Down payment on a $22,000 rural parcel: take $2,000 or hold for $6,000?

I only know screening from the rental side, but the pattern there is that the size of the move-in money predicts almost nothing on its own and the source of it predicts a lot. Somebody who saved $2,000 over eight months is a different animal from somebody whose cousin handed them $6,000 last Tuesday. Do you ever ask where the down payment came from, @ledger?

Middle numbers are usually fine and I'd stop treating $3,500 as a compromise nobody wants. On my small buildings the mid-tier deposit tenants have been my steadiest. The thing that actually broke for me at scale wasn't the deposit amount, it was that I had no process for month two when the payment didn't show up.

$230 a month on a $22,000 parcel over 9 years. I put that in a calculator and I get a rate up in the low double digits. Is that normal for land paper or am I misreading your terms?

Where I'm looking, low price points and cheap land, $2,000 down is basically the price of entry. At $6,000 you're competing with people who'd rather just buy something outright for that money. I don't think the choice is independent of your price band, @ledger. On a $22,000 asking price you have room. Under $12,000 you don't.

Every unit teaches something and the thing they've taught me is that recovery cost after a failure dominates. If re-marketing a parcel costs you $700 in photos, listings and time, and low down doubles your default rate, that expense shows up in every one of your 20 parcels. I'd want to know the re-marketing cost before I picked a column.

I want the version that doesn't wake me up at night, which is the higher down. But I notice I'm answering a temperament question and calling it a math question.

Before I picked either I'd want to know how the forfeiture or foreclosure path works in the state the parcel sits in, because whether a defaulted contract takes you 30 days or a court process changes the cost of a low down payment enormously, and that varies state by state. Worth having a local attorney tell you which path applies to your paperwork. @ledger, do you know which one you're in?

@anchor that's the piece I'd been missing in my own reading. I'd been comparing down payments as if the recovery was the same everywhere.

I've sold nine parcels on terms over about six years. Small sample, take it as such. My three defaults were all in the lowest down payment group, and two of them came in the first five months. What surprised me is that the ones who put down more also paid off early more often, which cost me the interest I was counting on. So high down bought me reliability and took away my back end. There isn't a free column here.

@orchard's payoff point is the one I'd chase. Read your own note language on early payoff and see whether you have any prepayment provision at all, and whether it's enforceable where the parcel sits, because that's a state law question for a lawyer. A high down buyer who pays off in month 14 turns your 9 year interest projection into a rounding error. @ledger, your spreadsheet almost certainly runs the full 108 payments in both columns, and that's the assumption doing all the work.

Reading this as somebody who wants income without a second job, the low down option sounds like it comes with a job.

Reading twice and still stuck on one thing. If the buyer defaults in month 8, does @ledger keep the $2,000 down and the eight payments, or does some of that go back? I assumed keep, then I read that some states treat it as more like a mortgage and you can't just keep everything.

@juniper you assumed the risky thing. Whether a defaulted installment land contract gets unwound as a forfeiture or has to go through a foreclosure style process, and what the seller keeps, differs by state and sometimes by how much equity the buyer built. That's a licensed attorney question in the specific state, not a forum one. @ledger, I'd vote high down for the diligence reason: it shortens the window where I'm exposed to a process I don't control.