land contract or cash

Anonymous-0 · Mar 5, 2010

My aunt has 60 acres of land that she would like to sell. She asked me if it would be better to sell it on contract over five years with interest or a cash sale fore the total amount? Which would be better for taxes and legal cost? Any information about this problem from your experiences would be appreciated. Thanks!!!!

glennster · Mar 5, 2010

as far as tax implications, she needs to see her tax accountant. if it were me, i would sell on a cash deal. land contracts can get sticky. if the deal falls thru, you get the property back, but, if the buyer made a mess of the property, then you get back a headache.

El Toro · Mar 5, 2010

If it was mine I would want the cash. She may want to rent out the 60 acres for awhile until the property values rise. My local paper has about 10 pages of foreclosures every week. There 6 homes in this development for sale and there's no takers for now. Hal

Mike (WA) · Mar 5, 2010

She'll have to pay capital gains tax on it either way (assuming its not her personal residence), but with a contract, she just has to pay tax on the proportion of the profit she received during that year. She can probably get a much better return on her money with a contract- 5 or 6% interest, vs. about 1% if she sells for cash and invests the money.

supergrumpy · Mar 5, 2010

contract of sale usually will be set up to allow your aunt to retain title until paid in full with new owner using the land and paying property taxes over to aunt

if sold for cash today any income taxes would be due next 4/15 and deal is done = bird in the hand

if sold on "installment sale", aunt carries the note, she would pay taxes on the interest and taxes on selling price as it is received, title usually handed over at close and gets messy if buyer defaults

choose your poison

omahagreg · Mar 5, 2010

Mother in law sold her home farm 3 times! First 2 were land contracts, for too much money, and the buyers could not pay. Third one was cash. Many sleepless nights were spent by my MIL over that one. If she can handle the downside, land contract. Otherwise, cash in hand please. Greg

Anonymous-0 · Mar 5, 2010

Land contracts are almost a thing-of-the-past, unless the owner has special tax considerations such as already being in a high tax bracket, or wants to accommodate the buyer; i.e., a family member. Cash is by far the king!

Dean · Mar 5, 2010

You should consult a good real estate attorney before signing any land contract.

Many jurisdictions are recharacterizing land contracts as mortgages. If your jurisdiction does this and the buyer cannot or will not pay, you will be forced to foreclose in order to recover the property. Foreclosure is expensive and time consuming.

Dean

JMS/.MN · Mar 5, 2010

Contract for deed instruments were typically written with no more than 29 percent down payment, otherwise total tax bill kicks in at 30 percent down. Title transfer when the last payment is made. Dad sold our home farm C4D, and a portion of the capital gains tax was paid with each year"s payment.

John T Country Lawyer · Mar 5, 2010

Ive done it both ways for clients over the years plus bought and sold myself, and as an attorney I'll give you a simple answer:

Its in the best interest of the Seller TO CONVEY IT BY DEED FOR CASH. That way youre done with it and the property taxes and worry and liability or risk of loss etc etc and you have your money.

In the event of a Conditional Land Installment Sale Contract. Its best for Sellers to NOT even have the contract recorded and if possible get a Quitclaim Deed from the Buyer in case of default. HOWEVER for the Buyer you want it recorded and a deed placed in escrow if possible

This subject can fill entire law libraries so seek professional legal advice NOT from chat boards or lay persons is my best free legal advice.

John T BSEE, JD Attorney at Law
Untitled URL Link

Mike (WA) · Mar 6, 2010

$300,000 sale, 6% interest on a contract, 30 years= $1,798 per month.

$300,000 sale for cash, invest in T bills at 1%, 30 year= $964 per month.

Difference is $834 per month.

Buyer won't pay? I do contract forfeitures all the time, and the cost is about $1,200, takes 90 days. So if buyer makes only 2 payments, you're still money to the good- and you can keep his down payment, and sell the property again.

Never have been able to understand why real estate contracts get such a bad rap. What am I missing?

Kevin Schmidt · Mar 6, 2010

One thing to consider is a land contract carries a little more headache for the seller

BUT

A lot of starting young farmers have a heck of a time coming up with the full cash or loan to buy a farm early in life.

A lot of you older guys on this board b*tch about the younger guys and there need for 'instant gratification', from my eyes a lot of that is in the older generations as well.

If you just want a check and don't give a cr*p who owns it, auction it off.

If you think it would be nice to get a younger guy or family on it, contract sale it to someone who you would like to see own it.

Just an example, do 10% down to secure a little $$$. Do a 20 year payment schedule, if you don't want to wait 20 year to get all the money, do a ballon payment in 5-7 years (whenever it should have enough equity for the buyer to get bank financing)

Its a little more headache for the seller, but the money can be equal or a bit higher to an auction price.

barn E · Mar 6, 2010

Love land contracts. Make some bucks that way. Good for the buyer too. And you can actually buy insurance so that if buyer defaults, you get your money. Shop around and get a good lawyer. Also LC can be written for all kinds of conditions. I had one 20 years ago for ZERO interest. Legally. Or if you wanted say 6 paymnts a year instead of 12, that can happen. Taxes and insurance included in payments or NOT. Your choice. As written, it will be. Good Luck and be careful.

Geo-TH,In · Mar 7, 2010

I made the mistake and purchased property on a land contract. Seller dies and kids file ch 11. What a mess..never again!!

land contract or cash

Anonymous-0

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glennster

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El Toro

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Mike (WA)

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omahagreg

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Anonymous-0

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Dean

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JMS/.MN

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barn E

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