Land Contracts: A Great Real Estate Investment Tool


I love owner financing. Heck, my entire company’s investment model is built around it. In my opinion, it is truly a great real estate investment tool that should be used by everyone. I’m not suggesting you need to base your entire model around it like myself; however, having a few owner financed homes in your portfolio isn’t going to hurt anything.

The term “owner financing” is a very broad term. Maybe you’ve heard it used as exactly that, or heard one of the various other terms for it. Here in the great state of Michigan, we call these transactions land contracts. Other terms you may have heard are seller financing or contract for deed. The IRS categorizes these types of transactions as installment sales.

Point being, there are all sorts of terms thrown around for what the IRS classifies as an installment sale. For the sake of this article, I will be using the term land contract instead of installment sale due to the simple reason, that’s the term I use in my day-to-day business. Don’t let it confuse you though, whether you call it a land contract or a contract for deed or owner financing, they are all viewed the same way by the IRS (Form 6252 to be exact).

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What is a Land Contract?

Simply put, a real estate land contract is an alternative way to sell real estate by capturing the demographic of buyers who cannot get traditional loans. They are the people who want to be homeowners, but for whatever the reason, can not walk into a normal bank and qualify for a loan.

Your Position As an Investor in a Land Contract?

The easiest way to look at your position within this type of real estate transaction is instead of “Bank of America”, look at it as Bank of “insert your company name here”, because that is exactly what is going on: You are playing the role of the bank. In my case, I am the Bank of Huber Property Group, LLC.

What do you mean “play the role of the bank”? You get to set the terms. You get to do the screening. You get to say ‘yes’ or ‘no’. Bottom line, you are in total control just like a traditional bank is when you go in to try and get a loan. You can require as much (or little) information from the potential buyer as you want.

How is a Land Contract Structured?

Land contract’s  divide the title into two parts: legal and equitable.

  1. Legal title remains with the seller ( in my case, Huber Property Group, LLC) until the terms of the land contract are met by the buyer.
  2. Equitable title is given to the buyer at closing.  Meaning, they are deemed the owner of the real estate and must insure the property, pay property taxes, and eventually, pay for it.

You may be thinking, “this sounds like a mortgage”, which is somewhat accurate. The most important difference between a mortgage and a land contract is that with a mortgage, the deed (a legal instrument transferring the property rights) is transferred to the buyer immediately upon purchase of the home. HOWEVER, with a land contract, the deed does not transfer until all the payments have been made. Although the buyer will live on the land, the property remains under the title of the seller until all installments have been paid.

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

What are the Components of a Land Contract?

There are five critical areas of a LC that create the terms. Again, this will sound like a mortgage, and in many ways it is, with the difference being what was discussed above.

  1. Purchase Price – 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.
  2. Down Payment – the non-refundable amount the buyer must bring to closing. Usually between 10-20% of the purchase price.
  3. Interest Rate – the rate the buyer must pay on their principle amount which is stated in annual terms. Typical rates are between 8-11%.
  4. Monthly Payment – the combined total of the principle + interest payment, property tax payment, and homeowner insurance payment.
  5. Balloon Period – the period in which the land contract expires and the entire principle becomes due. This period usually lasts from 3-5 years while the buyer either fixes up their credit – or builds credit.

Again, you are probably thinking, “this sounds just like a normal bank loan, minus the balloon period” and you are exactly right. The balloon period and the deed NOT transferring to the buyer upon closing are the two attributes that separate it from a traditional mortgage.  Other than that, hopefully the whole “you play the role of the bank” thing is becoming more clearer.

Who decides all these components? You do! It is all in your hands. Having control over all these dynamics is one of the main reasons why I am in love with land contracts.

Related: Land Contracts: Could They Be The Most Valuable Tools In Your Toolbox?

Interest Gauge for Land Contracts

I am very aware that this is a pretty black and white article of simply explaining “what is” a land contract, opposed to sharing the pro’s and con’s. I figured I’d first see what kind of response and interest from this article before I dive into other land contract topics.

With that being said, if you would like to learn more or have questions, please leave comments below or contact me. If there appears to be genuine interest for this real estate investing tool, then I will share more about how it can be used and all the benefits it has.

Photo: Phillip Merritt

About Author

Clay (G+) is a licensed real estate agent and the owner of Huber Property Group, LLC, a real estate investment company located in Grand Rapids, MI. His company purchases distressed properties with the main exit strategy of fixing them up and reselling with owner financing, particularly, land contracts.


