The Difference between Land Trust and Land Contract
In order to effectively invest in real estate, one needs to learn about the vocabulary which comprises of often confusing and unclear terms. Many people are not clear about the difference between land trust and land contract and this may lead them to incorrectly assess their situation in the context of asset protection and estate planning. A land trust is a nonprofit organization used by real estate owners to keep their possessions private. Land contract, on the other hand, is an agreement between the buyer and the seller in which it is stated that the seller will provide financing to buy a property and the buyer will repay the debt in monthly installments.
A land contract is essentially just like any other real estate contract. The only difference is that in other contracts the seller is not concerned about where the money is coming from. Moreover, in such a contract the property remains in possession of the seller until all payments have been made by the buyer. On the other hand, when third party lenders are involved in a real estate transaction, the property is mortgaged property and the lender has right to foreclose on it if the buyer fails to make agreed upon mortgage payments on time.
Land contracts provide real estate investors with the opportunity to buy the rented or leased property by the end of the term. However, to initiate the process of a land contract, the buyer has to pay an initial down payment which is not required in the case of rented property. Monthly installments are calculated just like mortgage payments along with interest. Although buyer’s equity increases with each loan payment, the seller still holds legal title to the land. Since there are no third parties involved in this transaction, the buyer and the seller are free to set their own rules regarding repayment of loan and other matters.
Land trusts are designed to benefit both the real estate owners and those organizations that hold land for its conservation. The aim of conservation trusts is to protect natural and cultural land and to keep its purchase price off public records. Since the value of such a property is kept private, property taxes are also lower. In a land trust agreement, the organization that holds ownership of a property is known as the trustee. It’s the responsibility of the trustee to maintain this property and to look after it as they are the legal owners.
Both the land contract and land trust can be used to purchase a property with accessible financing. The loan is preserved and converts itself into equity over a due course of time. Properties that are not in use by real estate owners can be taken over by community trusts to provide affordable housing to people who cannot afford to buy their own home. Land trusts strive to protect public land and to preserve historic landmarks, parks, water areas and gardens. There are nearly 1200 land trusts in the USA which either purchase public land or acquire it through donations to safeguard its importance.