INSTALLMENT LAND CONTRACTS: what's the good, the bad, and the ugly?

[Edward Shin]

I've recently been introduced to the strategy of selling property using an installment land contract. It's appealing for a number of reasons: the buyer gets equitable interest in a property, takes care of all repairs, taxes and insurance, and ultimately, gets legal title to a property. The seller (me) gets top dollar for a sale, and monthly payments over the term of the contract (roughly 20 years) -- assuming the buyer is properly vetted and pays in a timely fashion. If a buyer does default, PA ( where our property is ) has favorable laws and clear procedures to handle that type of default situation ( not so in all states ) so i can rinse and repeat with little down time.

Before I pull the trigger, I thought I would ask the BP Nation to share any advice, anecdotes, or information about their experiences, caveats, and takeaways surrounding installment land contracts. It's hard to discuss this strategy objectively with the person who introduced us to the concept because all he sees is potential and upside (perhaps rightfully, but i need other perspectives). While I'm aware of some of the pitfalls and potential downside (especially with complex regulations and compliance issues), I'd really appreciate any and all opinions and facts that discuss installment contracts as good, bad, ugly (and other) so that I can view and assess this strategy from a diversity of viewpoints and experiences.

Any thoughts, BP Nation?

[Jeremy Pace]

ILC's work really well if you have financing in place on a property, but you're not sure if the borrower is capable enough for a private mortgage.  With an ILC, it's easier to reclaim for title to your property (you don't have to go through a foreclosure).

One thing to remember is when dealing with insurance.  Make absolutely sure that your buyer is listing on your insurance as additionally insured.  That way, if anything happens (damages to property from a broken pipe, etc.) the buyer can deal with the process of getting paid out for claims.

If you have additional questions, feel free to msg me, I'm happy to help.

[Sheri Ulm]

I'm currently purchasing a property on LC in Ohio. 7 months into a 3 year LC. As a buyer it has worked well for me so far as I'm cash flowing on the property every month with this being a 5k house. The one thing I wanted to point out is that, in my deal, the taxes and insurance are part of my monthly payment to the seller and the seller then is still responsible for making the payments to the county and the insurance company when they come due.

[Edward Shin]

@Jeremy Pace sent you a message. Thanks!

@Sheri Ulm hi Sheri, thanks for your reply. when you say that you are cash flowing as a buyer, do you mean that you make your installment payments, but then rent it out to someone for a higher amount than your payments to create cash flow? And did I read that right -- you bought a $5000 house?! I assume it's not in Norwalk. Also, thank you for your point about taxes and insurance. We plan to structure our taxes and insurance in the same way. 

It would seem that the land contract is working well for you as a buyer, no? Would you ever sell on one? If you could share, what were the circumstances that led you to use the Land contract as a buyer? Any features or aspects that you particularly enjoy or dislike, regardless of how big or small?