Purchasing on Land Contracts

buying property on a land contract (also called a wraparound mortgage) is very similar to buying a property "subject to" the exisiting mortgage. the biggest difference is to whom you are submitting the mortgage payment.
in both cases you are making the seller's mortgage payments and essentially taking control of the house (you do not own the house until the existing mortgage is paid off). in a land contract, you are paying the seller the mortgage payment who then is still responsible for paying the monthly payment. in a sub-to scenario, you directly submit payment to the lender.
in both cases you are paying the mortgage in exchange for control of the property.
hope this makes sense. if not please let me know.

So it's basically just picking up the payments. It seems like the only advantage to this is a relaxed amount of liability on the buyers part, but increased risk if the seller defaults on the payments. Why would this situation be desireable?

I see it desireable b/c you can do a land contract with no pre approval from the bank. Basically the seller is your bank (owner financing). So this is a great way to get started if you don't have good credit or a bank will not approve you.

Shaun

These two creative methods of purchasing properties are perhaps the two most popular (the third being lease options) of the "no/little money down" types of investing. And you can see why. If you have a motivated seller who needs to get out of their financial obligation, you can take over their property with no or little money down with these vehicles. I find this very desireable, especially being an individual who has limited access to cash.
One of the things that you have to look out for is that the seller may be months behind on mortgage payments and you may have to put up cash up front to get them current on their mortgage. Always be thinking creatively!! I never thought of this before I read Dean's book. I didn't know how many creative ways there were to obtaining real estate.

A land contract is not the same as a wrap. A wrap is simply a 2nd mortgage that "wraps around the 1st". The rest of the deal can be.. basically anything but typically it's a straight sale.

In a land contract, the sellers keeps the deed until the agreed upon payments have been made. In this respect, it's closer to a LO.

Here is more info on land contracts:

http://www.wisegeek.com/what-is-a-land-contract.htm

thanks for clarifying, mark. Is a wrap, then, similar to a "owner carries back second mortgage?"

Yes but slightly diffrent. Let me give an example.

Lets say a pruchase price of 100K and the owner owes 85K.

With a straight 2nd, you would do something with the 1st (assume it, take property subject to) and then the owner would take back a 2nd of 15K.

On a wrap... the owner would take back a mortgage for the full 100K. The important thing with a wrap is that you want a 3rd party involved because the 1st loan is still in place.

So it would work like this. You would pay someone (let's say an escrow company) on the 100K loan. Then they would make the payment on the 85K loan and send the balance off to the seller. THis way you KNOW that the existing loan is being paid rather than the seller just pocketing your entire payment.

So what are some things you need to make sure of when entering into a land contract? Seeing as only you and the seller are involved, if the seller has a mortgage then the property really isn't his/her's to sell. It seems like a good NMD approach if you can screen the motivated seller and the property, but there could be some obsticles if you don't know all the right questions to ask.

That makes more sense. In essence you are bringing a third party into the equation to protect yourself just in case seller isn't paying.
thanks for the info.

is it also called a subject-to? I heard if you did this wrap with the seller but you then use another party to sandwich, like in a lease option, the deal with another party, making you the middleman, is illegal to do. Right? Because if the first owner knew you were doing this wouldn't they be upset with you and also if the mortgage company knew of this wouldn't you then responible for the loan in full? So, if you were to pull this off how would you go about doing the transaction without these complications. Would you have in the contract with the first owner stating this is what you are going to be doing?