Land Contract

Wtf is a land contract?

If you’re like me, you’ve seen all the real estate people on YouTube and only once heard the phrase “land contract”, which you then you had to ask real life people about. Until tonight when I finally thought about it while at home. I mean you. Until you finally remembered you could easily just do an internet search.

As the picture states, a land contract is a “Buy Land agreement”. Now, allegedly the laws vary by state, but I suspect those are mostly pertaining to how defaults are addressed. I’m not looking it up. And that’s the spirit of a land contract, my friends. You just don’t care about all the mortgage and lender shopping, interest rates, or how you can get your house for free or even have it pay you (without renting it out).

The free house thing doesn’t work for poor people. If you aren’t counting by the million, you can’t do this.

"But Rocky!"“, you say, “I’m not trying to buy land. Just a condo.”

To that point, a land contract can be used for land, or real estate. Apartments and condos can be land-contracted like a boss. Now that I think of it, seems like building a neighborhood of detached condominiums and land contracting the units out could be ridiculously profitable, if somewhat risky. I bet someone has done this before. It’s probably fairly common.

A land contract can be between any two parties. All you need is a buyer and a seller. You don’t need any middle-men, or any FDIC-insured accounts….just a willing seller. And money. That being said, a corporation or LLC, for example, could issue land contracts but will probably have a vetting process. Not a bad options, honestly.

But we can do better! A seller could be be a guy you meet on the bus, who wants no down payment and no minimum monthly payment. The term could be up to 30 years! Or as short as 1 year. I bet you could go lower if you really wanted to.

Oh yeah, if you’re selling on land contract, you don’t get the full payment.

Typically a land contract runs 5 to 10 years with a balloon payment at the end (but two parties can agree to a wildly different arrangement, as in the example above). So you buy a house for $100 with $1 down. After 5 years you’ve made 60 payments of $1. You still owe $40. NOW. Seriously, pay up or you forfeit the house. AND THE MONEY YOU ALREADY SPENT!

That’s right! Start selling real estate on land contract to poor people, knowing they’ll default after 5 years and kick them out! Too bad it’s not that easy, and most likely you’ll lose money trying that strategy. Unless you’re gang affiliated and can forcibly evict people on the fly. Kind of respectable of a gang to be treating land contracts like call options, tbh.

"But Rocky!”, you squeal with tense apprehension, “I’m poor and can never come up with $40 at once! Meth is over 5 cents now!”.

Fair point. I have no idea how much each meth costs, but I assume 5 cents is an outrage in our imaginary economy where $100 = a house.

Often what the buyer does at the end of the land contract term (probably not necessary on a 30 year, but again, the details can be whatever two people agree to sign to, more or less), is to finance the remainder of their land contract. It’s a lot easier to get approved for a $40 loan than a $100 loan. Also, easier to afford to make payments on with interest.

You don’t have to finance off the rest. You can just pay it off. Or pay it off early.

Doesn’t matter. I strongly suggest you keep some kind of proof of payment, though. Unlike banks, people are human. Any human can act irrationally and do things that make no sense. Like evict you for non-payment, even though you’ve been mailing $1 dollar in the mail every month.

TLDR
1. Land Contract is a binding agreement between two parties to exchange land or real estate for money.

2. Terms and conditions are literally defined only by the participating parties.

3. Defaulting on a Land Contract forfeits the buyer’s rights to the property AND any money they’ve paid to the seller.

4. Often, when buying on land contract, the buyer will finance the remaining balloon payment after the term of the contract through a traditional lender.

And finally, keep some form of receipt for your payments.