  1. Paul Grgurich on

    Excellent article and information as well Clay, I also listened to you on the podcast about this… but does the facility need to be free and clear to get this set up? Or are there restrictions while its under a current mortgage? I love the concept, I actually bought a house this way years ago…So now I want to be on the “receiving” end.
    Thanks for your input!

  2. Hi Clay, I agree with the concept and I too have a real owner finance deal in our porfolio, a 15 yr amortizing note from a house we fixed, marked up 2x and sold on a 9% interest 15 yr note. We were completely Safe act legal here in GA, I used a loan originator (cost me $695) and of course closed at a lawyers office.

    I’ve yet to convince a closing lawyer in GA to handle land contracts. One who seemed green said heck why not. But my seasoned regular guy says he won’t do them because they can blow up for the seller (investor) and then he gets dragged in on legal malpractice.

    I suppose the devil is in the details so I’d have to see your contract? It would be very useful to put it or a suitable LC up in the file share.

    I would love to run your LC contract by my curmudgeon closing lawyer!

    For the conversation, after much Safe Act study and calling the GA state Banking deputy commissioner several times talking about one issue and angle after another here’s GA’s owner finance guidlines:

    – A real person (not an entity, but my SD IRA (equity trust) does owner financing) may sell up to 5 properties a year.
    – You must use a loan originator. Best I’ve found is $695 and I was pretty irratated when I found out how little he does for $695. No paper work. Just a 1/2 hr conversation with the buyers (all talk).

    I suspect that the old timers and the naive will do owner financing out of ignorance of the Safe Act or in complete disregard (Libertarianism runs strong in REI circles LOL).

    In the end I’m pretty frustrated because my owner finance deal cap rates at 25%!! And no fixing. So I love owner financing as a smarter form of renting but I’ve yet to find a good path forward post Safe Act. And I don’t think all of the problems in Contract for Deed has been surfaced in this conversation. IE how the buyer can stop paying in yr 4 and the judge awards the buyer equitable interest and get your eviction kicked into a judicial foreclosure even if you are in a non-judical state. etc etc.


    • Hey Curt. I’m in GA as well and only know of one lawyer who does land contracts and have been unable to find one since. Any luck on your end? I’ve done several deals myself and was unaware of the SAFE act and how it might affect my business. Would love to discuss these matters with you further if you’re interested….

      • Hi Matthew, Sure glad to talk. Find me on BP: Put into the search box: Curt Smith Atlanta
        brings up the threads where I’ve posted. Then you can connect and PM me.

        What I recently figured out is that the Safe Act was just an interum mortgage/seller financing re-regulation that each state implemented their own nuances. The Dodd Frank act of Jan 14, 2014 takes over and superceeds the Safe Act. After January 14 the Safe Act if I understand correctly goes away and the details in the Dodd Frank final implementation take over. Things get more restrictive and more steps to follow. We plan on continuing to use owner financing but we will use a: Licensed Mortgage Loan Originator (who’s willing to originate your owner financed mortgage), use a loan servicer. We are using FCI, There’s many issues re borrower/buyer qualification like must meet 43% Debt to Income ratio and other affordability checks..

  3. I assume since legal title remains in the seller’s name, that ultimately the seller is still responsible for paying property taxes annually? And is that why the buyer’s monthly payment includes insurance and taxes, because the seller is still making these payments to ensure they are done (i.e. not trusting that the buyer will do it)?

    Also, on your podcast, did you state you have extensions available to the buyer at the end of the balloon term in case they need it? I’m very interested in this subject, so more on the topic would definitely be welcome. Thanks, Clay!

  4. Buyer assumes loan or is it subject to?
    In case of seller can’t be contacted or has passed away after all payments made and fully paid, how the buyer gets legal title?
    little risky, I thought. Thanks

    • Steve Johnson on


      From what I’ve read on other articles I believe what you do is set the title in escrow, to be handed to buyer upon fulfillment of monies paid. I think this may be the only way to avoid such a hassle if the seller were to pass away.

      • Wonder , if title company or escrow, will wait that long, could be 20-30 yrs. They want their money now, instead od that long a wait, but no harm in checking out. Thanks

  5. Clay,

    I did a land contract earlier this year through my realtor. The buyers had an extra large down payment (27.5%) due to an inheritance but poor credit and they wanted to use the inheritance money to buy a house. This was in a rural area where it’s very hard to sell houses (it was a rental for 3 years prior). I’m still confused about all the SAFE Act business but from what I’ve read I’m in compliance.

