A rent-to-buy, or land contract, is a great way for someone with less than stellar credit — or even no credit — to buy a home. I’ve done a few of these over the years and for the most part it’s been a good thing.
The buyer gives me a down payment, at least $1,000, and I work out payments over a set period of time. I include interest, property tax and insurance in these payments. Interest is 10%. I know, that’s a lot, but since these people are higher risk, they understand the reasoning behind the high interest. And I make the payments within their budget. We discuss this beforehand.
I’ve had three buyers default. One got in an argument with his boss of six years and quit. Another had a major health problem resulting in high medical bills, and couldn’t continue to make payments. 95% of the time, when people can’t pay, they just quietly admit it and leave. They feel badly and know they must vacate.
On just one occasion, I had a buyer default and not leave. He decided to stay to the bitter end, so I had to enlist the help of my real estate attorney and file foreclosure on him. The process took about three months and cost me $600 in fees, but I got him out. Unfortunately, the buyer owed meabout $2400 in payments by the time it was all said and done. So, I’m glad I got a $2,000 down payment from him up front!
Also, he really disappointed me in the way he left the house. Here’s some video I took after he left:
As you can see from the video, he not only left it a mess, he also took (stole) some things. Frustrating, yes, but you can’t worry about the stuff you can’t control. So I moved forward, and rented this home out to a wonderful guy who now wants to buy the place. It worked out.
Doing a rent to buy is a great way to make money for yourself as a real estate investor, and to provide housing for people who can’t buy a home in the traditional way. It’s worth checking into . . .