$500 down, no credit check ads on 5 acres. What stops the buyer from just walking?

Question

I found a listing for 5 acres priced at $500 down and $289 a month, no credit check. My first rental is coming up and I've spent weeks on tenant screening, so seeing a seller hand over possession of land to a stranger with basically no vetting confused me. If I were the one selling that parcel, what actually protects me? Someone in a comment said with land you just take it back and resell it, which sounded too easy. Do people screen these buyers at all, or is the down payment the whole screen?

Rena Guide · Accepted Answer

Some default is expected in this model, and the pricing reflects that. A seller-financed land deal is a purchase where you, the seller, hold the installment contract instead of a bank. The buyer pays you monthly, and your protection comes from the paperwork rather than from a credit report.

The down payment is doing a lot of the screening, though it isn't the only tool. Many operators do pull a credit report or verify income, mostly to set the down payment and rate rather than to reject anyone. A buyer who puts $2,000 down on a $20,000 parcel behaves differently than one who put $500 down.

What gets you the land back depends on the instrument and the state. If you sold on a contract for deed, meaning title stays in your name until the last payment, some states let you cancel the contract after notice, and others treat it like a mortgage and require a full foreclosure through the courts. That difference is worth confirming with a local real estate attorney before you write your first contract, not after a buyer stops paying.

The part people underestimate is that the property taxes and any liability stay yours while you're waiting. A stalled buyer who quits paying taxes too can cost you a year of holding, plus the cost of remarketing the parcel. Build that into your numbers rather than assuming a clean resale.

samantha_ruiz · Answer

The taking-it-back-and-reselling part is real, it's just slower than the ads make it sound. In a judicial state you can burn 6 to 12 months and legal fees before you can list it again. Meanwhile you're paying taxes on a parcel generating nothing.

dmitri_v6 · Answer

@keystone's timeline is the reason the instrument choice matters more than the screening. Contract for deed, deed with a note and mortgage back, deed of trust, they all end up in different places when someone stops paying. I'd rather spend $600 with an attorney on a template that fits my state than screen harder.

omar_haddad · Answer

Screening a land buyer isn't like screening a tenant because a tenant can wreck the asset. Worst case on 5 acres of scrub is somebody dumps a camper and some trash. Annoying, maybe a thousand to clean, not a gut job.

dpatel_re · Answer

Underwrite the default rate, not the individual buyer. If you assume 1 in 4 low-down buyers quits in the first two years, and you've already collected down payment plus 18 months of payments at a price well above your basis, the second sale is often better than the first. That only works if the price you set holds up on its own comps and isn't purely a payment-affordability number.

ehernandez74 · Answer

Does the buyer keep any equity in that scenario? Collecting 18 months of payments and then getting the land back feels like it would upset somebody enough to sue, even if the contract says otherwise.

kevin_lombard · Answer

@anchor that's the part I got stuck on too. Some states apparently give the buyer a redemption window or require you to refund part of what they paid, which sounds like the opposite of the clean forfeiture people describe.

devon_pierce · Answer

The state you're selling in decides the whole risk profile. Filing that away before I build any list.

$500 down, no credit check ads on 5 acres. What stops the buyer from just walking?

8 replies