Contract For Deed

[Grant Pope]

Hello all!

First off, thank you to any and all of you who will take the time to not only read this post but also the advice you may offer.

I am just starting out in the rental properties and I am close to purchasing my first property. My concern is I am looking to scale relatively quickly and I know that the bank will not give me multiple loans to continue to buy properties. So I am trying to find a way to obtain more properties through some special financing. I was thinking about doing a Contract for Deed. My question is what are common terms for doing a contract for deed? Or does it all depend on what we can work out? My concern is that the seller will want to receive a monthly check that is more than likely higher than the cash flow he is receiving from the property itself to make it worth his time. For me, that does not make any sense to do then because I would be incurring negative cash flow.

Hopefully all of this is not too confusing and someone may have some words of wisdom.

Thanks again!

[Jeff Rabinowitz]

@Grant Pope, welcome to BP. You cannot know what a seller wants or will accept unless you ask them. Even then you may not know unless you have been able to gain their trust. I have sold several properties with a Contract for Deed (in Michigan we usually call them Land Contracts). In fact, I sold two rental properties today that way. (That is why your post caught my eye.) One of the properties I sold today has a tenant in place who will be staying. The buyer will collect enough rent from that one property to cover the down payment on both properties in 5 months. He will actually recover his down payment much more quickly because the other property will be rented soon.

The buyer will have a positive cash flow after making his monthly payment. Why would I accept such a small down payment? I don't have much equity in these properties and have ample reserves at the moment. I do not wish to manage the properties and I trust the buyer to do so. The buyer is expanding their portfolio while I am trimming mine back. It took a little effort to find a deal that worked for both of us but now that this is completed we may go further and transfer some more properties by land contract.

Investors who wish to adjust their portfolios, landlords who wish to curtail the management of their properties but who do not have immediate plans for the proceeds from a sale, people who would prefer a stream of income rather than a lump sum (often for tax reasons), and many others may be open to contracts for deeds. You will not find them unless you make the offers or frequent places where these types of people can be found. Hint: REIA meetings can be fertile hunting grounds.