Land Contracts are also called Agreement for Deeds, or Contract for Deeds.
The benefits of an Installment Land Contract are:
For Sellers:
- Your profit will be taxed at the current maximum federal tax rate of 15 percent for capital gains, plus state tax.
- However, the depreciation deducted after May 6, 1997, is taxed at a special federal "depreciation recapture" tax rate of 25 percent.
- An installment sale spreads out your capital gain tax over the years you receive principal payments from the buyer.
- The buyer's promissory note is secured by a recorded mortgage or deed of trust on the property sold (recorded at county court house).
- If the buyer defaults, you can foreclose to either get your property back to resell for a second profit, or the high bidder at the foreclosure sale will pay off your loan in full.
- The big installment sale benefit for you, as the seller, is you will earn interest at a higher rate than you probably can obtain elsewhere with safety, currently at least 6 percent.
- However, the interest you receive is taxed as ordinary income.
- An installment sale means easy financing without having to qualify for a mortgage loan.
- As a result, Sellers can ask top dollar for your property and get it, thanks to easy financing.
- You don't need a Realtor because you already found a buyer.
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Land Contract - When Making Payments to a Seller
Whenever you are making payment to a seller be it using a Land Contract or a Lease with Option to purchase, send a note each month along with the monthly payment saying...
"If I pay you off early, how much of a discount would you give me?"
This can save you thousands of dollars!
In the same scenario as above you could ask the seller if he would discount your payment 10%-20% if you paid 6 months in advance.
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