.

The seller is the bank and will collect monthly payments of principal and interest. Depending on the terms negotiated, the seller will also receive some cash as a down payment at closing. Very few land contracts are significantly long-term in length in excess of five years.

Land Contracts- Another Option For Investors

The objective is for the mortgagee buyer to develop credit and the ability to qualify for a conventional, less expensive mortgage. As an investor, you have a balloon payment that is to be expected on the back-end. The seller may also consider offering an extension in the contract so if the buyer is unable to refinance at the given time, slightly different terms go into effect for example a higher interest rate with an extension of the term.

If you, as owner, really would like to sell the home, and the tenant would love to become a homeowner, consider a land contract arrangement. This process is much faster and easier than waiting for a tenant to go through all the hoops of purchasing using traditional mortgage financing. My experience is that if a tenant can qualify for a conventional mortgage they will do so and purchase the home outright.

You must accept that you are taking on a risk that the buyer is not creditworthy as defined by traditional mortgage lenders. There are many steps to determine if this is a risk to accept but remember you have a huge advantage. A contract sale to a tenant should be a tenant that you have experienced a year or more of timely rent payments. These are people who have shown responsibility and a priority to their housing obligations.

BASIC COMPONENTS OF A LAND CONTRACT

So, you are working with a buyer and the land contract option seems appropriate. The following are the basic components that will need to be determined and negotiated if needed. These legalities are also reviewed below. The selling price of the property. Due to the fact the seller is providing the financing, the purchase price received is often higher than prices for homes being sold via traditional methods receive.