What is a Land Contract?

A Land Contract or Contract for Deed is an official deal that entails purchasing a property at a specified set price and providing monthly payments until everything has been paid. Until all the money is paid, the seller will hold onto the property deed. If you decide after a certain amount of time that you do not want to purchase the property, you are forced to forfeit all the money that you have paid. The money is in this case considered “paid rent”. If you do decide to stay with the contract, then after a certain period of time, you can visit a bank and receive a mortgage to finish paying off the rest of the money owed.

So how can you utilize a land contract to make money? Well, let us consider a home that requires repairs. The current owner desires to sell the property because he or she does not want the responsibility of taking care of it. The house is at this time worth $60,000 but you believe that with some work, you can raise the value up to $100,000. To start things off, you offer a Land Contract wherein you will pay $300 for the next twelve months. After the twelve months, you will paid off $3600 of the required $60,000. At this point in time, go ahead and start making repairs so that the place is at least fit for human habitation. While you do that, start advertising the property as a Lease with the Option to buy. After locating a buyer, inform them that during the next twelve months, you will gradually repair the property until it is worth a full $100,000. Furthermore, tell them that you are going to charge $500 per month for rent. That will allow you $200 extra dollars each month <$500 - $300 = $200> to use in repairing the property. You are essentially getting all the work done without spending any of your own money.

After the twelve months is over, you have essentially initiated a double escrow, a situation where a property is bought and sold at the same time. At this point, the buyer has paid $6000 towards their purchase price of $100,000. The buyer will then acquire a mortgage of $94000. You use $60000 of it to pay off the original seller and you have just earned the balance, which amounts to $34000! All it took was some ingenuity and a couple weeks of hard work.