If you decided to invest in contract for deed deals, you need to understand that it is a niche market. Contract for deed transactions can get tricky and not everyone is equipped to do it. Investing in real estate, in general, is not an easy thing to do, especially for a novice. There are thousands of real estate investment gurus out there pitching their courses and books. These courses teach how to invest in real estate without having to use your own cash or credit. Whether their systems work or not, you will need to have at least good credit in order to properly invest in contract for deed deals.
Contract Fot Deed is NOT a rent to own or lease option
It is important to distinguish the difference between lease options/rent to own and contract for deeds, because both terms always get confused and used interchangeably. Although the idea behind each may seem the same, the legality of both tools is very different.
You are still al landlord in a Lease Option deal
The biggest difference is that in a lease option situation, investment property is still treated as a rental. Therefore, the contract holder will have to deal with getting a rental license from the city and might still be liable for repairs (unless agreed to otherwise). Owner will also have to issue Certificate of Rent Paid (CRP) form every year. Lets ignore sandwich lease options and other creative transactions for now.
You are not a landlord when you invest in Contract For Deed
In a contract for deed situation, buyer is actually able to get their name on the title and homestead the property so instead of a tenant, you are getting an owner in the property who will treat the property as their own. You, as a CD holder, are acting as a bank/lender. At the end of the year, you will have to report interest made and follow proper tax procedures. In both cases, you will have to consult with a CPA.
Work with a professional
Before you invest in contract for deed property, you need to understand what is contract for deed first. You can read up on it online to get more familiar with it but when the time comes to act, you should always hire a professional to help you.
As a real estate investor, you should always seek legal advice before investing. Also, work with a REALTOR® that understand investment side of real estate transaction.