Contract for Deed
Over the last eight years a question I hear at least once a week is, “Will your seller accept a contract for deed?” The agent or prospective buyer is asking if the seller will finance the sale of their own property in a creative arrangement.
In other words, the buyer is asking the seller to accept a sale arrangement that forgoes a 100% cash payment at closing (from the buyer or combination of buyer and lender) and instead sets up an installment payment schedule with a full payment balloon at some point in the future. Usually around 3 to 5 years. At that time the seller will sign over the deed.
Buyers like this scenario because does not involve a bank financing process, usually involves a lower down payment than a traditional deal, and allows them to build equity in the property before utilizing a traditional lender at the balloon period. If things get bad the buyer simply gives the property back to the seller.
Sellers may like a contract for deed as it may have advantageous tax consequences and can provide positive cash flow even with a loan in place.
Contract for deed are a great method of purchasing a property as long as the buyer and the seller keep their word for the length of the contract, nothing bad happens to the property over that course of time, the buyer operates the property in at least in the same level of care as it was in at the time of purchase, the seller continues to pay any remaining mortgages, and the buyer and seller do not allow any encumbrances on the property not previously agreed to.
In other words I strongly discourage my sellers to entertain this method of purchase!
No comments:
Post a Comment