First Rental Property Purchased with a Land Contract

[Eric Martin]

Investment Info:

Single-family residence buy & hold investment.

Purchase price: $95,000

Cash invested: $10,000

2 Bed / 1 Bath house near a college campus. Rents for $1,150 and cash flows ~$250/mo. Current owner had recently renovated the house to make it mostly "turn-key" with the exception of a few finishing touches.

What made you interested in investing in this type of deal?

The ability to only put about 10% down and avoid having to get approved for bank financing.

How did you find this deal and how did you negotiate it?

I found this deal by discussing my interest in real estate investing at a wedding. The gentleman I was chatting with happened to have a house they were looking to sell. Since the seller was getting older I negotiated with him such that the owner financed $85,000 of the purchase price at a 5.0% interest rate amortized over 30 years with a 5-year balloon. The deal worked great for both of us as he gets a completely passive monthly income stream, and I purchased a cash-flowing house.

How did you finance this deal?

~10% of my own funds were paid at closing and the remainder was owner financed.

What was the outcome?

Cash flowing rental house with only $10,000 invested total. Expected cash on cash return is 27%!

Lessons learned? Challenges?

Talk openly about your interests and passions in life. The person you are talking with may be able to help you achieve your goals! One challenge I faced was that the seller still had a mortgage on the property. Since the down payment was not enough to pay off the existing loan, I signed a land contract that gives me the ability to rent out the property and produce monthly cash flow until I refinance to cash out the seller. I reimburse the seller annually for property taxes and insurance.