BiggerPockets Podcast 016: Land Contracts, Creative Selling, and Finding Private Money with Clay Huber

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Several weeks ago on the BiggerPockets Podcast, we spoke with Leon Yang about using seller financing to buy properties. Today we are going to look at the opposite side of that transaction and discuss ways you can invest in real estate by utilizing seller financing (or “land contracts”) to sell. Our discussion today with real estate investor Clay Huber is chalked full of a lot of great advice for utilizing this strategy, as well as a variety of tips for those who are just getting started or for those who are just looking for another tool to add to their investor toolbox.

Read the transcript for Episode 16 with Clay Huber here

Listen to The Show on iTunes

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Listen to the Podcast Here

In This Show, We Cover:

  • BiggerPockets Podcast _ Real Estate Investing and Wealth BuildingThe “accidental flip” that got Clay into Real Estate… and why he changed strategies
  • How to use seller financing to invest in real estate,
  • When not to use seller financing
  • Dealing with the dreaded Due on Sale clause,
  • Should you get your real estate license?
  • Using a full time job to accelerate your investing
  • The members you should have on your team
  • How Clay finances his deals
  • The four items to include in your Marketing Packet to attract private money
  • Overcoming the “Bus” question… what happens if you get hit by a bus!?
  • How to get training for pennies on the dollar

Books Mentioned in the Show:

Inspecting a House (For Pros By Pros) by Rex Cauldwell

Links from the Show:

BP Podcast 015: From $80k in Credit Card Debt to 100+ Deals with Glenn and Amber Schworm
Michael Zuber
How to Raise Private Money Anytime, Anywhere. Even Over Chicken Wings!
A Great Real Estate Investing Resource that Cost a Penny

Tweetable Topics

“The best business model is to simply have a sugar-momma!” (Tweet This!)

“If you buy something for retail value you are at the mercy of the market.” (Tweet This!)

“Your first step in any venture is to define your goal.” (Tweet This!)

“Make sure your spouse is 100% on board with your goals.” (Tweet This!)

Learn More about Clay
Clay’s BiggerPockets Account
Clay’s BiggerPockets’ Blog Posts

About Author

Thanks for checking out the BiggerPockets Real Estate Investing & Wealth Building Podcast. Hosts Joshua Dorkin & Brandon Turner strive to bring top-notch educational content and interviews to our listeners -- without the non-stop pitch prevalent around the industry. With over 180,000 listeners per show, the BiggerPockets Podcast has become the biggest real estate podcast in the world. But don’t take our word for it. We’re the top-rated and reviewed real estate show on iTunes — check it out, read the reviews on iTunes, and get busy listening and learning!


  1. Good show guys. Clay, are you finding that the recent movements at the federal level are impacting or have the potential to impact your business model with seller financing at the exit?, considering you do volume…


    • Clay Huber

      Thanks Ben. Great show on your part too! I grew up in Toledo, Ohio area and my sister actually was on a track scholarship to University of Cincinnati. Anyways…

      The federal movements haven’t really effected me much at this point, but yes, the potential is there. If taxes are continued to be raised, then yes, my income from interest will no longer be the same.

      The way I look at it though, whether you’re a landlord or a seller finance guy like me, there is only so much you can do to protect yourself. If a local government (I know you asked about federal, but the point remains true) decides they are all of a sudden going to impose a ton more inspections on rentals, there isn’t really much a landlord can do.

      With government policies, it sorta “is what it is”.

      I don’t say this sarcastically, but after listening to your podcast, you are much smarter than me, so I have no idea if I answered your question or not.

      • Clay,

        It is a small world…
        I concur with you on all of the taxation issues – it is what it is. I was referring to a different thing. A few years back in response to the financial crisis there was a real push on Capitol Hill (one of the houses passed a bill but it never made it out of the other body if my memory is correct) to limit the number of owner-financed transactions one can perform in any given year. This was of course driven by the bank lobby, and it makes sense from their perspective.

        In the seventies and eighties when interest rates were really high there were lots of things sold on contract – you couldn’t sell otherwise. This cuts out the banks and the FED, and naturally they did not like it.

        I would think that in anticipation of high inflation they might to pre-empt this retail business model. I guess nothing has happened yet to this end, but watch for it as I wouldn’t be surprised by it…

        Although, I am not really worried about a smart guy like you. You’ll just find another door if this one shuts!

