l/o or land contract? - Posted by Tom

Posted by Tom on August 15, 2000 at 10:13:48:

Hi Rick! Thanks for the information. I read one of your recent posts indicating that you do more deals in a month or so than most people buy in a lifetime. It also mentioned that you’ve studied many courses and I was curious if you could please recommend a course or two. Thanks again!


l/o or land contract? - Posted by Tom

Posted by Tom on August 14, 2000 at 20:02:12:

I’m a small time investor with a few rentals and one l/o under my belt. I have just contracted to purchase another SFH (due to close in mid September with conventional financing) and I am considering lease optioning or selling on a land contract. Can anyone give me the pros and cons for both. Thanks so much!


Re: l/o or land contract? - Posted by Bud Branstetter

Posted by Bud Branstetter on August 15, 2000 at 11:07:48:

The old adage was that you could get a higher down payment on a contract for deed(5-10%) versus a lease option(3-5%). I also think that depends on the price range of the house. In the capital accumulation phase of your investing the priority should be to find a good mortgage broker to see if they can cash you out.

Last week I posted about a situation on a land contract that after it went up in smoke they filed a bankruptcy to stall the eviction. Since you have to be licensed to appear before a bankruptcy court you may have to hire an attorney. There goes another $500.

I no longer will sell on a land contract just as I would not buy on one. I would now do a L/O or a land trust with a beneficiary agreement.

Re: l/o or land contract? - Posted by BR

Posted by BR on August 15, 2000 at 07:54:43:

Tom, genrally when buying it is best to 1)get the deed, 2)Land Contract, 3)L/O in that order. When selling the reverse order is best. You will maintain the most control by following this scenario.

Lease/Option versus Land Contract … - Posted by Rick Wheat

Posted by Rick Wheat on August 15, 2000 at 05:30:57:

To answer Steve’s question first, a Land Contract (Agreement for Deed, Contract for Deed, etc.) is a form of BUYING a property, (actually taking an ownership interest in it), with the Seller carrying the financing himself, but with the Seller keeping the actual title in his name until the financing terms are satisfied.

A Lease/Option is where the buyer Leases the property from the Seller, with an OPPORTUNITY to purchase it within an agreed upon time at an agreed upon price.

Now, to answer Tom’s question. It depends on several factors, such as:

  1. One of the main factors I look at is what my long term objectives are, and the risks involved with them. Lease/Options can be structured to make it easy for your buyer to ultimately purchase the property, or to make it difficult for them to purchase it. If you want to keep the property long term and just have occasional injections of option consideration, a Lease/Option is the way to go.

  2. If the laws in your state allow you to recover possession of the property through a simple eviction procedure instead of a foreclosure, a Land Contract may be the thing to do.

Keep in mind the mindset of the person “buying” under a Land Contract is usually better than someone under a Lease/Option. My experience shows that the default rate of the Tenant/Buyer is far greater than that of a Contract Vendee, but not quite as bad as a simple Tenant. The more you collect up front, the more committed they are to stay.


Rick Wheat

Re: l/o or land contract? - Posted by Steve

Posted by Steve on August 15, 2000 at 24:03:46:

Can someone also explain what exactly a land contract is? Thanks

Re: l/o or land contract? - Posted by Tom

Posted by Tom on August 15, 2000 at 10:15:13:

Makes sense, thanks!