Land Trusts or LLC

We are purchasing a house and have another buyer wanting to owner finance the property from us for two years. He is putting down 10% of the sales price and we have a 2 year term amortized over 30 years. This is the first time that we have owner financed to anyone. He is wanting the benefit of owning the home and getting the mortgage interest to write off every year. We dont mind putting the deed in his name but dont want to have to go through foreclose if he fails to pay us. We have been told by some other investors to use a land trust. They say to buy the property in the land trust. The beneficiary will be the the buyer and we will be the trustee. They said you can specify within the trust that if he defaults on the payment that the deed would revert back to our company. At that point we would only need to evict him to get the possession of the property back.

Is this the best way to go about this or should we use an LLC and specify in the operating agreement? Will this work to where we only need to evict instead of foreclose? If we used the LLC or land trust would he be able to write off the mortgage interest in his taxes?

Last but not least has anyone done a transaction like this before? If so do you mind sharing the paperwork and strategy you used in the transaction? The more details the better.

Thanks ahead of time for the responses.

Jon Holdman

Real Estate Investor · Wheat Ridge, Colorado

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Jul 29 '11, 06:12 PM

To some extent if your buyer has enough ownership to claim the mortgage interest deduction they have enough ownership to force you through a foreclosure if they default.

You might want to consider a land contract. That allows you to retain ownership, but (as I understand it) allows the buyer to claim the mortgage interest deduction. But its still not a simple eviction if they default.

You really must find a good lawyer knowledgeable about this sort of transactions to set up something that will work in your state.

Jon Holdman, Flying Phoenix LLC

Brian Rhodes

SFR Investor · Glen Allen, Virginia

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Jul 29 '11, 07:59 PM

I agree with Jon. The best way, and the way we have done similar deals is a land contract also called contact for deed. This will allow your buyer to have the benefits of ownership and allow you to keep control of the deal. I also agree with Jon in the fact that if your buyer did default you are going to have to do more than just an eviction process.

The other issue that you bring up as to ownership of the property to me is a separate issue. Don't confuse an LLC and a land trust as to its purpose. An LLC is typically designed as an entity for asset protection. A land trust is typically used as a privacy tool. A land trust will not give you any liabilty protection. If you go with a contract for deed I would recommend you using a land trust in this situation to protect you and your buyer from any liens that could get placed on either of you.

Again you should seek legal advice on a deal like this and getting 10% will allow you to pay for that and get it done correctly according to your state laws.