![]() ![]() This includes several components, which the following questions outline: How and when the payments are made are fundamental issues that need to be addressed. Note that the longer the contract runs, the less each installment payment will be as it will be stretched out over time however, the longer it runs, the more time it will take for the buyer to receive title and own the land outright and the more interest charges will accrue if applicable. The land contract could last for as long or as short as the parties agree to. This is something both the farmer and the seller will have to consider and negotiate to come up with the best solution based on their situation. While farmers often want to minimize taking on debt, having some debt that can be stretched out over time can serve to free up cash flow early on. With that said, even if the farmer does have a lot of money and could make a substantial down payment, she may instead want to keep this cash on hand to pay for other capital expenditures such as equipment that will help grow the farm business. One advantage of a land contract is that oftentimes sellers do not require the buyer to pay any money up front. However, many farmers don’t have a lot of money up front, so a high down payment may not be an option. If the seller requires an interest rate to be paid on that remaining balance over time, it can really add up. ![]() So if the buyer puts $20,000 down on a $100,000 purchase price, she’ll only have to make the monthly installment payments on the remaining $80,000. The benefit of making a down payment is that it immediately reduces the principal, the amount of the purchase price less any interest that accrues.
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