To sell? to rent? to contract?

by Rocket Finance

land-contract.jpg

We are feverishly tying loose ends and packing and saying goodbye’s as we anticipate our upcoming move in ten days. We are also trying to make the decision to either sell our home or rent it out. Obviously, if we sold our home tomorrow, we’d be in great shape. The problem is, our home has not been improved enough to make much of a profit. Also, there is no guarantee that we can sell it in the next 6 months . . . or year. . . or more.

The next option is to rent it out. I have already spoken to a couple of pretty responsible people who I know quite well. They would make great renters. The con is that we cannot rent it for enough to cover all of our expenses each month – mortgage, HELOC, taxes, insurance, utilities, etc. The pro is that we would at least have some income while the house was sitting in Wisconsin and we are living in Colorado.

The third option came out of the blue: land contract. I ran into a contractor who did some work on our house several years ago and I mentioned that we were moving. He is a single handy-man who would like to purchase a home. The basic idea of a land contract is that the buyer is allowed to live in the home and assumes all privileges of ownership except that no deed is transferred. The buyer makes a payment each month directly to the owner. This money is not viewed as rent, but is more similar to a mortgage payment and a portion is applied to the total price of the house. Land Contracts can last up to 30 years or the buyer can agree to purchase the house after an agree-upon length of time.

It is a winning situation for the buyer because a large down payment is not required. The situation is attractive to us as the owners because we are assured of having enough income to cover our housing expenses in the short-term and this particular buyer is able and motivated to continue working on our house because he will benefit from the equity in the future.

The biggest problem is that I am utterly ignorant when it comes to this type of financing. Any thoughts or advice from readers?

Photo by jana-n-tommy.

  1. 14 Responses to “To sell? to rent? to contract?”

  2. By Glblguy on Mar 19, 2008 | Reply

    Like you, I know 0 about these things, but have heard Dave Ramsey discuss them a few times: http://www.daveramsey.com/etc/realestatecenter/index.cfm?FuseAction=dspContent&intContentID=8644

    Good luck!

  3. By Mrs. Micah on Mar 19, 2008 | Reply

    Not much help…except that I think it’s good that you’ll still hold the deed. If it’s not a formal mortgage, then you’d want to keep ahold of that.

    DR seems to recommend against them for the buyer, because you could renege and still have the deed. Your safety is his risk. But since you’re a decent guy, I think he doesn’t have to worry about that if he pays and such.

  4. By plonkee on Mar 19, 2008 | Reply

    That’s a big thing to decide in 10 days. Do you know any lawyers that you could ask about land contracts? They aren’t something that exist in the UK as far as I know.

    I guess that you’re going to want to sell it eventually. How long can you keep the house on the market for without running out of cash? How long can you keep it rented for without running out of cash? Can you afford to sell and take a loss? – if it’s priced cheap enough, someone will buy it.

  5. By rocketc on Mar 19, 2008 | Reply

    Good things to think about – glbl, thanks for the link. That is the kind of resource that I am looking for.

    I am meeting with the prospective buyer today. It will be interesting to see how things work out.

  6. By Four Pillars on Mar 19, 2008 | Reply

    My advice is sell it for whatever you can get and move on. Whether it’s a profit or a loss situation, it doesn’t matter.

    Sell it.

    Mike

  7. By rocketc on Mar 19, 2008 | Reply

    wow, that’s pretty straight talk. And what is your method of removing bandaids? 🙂

  8. By Lynnae @ Being Frugal.net on Mar 19, 2008 | Reply

    Keep in mind I know nothing about land contracts, but my gut reaction is that you should just try to sell the house.

    The land contract sounds good, but what if the buyer doesn’t take good care of the house, or decides he doesn’t want it after 6 months of living there? Would you have any recourse if he just abandoned the home? Then you’d be stuck with a home in worse shape than it is now.

  9. By Aaron Stroud on Mar 19, 2008 | Reply

    I agree with Four Pillars. Cut your loses and move on. You don’t want a home back in Wisconsin hauting you and your wife.

    Although renting to a friend or aquaintance can work, it can also ruin a friendship. So I wouldn’t consider that option, but you might be a better judge of character than I am.

  10. By rocketc on Mar 19, 2008 | Reply

    this is all good food for thought. I’ll let you know when I hear the offer.

  11. By Four Pillars on Mar 19, 2008 | Reply

    And what is your method of removing bandaids?

    Rip it off…and move on. 🙂

    Seriously, I wish I could be more positive but sometimes things don’t work out like we planned them.

    Mike

  12. By Laura on May 2, 2008 | Reply

    Go to a real estate attorney. They provide these services an you will be protected.

  13. By Laura on May 2, 2008 | Reply

    Also, on a land conrtact you can set the payments and interest to what you want, not necessarily what the banks say. If this guy is looking to land contract, he probably has some kind of credit or other financial problem. It is not taking advantage of someone to charge them an appropriate amount for a payment when they need a special kind of financing. Don’t be scared of land contracts because you have heard bad stories. There are bad stories about everything and as people pass them on they gain extra drama. Just protect yourself with a lawyer who does real estate. This type of financing can help people get back into houses, especially after this housing crisis.

  14. By Frank on Jun 25, 2008 | Reply

    Well here is how it is i Have sold 2 houses on land contract and find them be very helpful.A land contract just like a traditional loan has clauses that you can put in place to protect yourself and the buyer. You should alway consult an attorney to write up the papers you two just need to agree on them. Yes most peolple going into land contracts have credit issues and no you should not charge more to him because of that. The people who do that are just making the situation worst. Look at it like this if you rent you may also have to evict. Now with the land contract your looking at getting you could say a renter that is going to take care of your property taxes and insurance. If he fails than it’s a simple process to cancel the contract. You can even put in a automatic cancel clause. So say he misses two payments in a row well than the contract is null and void and he reverts back to a renter or faces eviction thats all good luck

  1. 1 Trackback(s)

  2. Mar 10, 2009: Land Contract Snafu | rocket finance

Sorry, comments for this entry are closed at this time.