        Great job and let me know if you ever come to visit these parts Clay

        • Clay Huber

          Oh yes, that’s definitely a possibility, but when one door is shut, another opens 🙂

          I head down to Ohio to visit my parents relatively often, so if I ever make it down to your neck of the woods, I think I’ll have to take you up on your offer!

  2. Both Ben and Clay Rock!

    Selling on Land Contract in OH is cool because you can evict instead of foreclose if the Buyer – vendee has less than 20% FMV in the property. Yeah!


    Anyone want to do owner financing in Arkansas?
    See this article.

    Quote…”For the last several years individuals interested in owner (seller) financing and hard money lending have been restricted by a cap on the interest that they could charge by virtue of a low Arkansas usury rate. The Arkansas Constitution set the rate at 5% above the Federal Reserve Primary Credit Rate or 17%, which ever was less. For the last few years the Primary Credit Rate has been .5 and .75 percent, capping the usury at 5.5 and 5.75 percent. Federal preemption exempted banks from the obligation to comply with this rate restriction however private investors have been limited in what they could lawfully charge in interest.

    This limit has restricted the profitability of owner financing and hard money lending as an instrument of successful investing. Typically individuals found that the risk was not worth the relatively low return. However, all of that may have changed with the passage of Issue 2 last fall which modified interest rates limits on individuals acting as private lenders. This limit is now restricted to an interest rate not exceeding 17 percent per annum, which is the existing limit for consumer debt under the Arkansas Constitution, and there is no longer a restriction that interest rates charged cannot be greater than five percent above the Federal Discount Rate. This includes an interest rate on a real estate transaction in which an individual finances the purchase.

    Conventional financing offers the benefit of the inclusion of a lending professional who is able to walk a buyer through the process and allows the seller to realize the funds in cash at the closing. This cash allows the seller the option to reinvest the equity in other property if necessary and to avoid the potential hassles that can be associated with acting as a private lender. In short, there are real benefits to conventional financing, however not all individuals or properties qualify for conventional financing.
    For the transactions that may not qualify for conventional financing, the option of owner financing of real estate becomes viable, and possibly even highly profitable. This is with the road block of the low capped rate removed. This is because there are many advantages to owner financing and hard money lending for both the buyer and seller. Sometimes the benefits are greater for one or the other, but in most cases it is a “win/win” for both parties.

    See the link for more….

    “You Always Find The Finest Fishing Holes Where The Average Fisherman Is Afraid To Go.”

    • Clay Huber

      Very interesting Brian.

      In Michigan, the usury laws limit the interest rate I can charge to 11%, but that is sorta a bummer for those living in Arkansas. Doesn’t make the strategy impossible, but just a bit more challenging.

      We (Michigan) have the same principle as Ohio it seems. Within the land contract I use, it gives me the option of Foreclosure or Forfeiture. Forfeiture being a much quicker option than foreclosing.

    • Clay Huber

      Thanks Tracey. Glad you were able to pull some knowledge out of the podcast!

      I pay $2,000 to the guy. It’s a great deal since not only does his company bring me the buyers, they also screen them, collect documentation, and run all the background checks.

      The amount of time it saves me is priceless.

  3. Carrie Collyer on

    Great podcast Clay! Thanks for sharing. I was wondering too if seller financing is affected by the Safe Act? (hope I am not the only one who doesn’t know the answer to this 🙂 Maybe Bill Gulley would have some thoughts on this.

  4. Al Williamson on

    Clay, your interview made for a fun work commute. Engineers are always fascinating interviewees! I like the way you pieced financial tools together to design an investment style that fits your personality and time minimizing needs. Well done Bro!

    Dynamic Duo (Brandon and Josh) – kick in the shins for being tone deaf. I’m sending ya’ll a harmonica so you two can get on the same note before the “Quick Tip” jingle!

  5. Zachary Sexton on


    Your interview got me more pumped up than most and the BP interviews have all been super high quality . Since I am younger and do not have the bank roll or investment history to do owner finance yet, I was going to stick with my original plan of buying a single family or town home then living in one portion and renting out an income suit to help with the mortgage. The goal would be to positive cash flow upon moving out two or three years down the road and doing it all again (or possibly 1031 Exchange it for a small multifamily).

