Dallas Investment Property

Dallas Land Contracts vs. Land Options

Posted by: admin at April 1st, 2010

Land contracts are real estate transactions involving seller-based financing. The interest rates and payment schedule can be similar to a conventional loan, but the transaction doesn’t require direct involvement of or approval from a financial institution.

An agreement for the sale of a property in which the buyer takes possession while making payments to the seller, but the seller holds title until full payment is made, is the most common form of land contract. This type of financing is usually done for people who have less than perfect credit and are having a hard time getting financed for a home loan. You form a contract where you agree to pay the homeowner a certain sum of money, every month, or every year, depending on the contract, with a portion of the money going towards the principal of the loan, and the seller keeping the remainder as interest. After you make all the payments (or in other words, after you perform your obligations under the contract) the homeowner gives you title to the property. Although land contract allows a few investment strategies, you can only pass on the interest that you have in a property, so lease/options limit you to renting the property or re-lease/optioning it to another person.

How exactly does a property in land contract work as an investment property? Since this is a beginner’s real estate investment article, we will explain. Most owner financing usually allows for a lower interest rate than conventional lenders, a seller will often take less money down if you agree to their asking price. With the proper homework, it is easy to enter into a land contract, agree to beneficial terms on both sides, and then rent out the property to a tenant. Even starting at a break even point is worthwhile, as each 6 to 12 months rents can be incrementally increased.

Optioning land is another investment alternative. This is a common strategy for prospecting vacant land, or older homes in developing areas. Essentially an option involves giving the potential seller consideration (usually money) in agreement to sell the land or property at certain terms and prices for defined time.

Farmers who farm for the lifestyle and living the rural life never expect to get rich. However, most want to retire and leave their families money rather than farmland, and with the development of suburbs always expanding from urban centers it’s generally only a matter of time before a farm today becomes a subdivision tomorrow. This makes farms one of the best options for vacant land. In the end finding a successful option takes homework and a wealth of information can be learned by talking to members of local, county, or even state governments.