  6. Hi Clay,

    I would be interested in further discussions of LC’s. They seem very similar to the lease options we do. We handle sandwich lease options where the tenant/buyer stays a renter until they exercise the right to buy, but must have financing in place to exercise that option. This eliminates a lot of hassles associated with equitable interest in the property. We do give option credit that only gets applied at the time they exercise their option.

  7. Negatives with L/O’s: the owner still retains landlord responsibility and can’t really force the tenant-buyer to make repairs, regardless of what the contract states. The option payment is also normally less than with a Land Contract. The biggest negative for LC’s is compliance with the Safe Act/Dodd Frank (interpretation seems to be evolving), as well as uncertainty in the tax code on when you might have to recognize the gain if you are deemed a “dealer” rather than an investor.

  8. I have done a couple Land contracts as a buyer where I was able to get fantastic terms. I am in wisconsin as Dawn is and I believe an owner occupant to investor SAFE compliance is easy but to investor to owner occupant gets hairy. I would love to learn more on the in and outs as I believe this is one area of real estate investing that has changed the most in a relatively short period of time. I love the flexibility of a land contract. Everything is negotiable to meet the needs of both parties. Pretty grear deal if you ask me.

  9. Kyle, the problem with LC per the disagreeing closing lawyer I refered to, is when things go bad. The buyer stops paying, now what. With a LC an educated buyer can cause serious problems for the seller when the judge is convinced that the buyer has equitable interest, regardless of what the contract says.

    There’s a principal in law that says if it quacks then it’s a duck and a LC is quacking like there’s equitable interest. All is great until the buyer stops paying. So you need a good LC contract and good defense lawyer and hope the buyer’s lawyer is not very good. I’m just relaying what I’ve been told. I really want to do LCs! I hope a good LC contract would be a remedy. So we are back to needing to understand what needs to be in a good LC contract. It would be useful for LC comments to come from a closing lawyer.


    • I simply used the state certified Land contract document from the state of wisconsin. I have a hard time believing that a judge sould invalidate a state document and it covers all the boiler plate issues. It provides a couple choices for a couple things like title evidence and default interest. The terms of the land contract have always been clarified by me in the document and usually accompanied by an ammortization schedule. As I was the buyer you are very correct that I sure as heck had equitable title and firther solidified that with equity buildup in the property from day one. I definately do not want to try to find someone with a poor laywer bit rather make a good deal from the begining.

  10. I googled: when land contracts go bad

    I found:

    Meat of this link:
    Does a Buyer Have Any Defense to an Eviction following Forfeiture of a Land Contract?
    A buyer who believes that the seller has incorrectly forfeited a land contract can file an answer to the eviction petition which raises the issue of ownership of the property (also known as “title”). If the buyer raises the issue of title, the Iowa District Court must handle the case, rather than Small Claims court. If the buyer can show that the land contract does not adequately specify a remedy of forfeiture, or that no default in the contract occurred, the buyer may be able to defeat the forfeiture action and regain ownership of the property. In a forfeiture for nonpayment of the monthly installments, the court may cancel the forfeiture if the buyer has paid a substantial part of the purchase price, and brings the total amount of missed payments to the court hearing. However, this is not guaranteed.

    A buyer who wants to contest a forfeiture of a land contract should contact a lawyer as soon as the buyer gets a written notice of forfeiture. This allows the lawyer to provide the best legal help to the buyer, and may avoid a court action entirely. Helping low-income Iowans with housing issues and consumer issues are priorities of Iowa legal Aid. If you need a lawyer but can’t afford one, call Iowa Legal Aid at 1-800-532-1275

    My take away is that there’s life’s reasons why buyers may stop paying. It’s not that the deal is not a good deal. When one is desperate one might grope for legal help and that’s where the problems for the seller start. In Iowa anyway per this piece, to be figured out in other states, An LC eviction can easily get bumped into higher courts and thus higher costs for the seller.

    I’m still wanting to do LCs, but near term I’m doing a few owner finance deals per the Safe Act. It’s clear what my rights are as the seller in GA a non-judicial state if I have to foreclose.

    Anyone done an LC in Atlanta or Georgia and gone through an eviction that got bumped into a foreclosure?


    • Curt – the real estate association I belong to here in Grand Rapids has a standard Land Contract form that they offer for Realtors.

      You can of course have a lawyer draw you up a customized one, but our Realtor association provides one for use.

      Along with this, our standard Purchase Agreement for the association also has an area where you can check “Seller Financing” and then check “Contract” (land contract). It will be state by state, but if your state has a standard document for a land contract, I would not be very worried about a judge saying, “what the heck is this?”

