When To Use Land Contracts To Make The Deal Safer And More Profitable – Video 4
These videos are teaching real estate investing principals that I have never given away like this before. If you aren’t watching this series, you are missing out on some very valuable info.
I’m also giving it to you in bite sized pieces to make it easier to understand and absorb.
Land Contracts (or Contract For Deed if you are in a Trust Deed State) are the way real estate has been
transferred in this country since “Little House On The Praire” days.
This video will show you what it is, when to use it and why.
If you understand how this zero down structure fits into my “Hierarchy of Zero Down Structures,” it will give you another solid, profit making tool for your real estate investing toolbox.
When you have more options, your sellers and buyers have more options. When they have more options, you do MORE
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Joe: The third one is a land contract or a contract for deed, depending on which state you’re in. A land contract is simply an agreement to buy a property at a particular price with a particular interest rate with a particular payment plan over a particular period of years. It’s very much the same way that you buy a car – when you buy a car, you go out and get a loan from a standard lender, they take the title to the car, they hold onto that title and they have an agreement with you to make payments to them to pay off the loan, and as soon as you pay off the loan then they transfer that title to you and then you have that car free and clear. It’s the same with the land contract. The seller, the person who’s selling it to you, keeps the deed in their name, but they have another agreement with you, which is recordable – you can take it down to the county recorder and record it – saying that you’re going to buy it over a certain period of time for a certain price and if you fulfill the terms of the agreement, then they’re going to deed you that property after its done. So that’s another way to buy a property.
Joe: They can have underlying mortgages on it. You never want to buy one that has mortgages on it that are more than the land contract. And with all land contracts, it should be standard that they can never finance it above what is still owed or remaining on the land contract, so that you remain safe as the buyer in that transaction.
Joe: So when you start getting to this, this is the middle of the transaction, and now it becomes almost as safe for the sellers as it is for the buyer. If you default on this deal, if you’re the seller of the transaction, you sold it on a land contract and that buyer recorded that land contract at the county recorder, then you’re going to have to go through a judicial foreclosure to get that property back. It’s not a problem and in a lot of places it’s easier than going through a foreclosure on a mortgage, so it still makes sense for the seller.
Joe: But, if you’re the seller in the transaction, what you want to do is try not to have that land contract recorded, because a lot of times where we’ve had people who defaulted on land contracts that we’ve sold to them, it’s been easy to agree with them, tear up the land contract and say, ‘That’s enough. We’re going to put somebody else in that property. We’re going to sell it to somebody else. We’re going to put a tenant in there. We’re going to sell it on a lease option; we’re going to sell it outright,’ or whatever it is we choose to do, and we can get that property back without going through a foreclosure process, and usually that buyer will allow us to do that without any argument. But if they record it, then you have to get it off the title, so it becomes more complex. So, if you’re buying the property on land contract, make sure that land contract is recorded. If you’re selling on a land contract, try not to have that land contract recorded.
Joe: What we try to do is keep control over that land contract and put it in our files so that nobody takes it down to the recorder and records it. If the buyer really wants it recorded, then we can talk about it and we can do that if they really need that to be done.
Joe: So, we’ve got subject-to, we’ve got multi-mortgage, we’ve got land contract – those are the top three if you’re buying a property in the hierarchy of zero down structures. And they give you control of that property in relation to where they are at in the hierarchy; the higher they are in the hierarchy, the more control the seller has in the transaction.