How does a Land Contract work?


As a Moderator here at the REI Club, I would be one who would not dispute your post. When Gary first started to post here I brought it up about how he was posting and why I felt it served no purpose but self promotion a polite word for board hustling.

Gary needs to learn that if he posts to help the community with solid advice then the posters will contact him and inquire about what method he uses to invest and no need to shove his investment strategy down someone’s throat in hopes some new person will take the bait. So maybe with time he will learn what a discussion board is all about, without getting banned for breaking the rules.

As another thought…

The only state I know that I would not recommend a Contract for Deed aka/ Land Contract would be Texas as their are to many hoops to jump through if your do.

Personally I have used a Contract for Deed hundreds of times in my Subject To deals in many states and never had to do a Judicial Foreclosure even in states that felt this is the way it should be done and did it without breaking any laws.

First I sold this way because I received more money down amoung other benefits to the buyer, because I offered the American Dream to my buyers. My buyers improved the property in more instances than not, whereas they did not feel like tenants, but true owners.

Second you must know how to convince a buyer who wants or needs out of their property it is in their best interests to move out of the property when problems arise, this is done with plain and simple sales knowledge and ability.

The difference between someone who must use some puffed up bigger and better investing techniques no matter what form they come in and the trully wise successful investor is their ability to think on their feet and make a presentation to a buyer or seller that makes sense.

This investor has a true understanding of peoples wants and needs and how to turn those wants and needs into deals where everyone benefits.

My recomendation for the beginner is to purchase Zig Ziglar’s “Secrets of Closing the Sale” and if they can understand what Zig is saying they will have a much better chance of being successful in this business. Then purchase a course that will be beneficial to their style of investing.

Anyway just some of thoughts on how I see things.

John $Cash$ Locke

If the property is still under a mortgage doesn’t the seller put themselves at risk for the mortgage company to exercise the “Due on sale” clause of the note?


Glad to meet you.

Yes, the DOSC can be exercised, however foreclosures are up 25% in North Carolina and 75% in South Carolina and I only picked two states that are seeing increases, the lenders probably have there plates full without calling performing loans.

Of course in certain circumstances the seller can wait for the Sheriff to show up and throw them and there belongings into the street, if you had a choice, which risk would you choose?

Or you can call the mortgage company and tell them you will be making the payments, which is done with success many times. So learning how to invest is part of what the pro investors do in certain circumstances to reduce the risk vs reward part of any investing.

John $Cash$ Locke

thank you


You Da Man!!!

Keep up the good work. Some of us appreciate your insite. I always look for your response.


Thank you. To Bobo, Where did I advertise my services? I wished the guy good luck whatever he did. If you re-read the posts you will see that it was Indy Bruce who brought up land trusts at all with his post, saying he does not use a NARS Trust. What is the difference?

With the NARS Trust we use a non-profit corporation as Trustee and the seller remains a beneficiary until the trust terminates, his mortgage is paid off, and he receives ALL of his agreed upon equity. Bruce recommends you appoint a “trusted friend” as your Trustee. What happens when your friend gets an IRS lien or creditor judgment? Your property is in jeopardy.

Anyone can be named the “trustee” of a land trust, but there are definite benefits to using a Corporate Trustee. Appointing a trustee other than a corporation would allow the property to fall into the trustee’s probate and other legal problems: but a corporate trustee (in virtually all states) must be a trust company only (bank and trust, title and trust, XYZ trust company) … or a non-profit corporation acting only for the benefit of its certified members.

A land trust, whether NARS or not, does not violate the DOSC.

:slight_smile: Stand To Post

John $Cash$ Locke

According to everything I ever learned about land trusts, if you use a person as a trustee, the trustee getting a lien or judgement has no bearing on the property, nor any liability, as long as he signs “as trustee” after his name. Someone can feel free to correct me if I am wrong, and show me something where I can read up on it. But the above is the way I understand it.

With regards to violating the DOS clause, I don’t care if I violate it or not, since the chances of it getting called are slim to none. That is not a good enough reason to use a trust.

I will never leave the seller any ownership, period. When I take title, i take 100%. If the deal has enough equity to warrant the seller getting some, it will be addressed in the paperwork, but the seller will not retain any percentage of ownership in any property I buy, period.

And you are a NARS consultant…and unless you do it for FREE, you are pushing your services, and even if not, you are pushing the services of your mentor. It’s easy to read between the lines here.

I have said many times the NARS trust itself is not an issue with me as much as the cost. The risks you say are there are minimal. Violating the DOS clause is not an issue, and is not enough reason to consider a trust. It is a non issue.


