3 Reasons to Sign a Land Contract

There are at least 3 reasons why you should sign a land contract. If you are buying a piece of real estate that you really want to own, a land contract locks in your commitment to buy. A land contract keeps other buyers from taking the property from you. You do not have to make a large outlay of capital to purchase the land, since under the land contract the seller retains rights of ownership while you make installment payments to acquire the property. This results in an ideal arrangement for a seller looking to unload a piece of property in a down market and a buyer with limited capital to purchase the property.

Land contracts make sense for most buyers and should be considered for the above reasons, which will be explained in this article. There are other factors to balance in when considering a land contract, but those concerns should be weighed by the ultimate benefit of owning the real estate.

Lock in Commitment to Buy

One of the benefits of entering into a land contract with a seller is that it confirms your commitment to purchase the property. Subject to the rules of the community in which you live in that governs the terms of land contracts, you can express your desire to purchase the property at some agreed-upon value and make payments over a period of years to accomplish that. Your intention is locked in when the land contract is signed, and you will realize the benefit of ownership once the contract is paid off. Al rights in the real estate will remain with the seller throughout the term of the land contract, unless it is paid off sooner.

Keep Others from Purchasing the Property

For a property that you express a particular interest in or see a potential to appreciate, a land contract helps you obtain the property and lock out any competing bids. This means that under the land contract you hold a right to first refusal with respect to the purchase of the property. This means that as long as you make the installment payments as agreed upon in the land contract, the buyer retains the right to own the property. If the installment payments cease or other terms of the land contract are not adhered to, this will allow other buyers to come to the table and negotiate a deal with the seller.

Reduce Initial Capital Outlay for Buyer

Under the terms of the land contract the buyer is not required to make a huge capital outlay in order to obtain the property. The payments made under the land contract are done on an installment basis. This increases the cash flow for the buyer by not tying up all their money in the property while allowing the buyer to enjoy all of the benefits of the property, except ownership, which is retained by the seller.   

If I buy a home on a land contract, do I get a tax credit?

If you buy a land contract and you also get a home with the property, in some cases, you can get a credit, while other credits will not be available to you. For example, you will not be able to qualify for the first-time home buyer tax credit unless you move into the property and it becomes your primary residence. However, if you are looking for an $8000 tax credit as part of the federal stimulus bill, you should be able to qualify for it. This also applies only if it is the first home that you have purchased, but you do not have to move into it.

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