Land loans is a term that frequently comes up when selling real estate.
Despite the name, land loans aren’t just for selling land – although that’s how the term originated.
Other Names For Land Loans
Other names for land loans are deeds of trust, seller financing, or private equity loans.
The term ‘land loans’ comes from a type of seller financing – as opposed to traditional bank or lender financing. A land loan is when the seller retains title to the ‘land’ until the loan is paid off.
Why Use Land Loans?
There are three ways that land loans are generally used to buy and sell real estate:
- An owner has a property that is difficult to sell. Maybe it’s a buyers market or the seller doesn’t have the money to make repairs.
- A buyer can’t qualify for traditional bank or lender financing. The buyer may have credit issues or wants to use the property for an unconventional use.
- A legal technique where a seller can defer payment of capital gains tax
Let’s Make A Deal
Land loans are a creative way to finance real estate. There are no hard and fast rules to follow, so selling real estate using a land loan can be tailored to the specific needs of every buyer and a seller.
It’s always a good idea to have the sales contract in writing. Many buyers and sellers using a land loan also like to have an independent third party handle all of the loan payments and disbursements as well.
Last but not least, a seller carrying a note with a land loan should always think of him or herself as a bank. Especially if they decide they want to sell the deed of trust to an investor before the note becomes due.