As to the seller remaining, you have full control of the trust. The seller agrees to dismiss his 10% upon receipt of his funds. The cost is a non-issue since it’s paid by the tenant.

It is my understanding that no matter whether or not the Trustee puts “as Trustee”, if an encumbrance or lien attaches, you are stuck. I’ll try to find data to either support or refute this.

Da Wiz

Update: Tony. I spoke about this before with my trustee and I just reviewed his website. It says: “Appointing a trustee other than a corporation would allow the property to fall into the trustee’s probate and other legal problems”. I’ll call him on Monday to get more specifics.

I trust him because he is one of the founding Directors of the California Trust Deed Brokers Association. As past Vice President of this prestigious organization, he also sat on the Board of Directors as Legislative Co-Chairman, representing the organization at an advocacy level at the State Capital in Sacramento, California. In addition to his position with Equity Holding Corporation he is the President, organizer and founder of Equity Management Services, California Equity Corporation and Note Servicing Center, Inc. He also is the Managing Member of California Equity Investors LLC, a Private Mortgage Pool and Managing Member of Mariposa Financial Limited.

Mr. Standen attended the University of California at San Diego and is a graduate of the FBI National Academy. He holds a lifetime teaching credential and has a background of over 20 years in Law Enforcement both in Command and Administrative Positions, retiring in 1979 as an Area Commander.

His experience and integrity have been confirmed as an appointed Referee and Receiver by the Superior Court. Tom is a man of vision with enormous entrepreneurial skill and ability. He has been involved in the Real Estate and Mortgage Industry since 1976. He is the trustee on all of my deals. I will report what he tells me.


If the seller agrees to dismiss his 10% upon receipt of his funds (what funds, how much are these funds?) then those funds do not go in your pocket.

realtor mentality, the seller pays the commission, of course, out of the funds the buyers pays for the property.

So if you like to lose money on deals instead of remaining 100% owner and having complete control, well you know the rest.

John $Cash$ Locke


LOSE MONEY? Let’s do a simple deal. You own a $100K property and you owe $80K. You agree to remain on the loan for 3 years and agree to a value of $95K. You place it in trust, name your trustee who takes title.

Now, I’m the Investor. You grant me a 90% beneficiary interest. I turn around and triple net lease it to my tenant giving him a 50% interest (I hold 40%). My Mutually Agreed Value with my tenant may be $110K. I make a $300 per mo. positive cash flow on the lease and he takes the mortgage interest and property tax writeoffs and will share future appreciation 50/50.

In 3 years, the tenant buys the property at FMV which is $135K. The mortgage is paid off and the Seller receives his $15K+ (everything up to $95K). His 10% ownership in the trust now reverts to me. I make $15K (the diff bet. $95K and $110K) the price to my tenant. Now, the tenant and I split the $25K between $110 and $135K.

Seller got his price, his mortgage paid off, his credit improved since payments were made on time in his name, and $15K. He is happy.

Tenant got his homeownership benefits including writeoffs with no bank or credit qualifying. He earns $12,500 in future equity and now owns the home. He is happy.

I made $15K (diff bet $95K and $110K);
I made $300 per month for 36 months (or $10.8K) on the lease payments;
I made another $12.5K upon sale.

So, I make $38,300 over 3 years. I was never on title, and never on the loan. No liability. Is that what you call LOSING MONEY? I paid only the cost of setting up the trust for the seller which I immediately got back from my tenant’s initial payment of closing costs, plus 3 payments. I have made a seller and tenant happy… and I am very happy. Can you say … CASH?


Same simple deal done my way.

Give anxious seller U-Haul money to help him move. I am being very genorous here, so total for all my costs involved to puchase would be around $2,500 on this type of deal.

Sell house for $135K, which includes 3 years appreciation included.

I get $6K down selling on Contract for Deed. Pack the monthly payments $300 per month as passive income.

Buyer claims the interest paid on the loan on his taxes, plus is responsible for maintainance on the property and is required to re-finance the property in 3 years. Also I work with my buyers so they can refinance.

Actual purchase price


Selling Price


Gross Profit,

$58,500 difference between purchase and selling price
$10.8K monthly pack

Total Gross Profit $69,300

Yes, Gary you lose money doing it your way as you gave up about $31K that you did not have to.

John $Cash$ Locke

Sure, John – I could strip the owner of his equity, but I choose not to. I could also not share future appreciation with my tenant, but I choose to share. I’m not losing money, John. I make $38,000 on zero investment. It’s a great deal for me. My seller keeps $15,000 that you will strip from him, and my tenant makes $12,500 he otherwise would not have made.

