Posted by Julio (MA) on November 26, 2000 at 13:56:07:
Marty,
What I mean is that I would price the home at what the existing mortgage balance would be in a year. After the year I would get my own loan and allow the seller to get out of their morttgage. Is this the way land trusts work?
JULIO
Should I use a Land Trust here? - Posted by Julio(MA)
Posted by Julio(MA) on November 26, 2000 at 11:31:32:
Hello Everyone,
A week or so ago I posted a possible deal and BillW suggested that maybe a land contract may be appropriate. I asked Bill to guide me since I have zero experince in land cantracts. He was not too comfortable doing so and since then I have done some extensive reading on legalwiz.com and other sites.
The issue is that the seller wants to sell his home but would like to stay in it until his new home is built. The new home will probably be completed late summer-early fall of 2001. His current mortgage is not assumable. I thought about lease option and leaving them as tenants, but it seemed strange since they are the actual owners. The Lease option did not appeal too much to them either because they did not want to deal with the possibility of me not buying their property when the time came.
So, let’s say they wanted to sell their house, but live in it for a year. The current asking price is $81,000 and the loan balance in $77,000. The home was appraised at $85,000. Their mortgage payments are roughly 660 (inc. tax and ins). I would buy it under a land contract for a year, they would stay living in it and continue to pay their motgage (which would be below market rent BTW) until they move into their new home. The new price on the home after that year would be determined by their current asking price minus their payments over the next year, right? All I would have to do is buy the home at the balance of the loan in a year. If I do this, how would I structure this deal?
I know this is long and a somewhat confusing and that is why I posted it here. If there is anyone that can guide me in the right direction here I would appreciate it. I have other questions relating to this but I would like to see what you folks have to say before I ask them…
Thanks in advance!!!
JULIO (MA)
Re: Should I use a Land Trust here? - Posted by Marty Weisberg
Posted by Marty Weisberg on November 26, 2000 at 14:56:37:
Julio,
Here is what I would do:
First I would have the Seller put the property in a land trust. Then he names you as a 90% co-beneficiary in the trust. You agree that the MAV (mutually agreed value) is $77,000. Make the term of the trust however long you like…let’s say 5 years. At the end of the trust term the Seller, providing you have met your obligation under the trust agreement, signs over his 105 interest in the trust. When the seller is ready to move into his home you bring in a new resident beneficiary. Charge him maybe 5% of the property value up front or however much you can get) to move in and give him a 50% interest in the trust (if you want…this will allow you to charge a lot higher rent).
Under this scenario both of your resident beneficiaries will qualify for all of the deductions of home ownership.
This may bring up a number of new questions but I believe is a great way to structure this deal.
Marty
Re: Should I use a Land Trust here? - Posted by JPiper
Posted by JPiper on November 26, 2000 at 14:18:47:
One way you could do this would be to take title subject to the existing loan. You’d probably want to do this in a trust. If you’re asking how to do this then you probably need a course.
The next problem though is that when the seller remains in the house you open yourself up to other issues. For example, what if the property is damaged during this tenancy? What if there are delays in the construction of this new house? What if the seller’s financing falls through? What if the seller doesn’t pay?
Each of these risks is something that you need to think about (and this list of risks is not intended to be all-inclusive).
Better to have a clean deal. They sell the house to you, you rent the house to them complete with a lease, damage deposit, etc. YOU make the payments on the loan…they don’t. And THEY pay rent…an amount that would compensate you for having bought the house.
Where you don’t want to be with this deal is in a deal that is somehow contingent on the uncertainly of the seller’s side of the deal. You taking the risk of ownership on the one hand, without the privileges of said ownership.
If the rent is higher than the mortgage payment then they should pay a higher rent. Careful recording of the existing condition of the house should be made so that there are no disputes later. I would do this both in writing and by video tape.
Who else will they sell this house to while retaining possession for another year? And at what price? You need to think this deal through.
JPiper
Re: Should I use a Land Trust here? - Posted by Marty Weisberg
Posted by Marty Weisberg on November 26, 2000 at 12:28:36:
Julio,
Please explain what you mean by this so that I can answer your question.
The new price on the home after that year would be determined by their current asking price minus their payments over the next year, right?
Marty
Re: Should I use a Land Trust here? - Posted by Billy M
Posted by Billy M on November 26, 2000 at 11:41:04:
You’re losing it if you think this is a deal.
Having to wait I would say call me when you’re ready and go find some easier deals in the meantime. They’re out there.
Billy M