How Do You Make Money With A Land Contract?
There is something about land contracts that I am missing. For example:$20k house can be rented out for $300 a month but to sell it on land contract the payment is less than $200 with a high percent. rate. So what am I missing. Also what is the dif. between land contract and lease option?
thanks
Nick
Why would the payment be $200? You set the payments, as well as the down payment.
So you set the payment at what you want and have part of it go towards the sale of the house?
No Nick, you're not missing something if you can really rent the house for more than the payment to sell it on reasonable terms then don't sell it-- rent it out.
Except that when you rent it you have to pay the upkeep and taxes and when you sell it the buyer pays those things. Make sure you factor those things into your calculations.
CommercialKing is right on the numbers.
A Land contract is not magic. It is just a different legal form of a sale. The price and terms have to make sense to the buyer.
There are many times when the rent is better then the income if you sell after you include all the costs. There is a difference in control and tax implications.
John
[addsig]
A payment on a land contract is simply the function of the amount financed, the rate of interest charged, and the time period financed. The profit is in the spread of what you pay. Simply put, if you paid cash for a profit, your interest income over the time financed would be your profit. If you bought a property using financing, you have 3 different areas, possibly 4 to profit. Example: You paid $10,000.00 for a property and financed all of it (0down) for 48 months at 10 % for $250.00 per month. If you got 1000.00 down and financed it at 10k 48 x 10% @ $250 per month your profit would be $1,000.00 If you charged $1,000.00 down $15,000.00 for the property at 12% interest at whatever payment (don't feel like figuring it right now) your profit woud be the $1500.00 down, the difference between 10% and 12% collected over time plus the $5,000.00 difference in price.
Good Luck,
Shawn(OH)
the biggest difference, is that on a land contract, the person is actually a buyer, their name is recorded as the person responsible for taxes, and upkeep; whereby on a lease option, the seller is the taxpayer and responsible for upkeep until the buyer excersizes the "option" portion of the lease.
The biggest difference however is when payments stop coming - on a lease option, then are evicted quickly and quite easily; however on a land contract, you are taking their ownership interest so it is much more costly and difficult to 'evict" them, even for non-payment.