Structuring Deals #3: Land Contracts & Contract For Deed
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Structuring Deals No 3- Land Contracts and Contract For Deed
Joe: Hey, it’s Joe. This is video No. 3 of the zero down structure hierarchy and in this one we’re going to talk about land contracts, or contracts for deed. It’s called the land contract if you’re in a mortgage state. It’s called a contract for deed if you’re in a trust deed state. Either way, they’re pretty much the same type of document and you probably want to have an attorney that’s local to you draw up this document because it has to be recorded, or it can be recorded, and you want to make sure that it’s done properly for your particular state. And that shouldn’t cost you more than $200 or $300 to have an attorney draw that up for you. But, basically, it’s the same as if you were buying a car using the bank, a loan from the bank.
Joe: When you get a car the bank holds the title to the car and then they have a document with you that says you’re going to pay X amount of dollars over X amount of time at a particular interest rate and then when it’s paid off, then the bank is going to transfer that deed to you and you’ll have the deed, or the title, I’m sorry, of the car to you. That’s the same thing that’s going to happen in land contract or contract for deed.
Joe: The person who’s selling it to you is going to hold the deed to the property. You’re going to make payments to them based on whatever you agree upon. And once those payments are paid off, then they’re going to transfer the deed. What I like to do is have that deed held in escrow somewhere so that I don’t have to track them down when that payment, when I make that last payment. But I don’t usually buy properties on land contract. It’s not a bad way to buy, it still gives you pretty good control. But it doesn’t give you the deed and you still need that person who’s on the deed to sign the final deed. That’s why we try to put those things in escrow.
Joe: Now, if you’re selling a property on land contract, you don’t necessarily want to put it in escrow. You want to hold onto control. It’s, also if you’re selling on escrow, or, I’m sorry, if you’re selling on land contract you don’t want to record your land contract. If you’re buying on land contract, you do want to record the land contract because it solidifies your position. If you do want to buy on land contract, make sure that you record the land contract. If you’re selling on land contract, don’t record it if you can avoid it and just hold onto it. So if they default, you can just ask them to leave and usually they’ll leave and you can tear up the land contract and it’ll be, everything will be said and done.
Joe: If you have to, if it’s recorded, you have to get it removed from the County Recorder and you have to have a document signed to do that. So, if you’re in a dispute with somebody who you’re moving out, that’s sometimes difficult to get taken care of. So don’t put yourself in that position.
Joe: Anyway, that’s what a land contract is and I’m going to explain how that fits into the zero down hierarchy in a future video. All right. Let’s go on to the next structure, which is lease option. And I’m going to do that in the next video. Thanks, now.