How can I persuade them to do a "trust for deed" rather than a land contract? How will this benefit them?

Question

I am in the process of buying a home from a family friend. He has agreed to sell on a land contract, but after talking to a lawyer.. I'd rather sign a promissory note and a trust for deed. How can I let them know that it's better for them and me?

I basically need to know how to be persuasive about it.

Answer 1

Your attorney is wise, he/she is a keeper. If you dont understand what a land contract is, then you shouldn't be signing it.

By the way, now is a terrible time to buy, most stuff is overpriced by double. But if you still are set upon buying, keep in mind a rule of thumb which is never spend more than 3 times your annual gross income (using a fixed rated loan). in other words, if you make $100,000 per year, then you should only spend $300,000 on a home.

But again, my recommendation is that you do some further research on the market before your consumate the purchase.

Answer 2

You didn't say if he had a present mortgage on the property that he did not intend to clear at your closing on the contract or deed (land contract) That could be why he wants it on land contract. If he does a note and deed of trust, it may trigger a "due on sale clause" in his original note with the bank. A land contract doesn't do that. In fact, it is little more than "rent". The seller has all the advantages as you probably know after talking to your attorney. If he insists on land contract, at least get him to agree to allow you to make your payments directly to the bank where he has the present mortgage instead of directly to him. He may not know that contract for deed is harder to "foreclose" on then "deed of trust" so you may want to inform him of that. Why don't you just get your own loan at the bank? Owner finance usually has a higher rate of interest. Your main danger here is paying off the note in a few years only to find out he never did pay off the bank so you can't get clear title. If the bank forecloses on him....ouch!

Answer 3

Have him talk to his own lawyer. Banks DO NOT want to call a note due(due on sale clause). As long as the payments are being made on time, you will have no problems. Talk to your lawyer, you will need an authorazation to release information so you can talk to the bank about their/your mortgage. You will also need a limited power of attorney for the mortgage. Set up an account with a local bill collect and pay service that will notify both parties if a payment has not been made.

I strongly disagree with the 1st poster here. Now is the best time to buy, just make sure you are buying it right! When is the best time to buy? When everyone else is selling! The 1st poster will say buy when real estate is rising, well thats what everyone else did then the market flattened, not crashed. Owner financing is THE BEST way to aquire property. Real Estae is still growing around 2-3% nationaly, so don't get spooked by the sky is falling media. People will always need a place to live and in the long run REAL ESTATE IS THE BEST INVESTMENT! The government gives tax breaks to real estate owners. Ever heard of a stock that you get a tax break on??

Here is a great article to read:

Why You Should Invest In Real Estate
By: Ron LeBlanc

I am always amazed when I talk with people about investing and real estate. I was at a resort recently with my family and struck up a conversation with a woman about her experience with the resort. As we chatted she mentioned that she was a Realtor. I asked if she did her own investments, and to my amazement she said ,I wish I could, but I have my money tied up in funds,.

I almost drowned in the hot tub! Here is someone who facilitates deals for people in real estate (assuming she has ever met an investor), and she would rather earn 2-5% (maybe) per year on her money. Wow.

I hardly know where to start. I think the most exciting things about real estate investing are leverage and control. Let me first discuss leverage. How much interest in a mutual fund can you get for $10,000 ? $10,000 worth would be the correct answer. Options aside, how much stock can you purchase for $10,000 ? $10,000 is again the correct answer.

How much real estate can you buy for $10,000 ? How about $250,000? I’ve done it for less. Now let me ask: When you have $10,000 in stock, how much do get appreciation on? $10,000 – this is easy! How about if that mutual fund goes up 5%, what do you get 5% on? $10,000 again!

Now what if that $250,000 house goes up 5%...you get $12,500 in appreciation. That’s more than your initial investment.

Now let’s look at involving OPM – other people’s money. Is there anyone at a bank that would lend you $10,000 to buy stock? I doubt it. Is there anyone at a bank that will lend you $10,000 to buy a house? You bet there is! Lenders are tripping over each other to lend you money. How much mortgage related junk mail do you get every day?

So, not only do you get appreciation on much more than you spent, but you have people willing to lend you the money to do it! What could be better than that? How about control or knowledge.

When you buy stock in a company, what can you do to make it go up or down? Not much. I doubt you could buy enough product to affect the stock price of any public company. What about with real estate? What can you do to affect the market price of your property? Plenty! You can really affect a market, but you can do a lot to a property yourself.

When you buy a stock, do you have any idea if that stock will go up or down? Not really. Hopefully you study a company and pick one that you think will do well, but there are no guarantees. Phrased differently, do you have any idea what that stock will be worth 3 months from now? Absolutely not.

How about a property you buy – do you know what it will be worth in three months? You better have a good idea! You can run a market analysis or get an appraisal any time you want, and most markets don’t make radical changes in three months, so you can have a pretty close idea what a property will be worth in three months.

That investment is under your control, because you can fix it up, add to it, or even scrape it and add another building. When you add up leverage, control and predictability, real estate comes out shining as the best investment vehicle. Of course I would never recommend it be your only investment vehicle, but you are missing out on a huge return if you are not investing in real estate.


Lets Take It a Step Further
By Matt Gilmer

Using the principles you learned above. What if you were to buy a property and 80% of its current value and put no money down? A lender will allow you to roll in closing costs of the loan into your mortgage as long as the home can support it. Take the 250,000 example. 80% of the 250,000 is 200,000 or 50,000 off. Normal closing costs will be from 6000 to 7000. Roll that into the loan for a total purchase price of 207,000. This home is worth 250,000 as is. Say you want to make some improvements(new carpet, landscaping and paint and some new appliances) and borrowed another 5000. The home is now worth around 260,000 and you have 213,000 in it. If you choose you can sell now and make after Realtor Fees(if you use them). Realtor Fees are around 5-6%. Lets say you gave a big commission 6%, that $15,600. So you take the 260,000 minus Realtor fees of $15,600 = 244,400. Now subtract what you owe 213,000 from 244,000 = You just made 31,400 just for buying it right and doing minor improvements. How many times could you do this a year? 2 maybe 3 times. Lets say 2. How does an extra 62,800 sound?
Lets say you just want a house to live in. Same example from above. House is worth 260,000. Lets say you live in for ten years. Contrary to all of the "sky is falling media" Denver home prices still rose 3% last year. Say it stays the same for the next 10 years you live there. 10 years X 3% = 30%. 30% of 260,000 is 78,000. Add 79,000 to 260,000 and you have a home that is worth 338,000 and you owe 213,000 or so you thought. You have paid your mortgage for 10 years. You have a 30 year fixed rate mortgage and are paying 7%. After 10 years you owe $182,781.12. Your home is worth 338,000 and you owe 182,781.12. If you sold for 338,000 minus Realtor costs of you generous 6%(20,800) = 317,200. 317,200 minus what you owe 182,781.12 = $134,418.88. Just for paying yourself rent or making your mortgage payments. What if you bought 5 houses like this and rented them out? You guessed it $672090. What if you learned to sell your house without Realtors? Add another 100,000 to the profit. This is why so many people invest in Real Estate!!! Please get in this game. The time is now to act as the Denver Market will not always be this slow