The difference between a Land Contract (L/C) and a Mortgage...
With a Home Mortgage, the Bank tells you the terms...
On your land contract – You write the flexible terms you want:
There are 18 boxes to fill out on the addendum at the time of filling out the purchase offer. These are the terms that are applied to the contract at closing.
Steve's success story with The Sell Land Contracts Strategy
Do business with people (each other) instead of the mortgage institutions!
Avoid excessive loan origination fees, brokerage fees, and miscellaneous fees!
Make more money when selling on a L/C
Save more money when buying on a L/C
"If you give me PRICE – I'll give you TERMS"
"If you give me TERMS – I'll give you PRICE"
That's the way it works!
When you're selling a house and need a full payment of cash, via mortgage or cash-out, because you have to pay off your debt,
You are Subject to Negotiations of the buyer!
No matter what price I'm asking in any market, the offers come in lower than what ever I list it for.
On the other hand, with a L/C,
I can and will raise the price fairly, at the top end of a creditworthy appraisal value, because I'm willing to take the risk of financing the buyer, with a land contract.
I expect an increase of selling price in the range of 10 – 20 percent.
What's a Land Contract?
First let me tell you what a Mortgage is – it's easier understood that way...
A Mortgage is where the Buyer of the home (property), holds the Deed in their name, with a lien against the property.
The buyer is considered the owner, and the bank is lending the money to the buyer, with the property as collateral.
Now the Land Contract:
- A L/C is considered a "Contract for Deed"
- The Seller is the Owner until the contract is paid in full
- Upon payment in full – the Deed transfers to the buyer
- There is no Bank involved
- The Seller receives payments (and interest) directly from the buyer
- Seller approves the buyer’s credit worthiness (like a rental)
- Seller sets the terms affordable to the Buyer
- The L/C is recorded like a Mortgage
- The Property Taxes and Insurance are the responsibility of the Buyer
- Buyer does all maintenance and improvements at their expense.
- Seller is earning interest on (Added Value) Profits
Look to buy on a L/C With-Out a due on sale clause in the terms...
So you can sell it on a L/C with a due-on-sale-clause in the terms for your new buyer. You've Just Found A New Lending Source!
To sell on a L/C you must own the property free and clear, or without a mortgage that has a due-on-sale within the terms of a contract.
Or buy the property on a L/C that allows you to sell on a land contract.
The exception may be a commercial mortgage that allows you to sell on a L/C:
- Today, traditional mortgages all have a due-on-sale in the terms of their agreements.
- You could try (at your own risk) to sell on a land contract with a mortgage including a due on sale if:
- You have the money to pay of the mortgage if it's called due!
- If you get permission in writing from your mortgagor.
If you're using Hard Money Lenders, Family Money, and Unsecured Lines of Credit:
Arrange the money for at least 7 to 10 years at a fixed rate (with renewable terms as needed)
Secure the above money with a L/C on a subject property,
With an expressed business plan of extending a L/C to a third party, for an extended period of time of 5-years (with renewable terms as needed)
When the terms are all spelled out,
Allowing for extensions if needed,
The rate of return is compounded by interest and time...
You keep the difference (of monthly payments) between what you collect and what you pay on your L/C.
You pay off your L/C years ahead of time because; the L/C you bought with is less, than the L/C you sold with.
You continue to collect full payments for the remainder of the years after paying off your seller, including interest.
If your buyer pays you off early (balloon payment), repeat the process.
This process builds a "Portfolio" of "Assets" that earn interest.
This really adds up with 5 to 10 properties that equals POSITIVE MONTHLY CASH FLOW!
This is a WIN / WIN / WIN proposition for, your lender, your buyer, and YOU.
I don't suggest gouging anyone or being gouged.
Sellers offering a L/C have their reasons...
And buyers wanting a L/C have their reasons.
My reason is to get the financing on a property held by a private party...
To sell to someone who needs the terms I can offer at a fair profit...
And build a portfolio of assets with positive monthly cash flow!
It's All About Clarity
Knowing what you need to know, and how to find it out.
I’m not promising anything; my thoughts on this subject are based on actual land contracts I've had, both buying and selling, over the last 30 years.
And now watching this current global mortgage industry faltering to near ruin of the global economy, I'm suggesting the land contract process as a solution in part, of reestablishing the lending and purchasing of homes, between individuals like you and me.
Keep in mind that L/Cs were quite common in the 1980’s going back 100s of years if not 1000s of years. My point is that people sold their property to people without using a Mortgage that severely increased the cost of home ownership dramatically.
Recognize the fact about mortgages that, even with;
- Excessive fees plus added on commissions,
- Where simple monthly interest turned into daily compounded interest,
- Then the greedy got greedier,
- That lured people into over extending themselves,
- That caused people to loose their homes,
- Then worse yet causing a global catastrophe in the banking industry,
- So now the average person cannot even buy a home.
May I be so bold to suggest that land contracts between individuals, is the solution to take a serious look at...
And I hope some Very Important People look at this too!
If you don't get greedy, go back to simple monthly interest rates, add real value when rehabbing the property, earn a very fair profit when selling, collect the interest yourself over time, everyone wins!
Then The People will hold the assets of our Countries, not the Intuitions who have demonstrated the inability to handle The People’s money and assets.
Land contracts can make you money. Private lenders can earn a higher interest rate.
People can buy homes with the help of real people.
Now go write some Land Contracts...
Top of this page: Land Contract
See what's new on Ask The Rehabber
Back to the Home Page Ask-The-Rehabber.com
Today's News in the Home Remodeling News and Your Commentary
Today's News in the Real Estate Investing News and Your Commentary
Your questions are important to me on Ask The Rehabber.com. Ask Your question here (Plus, you can add your answer and expertise to our Visitor's questions) Rehabber Answers to Questions.