Across the country traditional financing has slowed. For real estate investors financing sales on land contract is now a great tool to have in\u00a0your toolbox. Using a contract to sell your real estate can help open the door to more potential buyers, increase flexibility in negotiations and create cash flow in the process. Not all contracts are created equal. Here are a few things to remember when selling your property on land contract.<\/p>\n
Down payment: <\/strong>The higher the down payment the better. That goes without saying, but you have to remember for every dollar your prospective buyer puts towards a down payment, that dollar represents another reason why the buyer will want to pay you each month without hassle.<\/p>\n Monthly Payment: <\/strong>\u00a0There are two schools of thought when it comes to monthly payments. Many property owners prefer to structure monthly payments like 30 year mortgages<\/a>, while other contract holders prefer larger monthly payments and shorter contracts. Whatever you choose, remember, a contract is a long term commitment and the two parties need to work together for the life of the contract.<\/p>\n Interest Rate: <\/strong>\u00a0Another option that increases your flexibility as a seller is your ability to set the interest rate. Be sure to follow your state\u2019s laws on interest rate caps to ensure your contract is enforceable.\u00a0 In my next post I will show you how a higher interest rate can increase your return, and help the buyer own the home in a shorter time frame.\u00a0This is a\u00a0win-win for you and your buyer!<\/p>\n Balloon Payment: <\/strong>\u00a0Have the purchaser make 60 monthly payments and then require them to pay the balance owed to you on that sixtieth month.\u00a0 Sounds great, right? The problem with this model is that 90% of the contracts you write with a balloon either default or have to be re-written under new terms. Don\u2019t assume just because you have a balloon payment in the contract, you are guaranteed to get that balance.\u00a0 A balloon payment works in some circumstances, just be sure when you write it into the contract you have a contingency plan in place for the contracts you own.<\/p>\n Qualify, Qualify, Qualify: <\/strong>\u00a0Treat the land contract sale as if you are qualifying the buyer for a bank loan. Do credit checks, ask for tax returns, pay stubs, and check references. More legwork up front, means less headaches after the contract is in place.<\/p>\n Use a title company: <\/strong>\u00a0While this may seem simple and a no-brainer, you should always work with a reputable title company to ensure that your contract is in compliance with the SAFE Act<\/a>. Furthermore, there are documents required in every state to ensure your contract is properly recorded, properly structured and enforceable. The small fee they charge to close a contract is worth piece of mind. Always protect your name and your integrity.<\/p>\n Following these principles will help you construct a contract that works for you, your buyer, and builds a solid asset for your business while creating passive income.<\/p>\n