Land Contract deal, fear of going through with it....

[Mubasher Riaz]

Heres the real estate deal:

Property is hour an half drive from where I live in Michigan

All in for $16K, re sell on land contract for $25K

Buyer agrees on putting down $1200 and paying $500 a month until the end of this year and next year will pay $3000 from tax return on top of $500 a month rent which gives me a cash on cash return of about 78%. All utilities, repairs, taxes, insurance, maintenance covered by buyer.

Called my mentor, he told me don't do it.

What do you guys think about this now? Deal or no deal

[Tom A.]

Originally posted by David Beard:

Oceans of ink have been spilled here talking about the SAFE Act and Dodd Frank regulation that seller-financers have to abide by now, and the implementation varies by state, and there is still lots of ambiguity in how it will be interpreted and enforced. You can do some searches. That said, land contract selling to owner-occs the "old way" is still going very strong in MI (seems to be a lot of it in Grand Rapids), so you'd be in a very large company of wrong doers, LOL. Especially if you do 3 or less in a year, you can avoid some of the worst of it, but by all means find an attorney who does a brisk business in land contracts, to advise you.

I've talked at length with a local investor who specializes in land contracts in Michigan. In fact, he's a third generation land contract investor, has been president of the state mortgage broker association, held positions in the national mortgage broker association, is on the board of the Michigan realtor board and advises the state rule-making body on financial regulations. Which is all to say he knows his stuff and has been doing it for decades.

He's pulled completely out of land contracts in Michigan unless on commercial property for commercial business purposes. No more dealing with homeowners at all. The problems with homeowners are many, but a big one is that any foreclosure can be fought by the homeowner's attorney on the basis that you as the lender should have known that the buyer would not have been able to afford the home. The penalties can dwarf any potential profit you would have made.

He's not the only real estate investing professional who's left the land contract field in Michigan. I have no doubt some investors are still doing it, just as I know some are still not complying with the EPA lead rules from a few years ago (with the $37,500 fine). There's just a lot of risk involved and most investors don't seem to be aware of the landmines, which is understandable since the rule making process has resulted in information coming out sporadically, with some 180 degree changes. In fact, the situation now is different than it was in March of this year.

I guess it's one of those things like pulling permits, where some people choose to take their chances. Unfortunately with land contracts in Michigan most investors don't seem to know the rules or understand the magnitude of the penalties. Some one is going to be made an example of.