So, you’ve heard about owner financing, and maybe you’re even warming up to the idea. The passive income sounds nice, right? Plus, it opens the door to more buyers. But now you’re thinking:
“Alright… but how do I actually set this thing up?”
You’re not alone. Most folks don’t sell land every day—especially not with creative terms. That’s why we are laying it out step-by-step, so you can get paid and protect yourself.
Step 1: Agree on the Basics
First things first—you and the buyer need to agree on the major deal terms. Think of this like your starting blueprint:
- Purchase Price
What’s the total amount they’re buying the land for? - Down Payment
How much are they putting down upfront? (10–20% or none, but it’s up to you and the buyer.) - Interest Rate
Yep, you can charge interest—just like a bank. Most land deals are between 2–6%, depending on the market. Alternatively, you can bake the interest into the purchase price, its ‘Creative Financing‘ so get Creative! - Monthly Payment
What can the buyer reasonably afford each month? This is usually a mix of principal + interest. - Term Length
How many months or years until it’s paid off? 3 to 10 years is pretty typical, but shorter deals keep things simpler. - Payment Schedule
Monthly is standard. You can also include a balloon payment at the end if that fits your goals. Use our free calculator here to work out what the payments will be each month.
Got all that? Good. That’s your foundation.
Step 2: Put It in Writing (This Part’s Critical)
Look, we don’t care if the buyer’s your neighbor’s cousin’s dog walker — if it’s not in writing, it’s a ticking time bomb. Verbal agreements have a funny way of turning into, “Wait, that’s not what we said!” faster than you can blink. So let’s do this right.
Depending on how you’re structuring the deal, you’ll need different paperwork:
If you’re handing over the deed right away (yep, they own it from day one):
- Purchase and Sale Agreement: First things first — this spells out all the terms before you close.
- Warranty Deed or Special Warranty Deed: This is how you actually transfer ownership to the buyer at closing.
- Promissory Note: Think of this as the IOU. It lays out how much they owe you, when payments are due, interest rates, late fees, and all that good stuff.
- Deed of Trust (or Mortgage, depending where you live): This protects you by putting a lien on the property until they pay you off. If they don’t, you can foreclose and take the property back.
In this structure, the buyer owns the property immediately, but you hold a lien to protect your financial interest until the loan is fully repaid. Don’t worry, you are still protected via that lien!
If you’re keeping the deed until they finish paying (they don’t own it yet, just the right to earn it):
- Purchase and Sale Agreement: Again, you want the basics locked down first.
- Land Contract (also called a Contract for Deed or Agreement for Deed): This is your bread and butter here. You keep the title until they’ve paid in full. If they miss payments, you can cancel the contract and keep the property and the payments they’ve made so far.
- Optional but smart: Memorandum of Land Contract — You can record a simple notice at the courthouse, showing the buyer has a contract in place without exposing all the private details.
Most professional land buyers will want to buy the land using the first method, because it has less restrictions on what they want to do with the land after buyng it.
Heads-up: Some states (lookin’ at you, Texas) have strict rules about Land Contracts because they’ve been misused in the past. Always double-check your local laws, because nothing’s worse than finding out your deal isn’t enforceable when you really need it to be.
Pro tip: Don’t try to DIY this with a form you found online at 2 AM. Work with a professional land buyer like us, we can seal with the paperwork and use a title company or real estate attorney when needed. Trust me, it’s way cheaper than cleaning up a mess later.
Step 3: Set Up a Payment System
Okay, now that you’ve got the paperwork—how do you actually get paid?
You’ve got two options:
- Do it Yourself
Set up automatic bank transfers or collect checks monthly. You’ll need to track everything. If you decide to sell to us, we will send regular schedules so you don’t need to track! - Use a Loan Servicing Company
These folks handle the payments, send reminders, track interest, and give both sides a payment history. Usually costs $10–20/month. Not bad for peace of mind.
Whichever route you go, make it easy for the buyer to pay you—and keep good records.
Step 4: Record Everything Properly
If you’re rolling with a land contract, you usually hold onto the deed until the buyer finishes paying. But don’t just stick the contract in a drawer and hope for the best. You’ll want to record a memorandum of the agreement with the county. It’s a quick way to make it official — so there’s a public record showing the property’s under contract. Keeps the surprises (and sneaky claims) to a minimum.
Now, if you’re transferring the deed up front and using a promissory note plus a deed of trust (or mortgage), you’ll need to record both of those with the county too. That way, your lien’s on file and you’re protected if things go sideways.
Not sure what’s required in your state? That’s where a land pro (like us) working with the correct professionals can step in to help.
Step 5: Plan for “What Ifs”
This is the part no one likes to think about—but you need it in writing just in case:
- What happens if the buyer stops paying?
- How long is the grace period?
- Do you keep the land and their payments?
- Is there a penalty for pre-paying the loan?
You’ll want default terms and repossession procedures spelled out clearly. Again, getting the right paperwork in place can help make sure you’re covered.
Final Thought: Keep It Simple
I’ve seen people get buried in overly complicated deals that just scare buyers off or become a hassle to enforce. Simple is better.
Sometimes, we help landowners structure deals like this—or if you’d rather just be done with it, we’ll make a cash offer instead. Either way, you’ve got options.
Thinking About Owner Financing But Not Sure Where to Start?
You don’t have to go it alone. If you want to sell your land fast and you are interested in making monthly passive income, or if you are just after a quick cash offer for land because you want it gone, get in contact with us!
Reach out here for an offer or email us at simplyacres@gmail.com and let’s talk about your land.
If you want a further overview of creative financing, check out our post here.
All the best for now,
Matthew & Kathleen
