In today's hot real estate market where things are typically selling without being on the market for very long, why would a seller consider a land contract? In my mind, if a seller can sale his property out right.. then why would they entertain a land contract offer? I understand that some sellers would rather not take a huge lump sum on a property for tax reasons. From my understanding though, with land contracts, most buyers put hardly any money down. I have owner financed two properties to buyers in the past, and i required a down payment with both offers. Also, both properties sat on the market for months w/o selling outright. Thanks in advace.
Hi Adam, you are correct especially for nicer properties like 3/2 houses in good shape that appraise and finance easily. And yes I've seller financed RE too via traditional Note and Mortgage (security deed).
But I sell on land contract / contract for deed (the same) as well when:
- deal price is so low that the closing costs ($2-3k) is an unfair expense for the buyer to pull out of pocket.
- You don't want to have to foreclose if the buyer defaults. Just an eviction in most states.
- I sell my double wide mobile homes on CFD contract for deed. Low down, 10-14 yr term, which is a better deal for the buyer since low closing costs. I close my CFD/Land contracts at an attorneys office and file a memorandum of sale (I do the right thing for the buyer).
-For me if they default and I can't salvage their situation by dropping payments etc etc then its just an eviction. No mater how well you screen tenants, or work with them when problems happen, lower blue collar folks have more problems that can't be fixed by a lender dropping payments. So I just didn't want to waste the buyers funds on the closing costs etc on a note and mortgage. I want these deals gone, I don't want them back. And I want to save the buyers costs and me the hassel and expense of foreclosure.
Land contracts are typically used in rougher / cheaper deals. There's a lot of preditory behavior in this sale scenario as well. Periodic bad news from Northern states where buyers are put into wrecks of houses and are 100% responsibile to fix all the problems. Most fail and hit the news. Very bad! Investors should not do this. I 100% rehab my homes, new HVAC etc, then rent for at least year before a allow the tenant to buy via a CFD with amortizing term 10-14 yrs, short as possible.