How Much is Enough of a Down Payment?

Case study today is on land contract notes. Had a client come to me this week who had heard what we were doing with Self Directed IRA's with land contracts and he wanted to sell a few owned properties on land contract and sell them to IRA holders.

The first question I asked Mr. Klaklulah was how much of a down payment he wanted to get on the properties. He promptly told me he was hoping to sell each property for $50,000 with $1000 down payment for 30 years.

I advised Mr. Klaklulah that the only way to be successful in land contract sales is to get a higher down payment. In his case, we recommend he find buyers that have $10,000 or more as a down payment. Not only that, but why amortize the land contract for such a long period of time? If his ultimate goal is to sell the contract to an IRA holder, he needed to think of the short term return that IRA holder would get. Maybe a $500 a month principle and interest payment per month would quickly let his IRA investor recoup their principle.

A little planning on the investing strategy with land contracts and IRA's goes a long way to creating wealth.