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Land Contract: The often overlooked Tool in the Real Estate Toolbox

toolboxThe Land Contract, also know as a Contract for Deed, has long been a tool for real estate financing between the buyer and the seller. It was very popular in the late 1980ís and the early 1990ís when interest rates were at all time highs and strict qualifications were placed by lenders.

A Land Contract is a contract between the seller (a.k.a. Vendor) and a purchaser (a.k.a. Vendee) of a piece of real estate. The seller continues to hold title (deed) to the property until all agreed payments of the unpaid balance are paid in full. The Land Contract is sometimes referred to as a Contract for Deed. The Land Contract is not restricted to land, but can be used for any type of improved real estate.

There are five main parts of the contract: The purchase price, the down payment, the monthly payment, the interest rate and the term (length) of the contract. Each of these pieces are negotiated between the buyer and the seller. Flexible terms can be tailored made for the property, as well as for the buyer and the seller.

There can be many plusí to the Land Contract: usually quicker closings, the contract is easier to understand. The Land Contract can be a good form of short term financing and is often useful in purchasing land prior to building or until another property is sold. Typically, the Land Contract will have lower closing costs and no lender fees.

Yes, there are negatives. As with a mortgage, you may lose your investment if you are unable or do not make all your payments. As in any transaction, as long as every one does what they agreed to do, it can be a good tool for all.

Remember, it is important for all parties concerned to record notice of the transaction with the county register of deeds.

Written by Dave.