Buying w/ Owner Financing & Selling w/ Land Contract

[Andy Madden]

Hi everyone,

I have what might be a basic question for the creative finance folks out there, but I appreciate the help in advance.

I have a contract in place to purchase a home from an owner who has offered to finance the property at 0% interest for 2.5 years. He's going to accept $500 monthly payments for 2.5 years until he retires, then I'm going to pay him the balance at the end of the term. This will be a straight owner finance situation where I will take title and he will hold a note, which will have a balloon payment at the end of the term. On the other end of the transaction, I have a buyer who is willing to put down a sizable down payment and make a monthly payment of $950 for 2 years, then pay off the balance at the end of the term. 

My question is this: what is this best way to structure the transaction with the end buyer? Would it be a rent to own agreement, lease option, or land contract? I'm curious to hear the pros and cons of each. The second part of my question is how to handle the payments from the end buyer (i.e. does a portion of the payment get credited toward the purchase price)? Or how would payments work with a land contract, which I understand to be more like owner financing, except I will retain title to the property until the end of the term?

Thanks for your insight!

[Alex Deacon]

@Andy Madden from what I have heard from other attorneys, a lease option is the best method. Unlike a mortgage you can take back the property much easier and wont have to do a foreclosure. Also you should make sure the person holing the mortgage for you is aware that you are renting out the property. He also may want to be additionally insured since he has an equitable interest in the property. I have a few good RE attorneys in the Pittsburgh market that would help you structure this and keep everything legal.