Do you invest in Land Contracts? Why or Why Not

[Chris Seveney]

For those who invest in notes, the number of notes for sale has been limited compared to the number of contracts for deeds (aka land contracts, an agreement for deed, CFD's etc) I see on the market.I know some investors shy away from them because they are lower priced assets and have a higher risk. Others have done very well investing in them.

I am curious what your take is on them, and also would you recommend them for newer investors?  

I would recommend if a newer investor does invest in CFD's, they need to know upfront there are inherently more risks. While they have a much lower barrier to entry (thus you may have less to lose), there is a much higher risk the property would need significant work and if you were to take it back you may end up with an asset that has no value. Borrowers are also more challenging to deal with, and if there are violations from the county on the property these get passed to you (which you can try and collect from the borrower but if they walk they stick to the property which ends up being paid by you).

Every person has a varying level of experience and risk so no one fits into a one size fits all, but people should be aware of the risks they are engaging in when investing in certain asset classes. 

[Bob Malecki]

I I personally do not invest in land contracts nor does either of the funds that I run. The bottom line reason is that as a land contract holder you are the owner of the property and responsible at the end of the day for any liabilities on that property. 

Our business model is to become the bank and hold paper -- not own assets and essentially become glorified landlords with a borrower who may or may not pay off the contract while in the meantime who may or may not create more liabilities for myself or my companies.