Land Contract Implications

[Kole Kingslien]

Hi all,

I am posting on here because I have an opportunity to purchase a couple of rental properties, by method of Land Contract. I have never done this before, and had some questions about the implications of a land contract, and was hoping that someone on here may some knowledge on the subject. 

Some of my questions are:

• Am I exposed to any greater risk in a Land Contract, apposed to the seller holding a Mortgage? The thing that concerns me about a Land Contract, is that the seller retains the Title, until the property is paid off. I don't know what this exposes me to, and I certainly to want to make it easier for me to get screwed over in some way.

• If I buy via Land Contract, what will the tax implications look like? Will I be able to write off any acquisition costs I may have? What about professional fees, expenses, and depreciation?

• Could I refinance out of the contract if I wanted to? Since I do not hold Title, will the bank still let me refinance like normal (something like 80% Loan to VALUE), or would they treat it like a purchase, and require 80% Loan to Cost (requiring me to bring a 20% down payment to the table)? 

Is there anything else that I may not be thinking of? Any thoughts or input on the subject would be very helpful!

Thanks,

Kole

[Jerry W.]

OK, I hae done over a 100 of these, but your state laws may differ.  Here is how it would work in my state.  First taxes are the same, it is my understsanding you do not get to subtract depreciation, but ask your accountant.  You do not own it, the other person does.  You sign the contract, their is often an escrow account set up to mintor payments,  The escrow holds a quitclaim deed from you to the sellers, and a Warranty deed from the Sellers to you.  If all payments are made they give the deeds to you to destroy the quitclaim deed and file your warranty deed.  If you default they give the deeds to the seller and he destroys the warranty deed and files the quitclaim deed.  A memoranum of sale is filed under the legal description at the courthouse showing you have entered into a buy sale agreement with the seller and lists both parties names.  This is to prohibit the seller from getting a mortgage or selling the home to someone else because the title is clouded by a prior filing.  The quitclaim deed or warranty deed filed later will clear this.