    However, my question is more about having your real estate license.

    My girlfriend is ready to buy her first home within the next few months through a lending program that helps teachers gain access to affordable housing (teachers next door). She has the same Income Property dreams as me and wants to build and rent out an income suit while living in the house then rent the entire property out after the three year primary residence term of the HUD loan is up. You are not the only person on the Bigger Pockets podcast and Forums that suggested getting their real estate license; however, you finally inspired me to look into it further. I figured I could help my girlfriend out by looking at numerous houses at my/our convenience, learn a lot about my local market, and pay for my classes and test with the commission earned on the sale. Win, win, win.

    But I hit a stumbling block I was hoping you could help me out with. I discovered taking and passing the classes and the tests will only qualify you for associate broker status. In Colorado, an associate broker must be employed and supervised by an employing broker or on inactive status. Only after two years of apprenticeship can you be an independent real estate agent. It looks like in Michigan you need three years. If you don’t mind sharing, how did you go about getting your broker license? In the interview you never mentioned working for another agent/agency so I thought there might be a less involved way to get your credentials.

    Thanks for sharing so much on your website, the blog, and the podcast. It really helps us newbies keep inspired.

    • Glad the podcast got you pumped up!

      I only have my salesperson license in the state of MI. I am not a broker. I work underneath a broker to whom I pay monthly fees and such.

      As an investor, I see no reason to become a broker, unless a large part of your business model is going to be to make money off of other agents that fall under you. That, from my understanding, is a whole other type of business model.

      I would recommend just getting your salesperson license, but even with this, in order to make it worthwhile, you’ll need to “be a Realtor” unless you have a flip or other investor activities going on.

      It’s not exactly cheap to have your license.

      Hope this helps!

  6. I really enjoyed listening to this podcast on my 7 mile run this morning. It made the time pass very quickly. Thanks to Clay, Josh, and Brandon.

    Couple of questions came to mind for Clay:
    1. For your seller financing deals are the buyer’s payments reported to the credit bureaus? Considering the fact that your buyers likely have poor credit they would certainly benefit from reporting.
    2. Do you have a clause in your contracts which disallows the buyer from renting/leasing to a third party?

    • You runners are crazy! I’m guessing you loved every minute of that 7 mile run too 😉

      1) We do not currently report payments to the credit bureaus. We have that as an option, but we don’t make it a priority. My main goal is not to cash out, it is to collect interest for the next 30 years. If they can’t’ fix up their credit, but are not a headache (payments show up on time), then I’ll gladly renew their land contract for a couple years everytime it comes up.

      2) I do not, but during the process, it’s pretty evident what they plan on doing with it. Also, due to the rates we charge, I think it’d be pretty hard for an investor to come along and be able to positive cash-flow it. We are not a motivated seller, so there is no reason to drop our terms down to what an investor would need in order to cash flow the property.

      • I wouldn’t say I loved every minute of my run, although it’s quite enjoyable for me when I’m listening to a BP podcast. 🙂

        On my #2 question I was thinking more from the standpoint of a buyer needing to move or somthing and deciding to rent the property and mismanaging it and placing a terrible tenant who destroys the place. It seems possible it could potentially turn into a situation similar to having a terrible property management company that you can terminate. That would be my concern if i were doing what you are doing.

        • Josh, that’s an excellent point. I have never had this happen, but I suppose it could.

          We try and build a relationship (note, not a “friendship”) with each of our land contract buyers, so I’d hope they would let us know if they needed to move and not just throw some criminal off the street into the house.

          While this has not happened, if this did, I would tell them that we will take care of finding the tenant and such.

  7. Hi Clay — definitely had me whipping out a spreadsheet, being numbers-oriented like yourself. I had always shied away from looking at this since it felt like a slow-motion flip, and 10 years down the road all the properties may have refinanced and gone, and the market perhaps not cooperative at that point in order to refill the pipeline. So I kind of dismissed it as not providing long-term passive income, and I still have that concern to some extent, though certainly less given the returns you describe. (And harvesting all those gains many years out would not be a bad thing, that’s for darn sure.).