  11. Thanks everyone. Lot’s of good questions.

    I’ve had many of these asked to me privately and some publicly in the Podcast article, so instead of answering them all again down in the comment section, I will just do an article that is a “Frequently Asked Questions” piece.

    By all means, keep the questions coming, but for the time being, I will await to answer them all in one spot via a blog article.

  12. Bryan Scott on

    I could not agree more with Curt. I too have much experience with ILC/Contract For Deed (Land Contract) deals. In fact, I have enough experience to know that I will NEVER do one of these again. Yes, it’s true, when everything goes well, they work great, but go through another market cycle remotely similar to the one that decapitated many similar deals done just prior to the implosion of 2008, then try and actually close one of those with new buyer financing after that and see what happens. One of these cost me $80 large. Hate to be a nay-sayer on what used to be a great tool, but for my money and the preservation of my bank account, I LOVE Lease/Options!! Most of the same benefits on both sides, but without the severe risks associated with these non-conventional, owner-financing methods. You still need to qualify these buyers as if they are going to obtain their own financing (using a licensed MLO). Even if you can get away with not using this step, if one of these goes bad, you can look forward to refunding their Option Payment, perhaps X3, if they hire an attorney. There is STILL a component of Equitable Title to be concerned about, but you keep your tax advantages (in Colorado, unless or until legal title passes, you cannot pass along the tax benefit of mortgage interest paid anyway). As a final thought, there are good reasons why most knowledgeable real estate attorneys and title companies won’t close one of these. Spend some time researching the why’s for yourself before you do one of these. Then, if you still decide to move ahead (right now, the market is quite favorable for any type of owner-financing), definitely do it “by the book” observing your State’s statutes and using a R.E. attorney who has done these and is willing, ready and able to go to court to defend you. It is definitely NOT a place for a general practitioner to be involved. Good Luck!

    • We will agree to disagree then Bryan. No harm in that.

      That’s why I love real estate investing. Everyone has their opinion on strategies (I’m not a big fan of lease options) and business models and what works for them.

      Here in MI land contracts are very common and I feel very very comfortable with them.

      Thanks for your thoughts. The more viewpoints the better!

  13. I just spoke to an attorney for one of the larger title companies in OH, and they close over 100 LC’s per month. Most of these are for homeowner-sellers, but they also handle transactions for a number of investors as well, that do several at a time. He didn’t think that land contracts, at least in OH, were affected at all by SAFE or Dodd Frank. He said that his name will go on the land contract and he’ll stand behind it. He describes OH as very business friendly, and as long as the rate was not usurious, he had no concerns about: using mortgage originators, having balloons, qualifying the borrower’s ability to repay, etc.

    He’ll prepare the land contract for $300, and it is certainly worth it to me to have an attorney’s name on it, even though I can easily obtain the legal documents (in fact, I ordered some paperwork through This can be signed in their office, but he says that they typically don’t handle any funds themselves or prepare a HUD, though they will for an extra fee.

    I genuinely don’t know if he has his head in the sand, or he truly knows better than the Chicken Littles. So far, I can’t find any RE attorneys in OH that are the least bit concerned about SAFE or Dodd-Frank (or know much about it, for that matter).

    • Hi David,
      I’m hoping you’re still around on Bigger Pockets! I’m an Aussie investor and am thinking of entering into a Land Contract with someone in Ohio – actually my new realtor – so I was really interested when you mentioned the attorney who deals with them all the time. I’d love it if you could chat to me about this.
      Looking forward to your response.

  14. Adding, that land contracts working well depends on your state. Seems Ohio and I’ve heard other Northern states have great state statues and case law supporting LC’s and lawyers will close them.

    Here in GA just the opposite. I’ve talked to my busy closing lawyer and he hates them and few investors in the REIAs do them as well.

    I just wanted to mention that as of Jan 14 2014 Dodd Frank will make changes how an investor closes LC or traditional mortgage sales. IE owner financing. LC or a lease option >3 yrs will not get past complying with Dodd Frank (keeping this comment shorter than a book).

    Search BP for threads on Dodd Frank.

  15. My spouse purchased a property in 2008. He sold it to this couple using a land contract. I am just now seeing the paperwork on this and don’t fully understand land contracts. My husbands son is a realtor and found the property for him and “handles” all the payments. Etc. I noticed my husbands name is on the bank loan info but the “seller” listed on the land contract is the realtor.
    This concerned me. Shouldn’t my husband have signed the land contract as the seller and not the realtor? Or is this normal as the realtor was acting on his behalf?


  16. Hello Lynn,

    Concerning your points about your Husband’s Land Trust deal: Good catch on the faulty paperwork!

