How are some land contract, owner finance options structured?

12 Replies

What would be the structure of a rent to buy, land contract, owner finance scenario?

Where the tenant wants to buy the property and the property was purchased with funding from a LOC.

I would take a seller-financed transaction to a title company.  Give them the PSA that outlines the terms (here we have a standard Method of Payment Addendum that's pre-printed, check with IL standard PSA) and have them outsource the docs.  Here they cost about $300 to do it right.  

I wouldn't buy on a Land Contract, but would sell.  Are you the seller @John O'Sullivan ?

Lease options are simply a lease with a separate option to buy.  Lots of info on those here, but get professional local help if you need it!

Thanks Steve,

I like the owner financing idea, and I'm thinking their monthly payment should be higher than their rent and

should include a down payment and an interest rate higher than market at this time.

I like the idea of taking the deal to a title company to make it official and cover the transaction for legality.

@John O'Sullivan I typically sell on owner financing at 5-10% above comps, with 3-5% down, and 2-3% above the interest rate on the underlying mortgage.

Thanks Doug,

Your suggestions are what I need to structure a deal with my tenant

Appreciate it!

@Doug Pretorius --- Thanks for the insight.  I'm researching Lease Options, in your experience are the terms you mention for owner financing about the same?  I'm just looking for a baseline.  Obviously 'it depends' would be an acceptable answer. :)

@Jasen Koebler It's much harder to go above market rent on a lease option than it is for owner financing. Due to a long history of rent control the market rent in my area has always been much too low compared to prices, so I quickly moved to owner financing from lease options when I got started investing here.

Originally posted by @Steve Vaughan :

I would take a seller-financed transaction to a title company.  Give them the PSA that outlines the terms (here we have a standard Method of Payment Addendum that's pre-printed, check with IL standard PSA) and have them outsource the docs.  Here they cost about $300 to do it right.  

I wouldn't buy on a Land Contract, but would sell.  Are you the seller @John O'Sullivan ?

Lease options are simply a lease with a separate option to buy.  Lots of info on those here, but get professional local help if you need it!

I'm curious Steve, is there something intrinsically unprofitable (to Buyers) about Sellers' Land Contracts that lead you to conclude that you "wouldn't buy on a Land Contract"? 

(Or is it just that in your experience, such sellers are always the winners, not the buyers?)...

Thanks @Doug Pretorius .

Is all of your experience with SFR? I'm currently looking at multi-units from the Buy/Lease side which might alter your answer.

Any thoughts?

Originally posted by @Brent Coombs :

I'm curious Steve, is there something intrinsically unprofitable (to Buyers) about Sellers' Land Contracts that lead you to conclude that you "wouldn't buy on a Land Contract"? 

(Or is it just that in your experience, such sellers are always the winners, not the buyers?)...

 I wouldn't buy on a land contract simply because you don't own anything until you pay it off.

I'd make sure there's a mortgage/deed of trust instead.  That way, I own the house.

Originally posted by @Steve Vaughan :
Originally posted by @Brent Coombs:

I'm curious Steve, is there something intrinsically unprofitable (to Buyers) about Sellers' Land Contracts that lead you to conclude that you "wouldn't buy on a Land Contract"? 

(Or is it just that in your experience, such sellers are always the winners, not the buyers?)...

 I wouldn't buy on a land contract simply because you don't own anything until you pay it off.

I'd make sure there's a mortgage/deed of trust instead.  That way, I own the house.

I guess I'm still not seeing the difference, because even though your way, your name gets put on the Title, I (and Lenders?) don't see that you actually own it then either - until you pay it off.

Is it because Lenders take no account of any equity you have in a Land Contract? And/or, are you saying it's too hard to prove you're buying it off a Seller if you use their Land Contracts? 

Originally posted by @Brent Coombs :

I guess I'm still not seeing the difference, because even though your way, your name gets put on the Title, I (and Lenders?) don't see that you actually own it then either - until you pay it off.

 It's not the same, Brent.  If Joe Seller still holds title to 'your' property and gets in financial hot water, there is judgement risk.  If his kid hits someone while driving and Joe gets sued, you lost 'your' house.  Not for me.

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