    My quick calc of a transaction where you’re all-in at 40K and selling for $70K, with rent comparable of $850/mth (with 50% expense guideline), LC rate of 9%, and 5yr takeout, seemed to indicate an annual return of 30% for LC and 23% for rental, but that’s pre-tax and pre-depreciation benefit, so that might help to even things up. Certain there are some nice advantages to the LC, with the buyer down payment and sense of ownership, so you don’t have the management issues and NOI volatility that you have with a rental.

    1) What is your level of rehab? Something between rent-ready and retail flip?
    2) What are your property criteria? BRs, BAs, SF, garage, basement, age
    3) How much above ARV (at point of sale), in percentage terms, is the land contract sales price?
    4) At refi time, if the appraisal comes in at only 85% of the land contract price, what is your strategy?
    5) Do you taget the private lender investment at 100% of your initial purch+rehab investment? Do you typically have an appraisal done at time of investment?
    6) Does the private lender earn the same rate, or a lower r-ate, than the LC?
    7) Does the private lender participate in the gain at refi takeout?
    8) How difficult is it to find quality buyers in this price range who have $5K in their pocket? IOW, how long does it typically take your seller to bring you a buyer, and how many apps do you get over say a 30-day period.


    • Thanks for the comments and questions. Each one of these questions could be a blog post, but I’ll try and sum it up as quickly as possible.

      1) Rehab can be anywhere from rental to slightly above rental. Lots of the buyers we work with our pretty handy, so they don’t need the thing 110% move-in ready. For example, we had a couple of brothers who are roofers tell us not to worry about the roof on a property they wanted (we begin marketing the property right away, even before all rehab is done), so we didn’t touch the roof.

      2) 3 bedrooms at least. Everything else is “give-and-take”. For example, if a house only has 1 bathroom, then it better have a garage. If a house has no garage, it better be at least a bath and a half with a 4th bedroom.

      3) If and when it is listed above, usually right around 10% or so. Usually though, we buy them right, so our listing price is pretty darn close to the ARV.

      4) Hard to say since it would really depend on the property. Ideally, I’d readjust the price down to what they need to refinance out. While I would love to just have them keep paying me and not allow it, that’s not a good way to create/keep a good name for your company.

      5) Yes. If I have $40k into a property, I’m seeking $40k from private investor. I do not have an appraisal done because by the time I seek out the private investor, the property is ALREADY sold on land contract. So, while that may not be the actual ARV, as discussed above, it’s going to be at least 10% within range of it, and given I never offer an investor more than 75% LTV, they’re in a good spot.

      6) I pay private investors 8%.

      7) They do not. I could see negotiating that if need be, but my baseline program doesn’t have that offer.

      8) Not very hard. I’ve had some where BEFORE I even close on it from the bank, it is already sold to a land contract buyer. So in the same day, I buy from the bank and resell on land contract. Other times, it has taken a couple months to get the property sold. These are on the higher priced ones. The interest doesn’t drop off, however, people that can afford it do, so we usually need to turn down quite a few before getting someone who can document sufficient income to afford it.

      Hope that helps!

      • Thanks Clay, very helpful. Managing liquidity risk for a large volume of maturing private lender notes has been a concern for me with going big with private lenders. Most private lenders don’t want to commit for more than 5 years (nor do banks). In your scenario, if rates have jumped substantially after 5 years, but the borrower is still not in position to refinance, I assume that you have the opportunity to refinance the land contract to reflect current market rates (assuming the borrower can afford the higher payment). Or go out and find a new buyer for the home with a note at current market rates. You could then pass that increase to your private lender in order to encourage them to extend their loan.

        Liquidity squeezes could be managed by spreading out maturity dates on private lender notes, keeping some cash reserves, maintaining bank lines of credit or HELOC capacity on other property you own, and having a large enough lender network that there is always untapped capacity in that network to replace lenders that need their cash back. So you want numerous backstops to prevent the fire sale of a property.

        Does that sound about right, and have you developed any other plans or thought processes for dealing with private lender maturities.

        Thanks again!

        • “Does that sound about right?”

          It sounds like the exact plans I have in place!

          I have a large “rainy day” fund (which I add to each month), a line of credit, and am really working on the private lender phase now so that, ideally, I will have people “waiting in line” to lend with my company.

          But yes, if rates change, things can always be renegotiated down the road.

