[Kristopher Larson]

One of my tenants asked me if I would be interested in selling the my investment property on a contract for deed basis. I don't have any specifics yet. My questions are what are the pros and cons of selling the property this way? What risks do I bare as the seller? What do I need to ensure is in the contract to minimize my risk? Why would he propose this option vs buying it straight out? Are there any good websites to learn about this process?

Any help would be greatly appreciated.

Thank you.

[ScottGem]

The pros are that you can get the property sold, probably for a higher price then a regular sale. Your only risk is that the property will be damaged if the buyer defaults. If the buyer does default, you still hold the deed, so you can just evict and then re rent or sell it again. You keep whatever was paid.

If you decide to go that route, get an attorney to draw up the contract.

The reason why they might go this route is because they can't get financing and/or don't have enough for a down payment.

You have a specific advantage here in that you have experience with this tenant. You know their payment habits, you know what type of tenant they are. So you aren't going into it blindly not knowing the buyer.

[Dr D]

If the property has an underlying mortgage, you run the risk of triggering the Due On Sale clause, which it most likely contains. Since this is an investment property, an outright sale would subject you to the capital gains tax on the profit, in the year of the sale. A Contract For Deed, which is an Installment Sale Contract would allow you to spread the capital gain over several years. Generally the time required for Forfeiture of the property back to you, in case of default is determined by the percentage of equity that the buyer has. The less equity, the shorter the Forfeiture period. Check your state laws.