Do A Land Contract, Or Not?

Tanya got an offer for a land contract on her house, but is not sure if she should take it.

QUESTION: Tanya is selling her house and has been offered a land contract purchase. Should she take it? Dave’s not crazy about this offering.

ANSWER: I’m not a big fan of land contracts. You still own the house and have all the liability for the house, yet you’ve given up any appreciation that it has. This usually means they are having trouble financing, because their credit is bad, because they are broke.

I would rather just lease it to them with an option to buy. It’s a lot cleaner deal than a land contract, which are also bad for the buyer. Because if you get messed up and get an IRS lien or something against you, it trashes the house that they think they’re owning. It’s easier to do a lease with an option to buy; that just gives them the right to buy it. If they choose not to make the payments anymore, they can, then you don’t have a big land contract to undo at that point. Then, when they don’t pay, they are just tenants and you can move them out.

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