Selling Land Contract Interest

Land contracts are useful instruments for sellers who are selling a home and contemplating carrying the financing for a buyer.

Selling land contract interest.

Interest rates on land contracts typically are higher than on conventional loans. A land contract is a form of seller financing. A land contract is a written legal contract or agreement used to purchase real estate such as vacant land a house an apartment building a commercial building or other real property. Meaning the borrower makes mortgage payments on a 15 30.

The buyer provides down payment and makes monthly installment payments to the seller for an agreed upon period of time at an agreed upon interest rate. The interest rate is negotiated between a seller and a purchaser sometimes with state limits. With a land contract the buyer does not get full ownership of the property. To the irs all interest income is the same whether from land contract home.

It gives sellers a built in income and generally a better interest rate than rates offered on money market accounts or certificates of deposit. Usually land contracts are done on a 3 5 year balloon. It is similar to a mortgage but rather than borrowing money from a lender or bank to buy real estate the. These rules don t apply to personal use property for example property not used in a trade or business.

A land contract or contract for deed is a type of installment sale in which a seller agrees to sell the property to a buyer over a period of time. A land contract is a contract between a buyer and private seller for real property that has a home on it. The sale of the property in question is quicker without the banks getting involved. Selling your home with a land contract has a lot of benefits attached to it.

Any part of the stated selling price of an installment sale contract treated by the buyer as interest reduces the buyer s basis in the property and increases the buyer s interest expense. Selling your home with a land contract. Additionally if you factor in interest into the payment schedule you are earning that money as pure profit over time. Any interest income a person receives when selling his home through a land contract is reported as ordinary income.

The buyer is an owner but they only get equitable title of the property. When selling a home on land contract the seller acts as the private lender.