I have a distressed property for sale that has served as a rental for several years. A real estate agent asked me if I would consider doing a 'contract for deed'. My question is: How can I be assured that the property will be rehabbed, either for the proposed owner's personal residence, or to fix it up to flip it, while he is paying me the agreed upon purchase price in installments? What other precautions should I take? Or should I just try to sell the property out right for cash?

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Originally Posted by starbeam1

... My question is: How can I be assured that the property will be rehabbed, either for the proposed owner's personal residence, or to fix it up to flip it, while he is paying me the agreed upon purchase price in installments? ...

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Nothing in life is certain, but you can do a lot to make it more likely that what you want will happen.

Be careful in writing the terms of the contract to provide that the buyer must strictly conform to a specified and detailed repair schedule. Provide for monthly reports, with pictures, &/or progress inspections. And have an attorney who is able to think outside of the box. You don't want one who will simply use a form contract everyone else has used for the last 40 years.

Contract for deed is basically an owner finance contract. Within the limits of the law you can insert clauses that outline what you desire. If he is paying you for the property, what is your concern? You are getting your money and he gets a depreciating asset if he does nothing. If he flips the house, make sure the contract has a "due on sale clause". What is the contract length? Most CFD's are short term, unless you are in the personal mortgage business. Most I have seen were for flippers who wanted to make money so the CFD only lasted until they fixed it up and sold it.

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Originally Posted by AK lawyer

Nothing in life is certain, but you can do a lot to make it more likely that what you want will happen.

Be careful in writing the terms of the contract to provide that the buyer must strictly conform to a specified and detailed repair schedule. Provide for monthly reports, with pictures, &/or progress inspections. And have an attorney who is able to think outside of the box. You don't want one who will simply use a form contract everyone else has used for the last 40 years.

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Thanks! You have given me 'food for thought'. I wasn't aware that I could require monthly reports and pictures. I will be keeping notes on advice that I am given to help construct an 'air-tight' contract. Yours will definitely be included. I am not out to take advantage of anyone. I've been in that boat myself once or twice. I just want a fair deal. And FYI, I live in Missouri if that matters at all.

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Originally Posted by ma0641

Contract for deed is basically an owner finance contract. Within the limits of the law you can insert clauses that outline what you desire. If he is paying you for the property, what is your concern? You are getting your money and he gets a depreciating asset if he does nothing. If he flips the house, make sure the contract has a "due on sale clause". What is the contract length? Most CFD's are short term, unless you are in the personal mortgage business. Most I have seen were for flippers who wanted to make money so the CFD only lasted until they fixed it up and sold it.

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Actually, that suggestion was just presented to me today by a real estate agent. No terms have been set. I am asking advice now in order to prevent mistakes, and make sure I don't get 'taken'. I'm not into real estate other than the property was left to me as an inheritance and I used it as a rental for income purposes. I have no experience in selling property and will need to put my trust in the real estate agent to guide me through the process. That being said, do you also suggest I that hire an attorney?

Yes, I would use one that would make sure the contract is in your favor. I once did a CFD with a 2 year contract after which they Had to get a standard mortgage. I got more income, they had no down payment since they were a good paying tenant and were able to build equity. Worked for me but not all cases work out that well.

Is the real estate agent wanting to "buy" the property on contract, since there is nothing in it for a real estate agent normally. The house does not actually sell, till it is paid in full and your transfer ownership.

On a Contract, you still have the deed in your name, you still pay the taxes and often call property insurance ( they may carrying ti also, but if they lapse and it burns down, you have nothing, I always still carried my own on any property I was selling)

Also make sure the terms spell out exactly what happens if and when they default, in the cases of my property and most of the ones I know about, over 1/2 default.

Also for any major construction or maybe any construction, you need to have it in writing that you have to be notified and give approval, And have the right to see any building permits prior to work being done. That may you make sure work is done right.

The risk you take is that the buyers damage the property even more. Maybe gut it and take all the appliances, fixtures, pipes etc. To protect yourself from that you get a sufficient down payment.

Otherwise, if the contract is drawn up well, your risk is minimal. If they default you keep what has been paid AND any improvements they make. The contract reverts to a rental and you evict them. Then start again and contract it out again.

Many thanks to all who responded. You provided a lot of great information, some things I wouldn't have thought of by myself. I will take the advice. Wish me luck! : = )