Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Land Contract

What it is:

A land contract is a contract in which the buyer of a property agrees to pay the seller in scheduled installments.

How it works (Example):

A land contract allows the buyer of a property to use it while the seller continues to retain the deed. Once the buyer pays the full price specified in the contract, the seller gives him/her the deed to the property.

For example, suppose Bob buys a property from Jack for $100,000. Using a land contract, Bob agrees to pay Jack in monthly installments of $2,000 over the course of 50 months. Once Bob pays Jack the $100,000 in full, Jack signs over the property's deed to Bob.

Why it Matters:

Land contracts are an alternative to mortgages with the exception that buyers do not hold the deed to the property. Land contracts are legally binding and allow for any manner of payment structure. Land contracts offer property buyers the option to overpay on installments and pay for the property in a shorter span of time.