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KimberlyLaw, Attorney and Real Estate Broker
Category: Real Estate Law
Satisfied Customers: 4195
Experience:  13 years of experience in real estate law: Foreclosures, Landlord-Tenant, Condo/Coop, Property Law, Deeds, Purchases/Sales, Estates.
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What is the difference between rent to own and land contract

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What is the difference between rent to own and land contract? which is better?

A rent to own situation is where you have a regular lease, but you make an additional payment each month that gets put towards your down payment on the property. Usually the lease is a year or 2, and at the end of that period, you have the "option" to purchase the property at an agreed upon price. You agree upon the price at the beginning of signing the lease.

With a land contract, you are actually purchasing the property up front. The seller gives you financing for the transaction and you get to use the property, but the seller keeps the title in his name until you have made all your payments. At that time you get the title.

Both of these are quite complicated arrangements, and I do not advise either one of them. If you want to purchase a property, I would take your money each month of the next year and save it up in your own account. Then use that money as your down payment in a year or so. You will save so much money on all those interest payments that you would be making during that period. There is no sense in paying interest before you even have legal title to a property.

So I do not advise either option. Just rent, save up your money, and buy a property outright.

Take care,
Customer: replied 5 years ago.

Hi Kimberly


I am the seller in this situation.

Ok. My answer is the same. I do not suggest getting into either situation. Just sell your home and let them finance it through a bank. You really don't want to get invovled with this. In fact, the risks are even higher if you are the seller here. There are very complicated deals and most people don't do them correctly and get burned.

When you get into this type of deal, it's most likely because the buyer is in a difficult financial situation. That is why they can't afford to just buy a house outright right now. They want to build up their ability to do so. That is not the ideal purchaser. They are the most likely to have financial problems and that will have a huge impact on you. Especially in this economy, you can assume that they will not be able to make all their payments.

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