  8. Loved the podcast you were on, great info. Clay Ihave a question about when you partner with the private money “partners”.

    How do you spilt the down payment, the landcontract payments, and the ballon with you private money investors?

    Ilove this system and want to use this in my market, any insight you could sharewould be great.

    Ronnie Boyd [email protected]

    • Thanks Ronnie, glad you found the interview helpful!

      It is not really a “partnership” with the private money investors.

      I simply do a private mortgage with them and keep the land contract in my name. I pay them 8% and they get 1st lien position on the property to secure their loan.

    • Ronnie Boyd on

      I see that makes perfect sense.

      Does the investor get any of the down payment?

      Does the investor get a % of the ballon when the terms expire?

      If the investor gets 8% monthly, what do you collect as passive&residual income each month of an indivual deal?

      Thanks for your time, I have listend to this podcast 3, going on 4 times now. I want to put this in place in my market. I am losing money on my delas and this is a great way for me to max out my deals.

      Thanks Clay (sorry I don’t mean to over load you with questions but I love this system)

      • No problem! All good questions.

        1) By the time the investor comes into the equation, the down payment has already been made (home is sold on land contract ‘before’ I seek investor), so they do not get any of it.

        2) That can be negotiated in. I like to do 10% of the profits upon pay-off. Just make sure your investor knows that there is a possibility they may not pay it off at the end.

        You can definitely get this system in your area. It may not be referred to as a “land contract”, for owner financing is nothing new to real estate. Different “names”, but the same “concept”.

  9. We used Napster to make CDs for kids at school too. I think that was right around the time Dr Dre’s Chronic 2000 came out? I just remember making a bunch of CDs with Eminem ha

    Seller financing sounds like a good setup. I saw a house with a RE sign that said seller financing available.

    Would it be advisable to negotiate a price and then put a tenant into the house with me backing up the payments if it’s vacant?

    • Clay Huber

      hahaha… yup! I too remember Dr Dre and Eminem being quite popular for those mix tapes.

      I personally do not use the land contract method to purchase properties to rent; however, I know many do.

      You would first need to figure out what you could get for the house rent wise, and then work backwards from there. You will have no idea what a good land contract deal is if you don’t know what you will be able to charge for rent.

      And yes, you will need to treat the home exactly like a rental, which includes making sure you have a “rainy day fund” to still make payments whenever it is vacant.

    • Alex (and others): Given the regulatory changes as pertains to seller financing (through either mortgages or land contracts) to owner occupant buyers, with even more onerous regulations commencing on 1/1/2014, this podcast and other articles on this subject need a strong recommendation/disclaimer attached to them.

      Please discuss with an experienced real estate attorney in your state, an attorney who has experience with land contracts and seller financing, not the run of the mill title company or closing attorney. Also call your state Dept. of Financial Regulation, or whatever department oversees mortgage lenders, and ask them what exactly you have to do to be legally compliant when selling a 1-4 unit property with seller financing or using a land contract (i.e. contract for deed). You may potentially have to use a licensed originator, document “ability to pay” by the borrower based on recognized underwriting standards including debt-to-income ratios, create a fully amortizing note only rather than a balloon, and other restrictions.

      One of the most prominent land contract guys in Michigan has discontinued land contract activity due to the high regulatory risk, including possible loss of your equity in the property if a disgruntled/defaulting borrower sues you and claims that you illegally originated their mortgage. And where there is an opportunity there will be lawyers ready to exploit.

  10. Very helpful podcast. I was wondering if you could explain how you handle capital gains tax for properties that you sell for a shorter term since you can’t spread out the tax over a longer time period. Wouldn’t it be a greater benefit to you to sell a property for a longer term so you could defer the capital gains tax over a longer time?

  11. Bryan Whitfield on

    Clay, I really like this idea. It really resonates with me and the position I find myself. My situation is very similar to yours when you began investing in real estate.

    When you started using private money at say 8%, what did it do to your expected rate of return? If you somehow get 11% on the LC, that gives a fairly small spread and it must impact your overall return on the deal. In Dave’s example above, the self financed deal at 9% returned 30% annual return. When you give away 8% to a private lender, what kind of annual return can you realize on a private investor deal?

    Thanks again for all the content you share here on BP!
    Clarkston, MI

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