    Were I you, I would quickly contact a competent, local, real estate attorney who has done Land Contracts, explain the situation, then have them assist me in the damage control while everyone is still on good terms and it is easier to explain.

    Make sure the Son (Realtor) is present while you or your Husband are going through this exercise with the Attorney so that they can explain all the reasons why a Realtor should NEVER act as a principal in a Land Trust deal, why he should not sign as owner of record (even if he has Power of Attorney to do so) and why he should never be in the middle between Seller and Buyer on collecting payments and handling other routine paperwork involving the servicing of the paper. Oh, one more thing, and why Son (Realtor) put himself and his Real Estate license in legal harm’s way for doing all the above.

    Land Trusts are a good tool if used properly, but could be very problematic if not, and in my opinion, you have to do these as if someone is going to sue you to make sure you dot the I’s and cross the T’s.

    All the best, Bryan Scott.

    • Thank you for the info. Your blogs are a wealth of info!
      I do have another question. Since the son(realtor) signed as the seller does he in any way have legal ownership in this property?

  17. Hi Again Lynn,

    Short answer is NO, prefaced by the following disclaimer: Please know that I am not a real estate attorney. In any event, I know of no situation where someone other than the owner of record, or his/her/their legal designee or assignee, or Attorney In Fact, can legally transact on real estate.

    The rest of my comments below are only food for thought and very much subject to further scrutiny and review by the appropriate professional.

    My bigger concern would be the liability born by Husband and Son if the deal goes awry for any reason AND the Buyer seeks legal counsel as a result. Even if it doesn’t come apart, the transaction was not done legally, unless Son actually did have Power of Attorney. Even if Son had POA, it is definitely not an Arm’s-Length transaction, which would help insulate everyone involved. Absent the POA or legal right to transact, what happened is basically real estate fraud.

    To take it a step further, if the Buyer got cross with Husband or Son over the deal and decided to file suit, the attorney could possibly get the deal dismantled and cause all funds invested by the Buyer to be returned (assuming this attorney and their client prevailed). If the same attorney could substantiate and prove fraud, then the damage could be triple whatever amount was invested by the Buyer (depending on your state’s pertinent statutes).

    To make matters worse, even without legal action, the Buyer could file a complaint with the Real Estate Commission in your state and possibly cause some real issues with Son’s Real Estate license (read this as permanent forfeiture or fine and indefinite censure).

    Sorry for all the doom and gloom — ask me how I know some of this…

    Short story made a little longer, as an investor, you just didn’t really want to be on the wrong side of one of these done in years prior to the economic disaster of 2008, then try and support your buyer who wants to obtain their own, permanent financing when property values had plummeted nearly 30% thereby creating a severe upside-down scenario. That was a recipe for legal action for lots of these deals. One of mine was just one of them.

    If this particular deal was done after the market fell, then chances are the Buyer has some real equity in the deal now, which could make all of this negative talk go away unless or until the Buyer defaults and then uses the above-mentioned issues to stay in the deal (whether you want him to or not).

    At the risk of being repetitive, heavily underline the need to discuss the matter with a competent R.E. attorney who can easily fix this while everyone is still in a good mood.

    My hope for you at the end would be as follows: Son (Realtor) will be no where on any paperwork and not involved with the Buyer in any way, shape, or form. Owner of record/Husband or preferably a property-specific LLC or Land Trust will be the Seller, an attorney will handle all the paperwork, it will be properly closed by either the attorney or a title company/escrow agent, with the Contract for Deed (Installment Land Contract), or at least a Memorandum of Contract, legally recorded (this could be a cloud on title, but will also prevent the Buyer from buying another property down the block and skating on your deal), and the paper will be serviced by a qualified intermediary, or at least a 3rd party in business to stand in the middle between Seller and Buyer and to enforce the terms of the Contract and handle the usual annual reports associated with such deals (1098’s for mortgage interest, etc.).

    Oh, one more thing: As these deals create “Equitable Title” for the Buyer, be advised that if there are existing mortgage liens on the property, such a transaction could violate the terms of the underlying Mortgage or Deed of Trust and create issues with your Property Insurance policy. No question that legal title does not pass with these deals, but you must discuss the transaction with your insurance carrier or broker to be sure the necessary disclosures are made to protect yourself and the asset.

    Best, Bryan.

    P.S. Recently, the provisions of the Dodd-Frank Act have brought themselves to bear on these types of deals. If you have to re-construct the deal to resolve the issues that now exist, you may also have to make it all conform to The Act.

    Call your attorney!

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