Selling Land Contract Interest

A land contract is a contract between a buyer and private seller for real property that has a home on it.

Selling land contract interest.

The sale of the property in question is quicker without the banks getting involved. With a land contract the buyer does not get full ownership of the property. Any interest income a person receives when selling his home through a land contract is reported as ordinary income. 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.

Selling your home with a land contract. 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. It is similar to a mortgage but rather than borrowing money from a lender or bank to buy real estate the. Additionally if you factor in interest into the payment schedule you are earning that money as pure profit over time.

Selling your home with a land contract has a lot of benefits attached to it. Land contracts are useful instruments for sellers who are selling a home and contemplating carrying the financing for a buyer. When selling a home on land contract the seller acts as the private lender. A land contract is a form of seller financing.

It gives sellers a built in income and generally a better interest rate than rates offered on money market accounts or certificates of deposit. Interest rates on land contracts typically are higher than on conventional loans. The interest rate is negotiated between a seller and a purchaser sometimes with state limits. Multiply the interest rate by the principal balance due and divide this rate by 12 to calculate current month s interest.

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. During that time the buyer makes installment payments which consist of both principal and interest. Usually land contracts are done on a 3 5 year balloon. The buyer is an owner but they only get equitable title of the property.

These rules don t apply to personal use property for example property not used in a trade or business. Meaning the borrower makes mortgage payments on a 15 30.