I’m very happy with a WIN/WIN/WIN situation. Not only have I made money, but so have my seller and tenant. Maybe it’s not the way you like to do it, but I sleep well at nights knowing I’ve shared the wealth. That’s why I get so many referrals. Good karma. You and I agree to disagree.

One question, though, John. What happens to your deal when the buyer gets an IRS lien slapped against the property?

Da Wiz

Here is where I am confused on land contracts. Example on one of my own homes, If I sold it on land contract and I can not deduct the interest. How do I not claim the whole payment for tax purposes. If my payment is 1400 PITI and I collect 1800= 400 dollar spread. I collected $21,600.00 which most is interest. Now I cannot deduct the taxes, interest on my payment. How is this not a tax nightmare??? Does this differ on sub2 deals I understand on sub2 deals your not on the mortgage anyway but arent you collecting the full payment?? I apologize in advance for my apathy.

In a land trust, you collected nothing. The Trustee collects the rents, pays the mortgage, and sends you your monthly profit, which is taxable, minus depreciation.

Da Wiz

The sellers house is worth 100K in the example. Gary, you gave the seller 95K, means you “took” 5K of his equity. Now, the true value of his house is not 100K. If he sold through a realtor, he would lose close to 10% in costs and commission…not counting the extra mortgage payments and other holding costs he pays. The real value of his house is around 90K. Commission and closing costs are not part of the equity because if he sold traditionally, he would get 90K if he got the full 100K asking price.

Using the REAL value of 90K…the difference between what you gave the seller and what John gave the seller is $2500. For you to throw the term "equity stripping is unprofessional and very unethical. These little comments you make are ridiculous and I am tired of how you are trying to make sub 2 investors look like a bunch of criminals. You have mentioned the equity stripping too many times and it is misleading and unethical. The numbers above prove that.

If you choose to give the seller the money that he would spend in commission and costs if he sold traditionally, thats your decision. But for you to keep saying those who don’t are a bunch of equity stripping unethical investors is 100% wrong. If there is one thing that is making me angry, this is it.

The numbers above prove the seller isn’t getting stripped…unless you think ALL TRADITIONAL SALES do the same. There is nothing wrong with an investor trying to capture “equity” that the seller would pay if he sold through a realtor. He loses about 10K if sold through a realtor, and if I can get that same 10K for my efforts, more power to me. The fact is the real equity difference between your example, Johns example and a traditional sale is about $2500, give or take.

Please refrain from calling sub 2 investors equity strippers unless it is TRUE EQUITY they are losing, and lots of it. PERCEIVED EQUITY is a whole different story.


BoBo has it right, you along with every other seller has “Perceived Equtiy” by the time they were to sell conventionally chances are on the deal you described they would come out of their own pocket to sell their house. So no equity stripping involved, it is what we call the magic of the Yellow Pad.

All I do is create equity where none existed when I sell the property.

If my Buyer has any liens or incumbrances place on him then shame on him, because since he is under Contract For Deed which means he does not get the deed until he fullfills the terms of the Contract, he does not own the property, thus no attachements.

Lets get on to the good part I use a licensed and bonded Loan Servicing Company (LSC) to collect my payments from the buyer. Then the LSC pays the mortgage, sends me my monthly passive income and sends the buyer a 1098 at the end of the year so he can deduct the interest he paid on the house on his taxes. What does this cost, $50 set up fee and $7 a month check fee. What do you pay the trustee?

Thus far you are still losing money on your deals.

John $Cash$ Locke

PS: BoBo his method of investing was called “Equity Stripping” by the National Consumer Advocates" not ours.


Glad to meet you.

The way we sell, he who pays the loan decucts the interest from their taxes.

John $Cash$ Locke

John gave the seller $82,500 on a house I said was valued at $100K. I gave him $95K. The difference is $2,500 Bobo?

Then you said, "For you to throw the term “equity stripping is unprofessional and very unethical. These little comments you make are ridiculous and I am tired of how you are trying to make sub 2 investors look like a bunch of criminals.” Where did I say that? You guys aren’t criminals and I would never infer that. I used subject 2’s for years before I discovered the NARS Trust.

You are just less generous. I do know that I gave the seller $12,500 more than John did. Spin it anyway you want. To each his own.

;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D ;D


It is ok if you do not understand our method, no problem.

Lets take a little look at some methods of investing.

Most folks start out with Lease Option investing, not to difficult to convince a seller you will lease his property under option and an easy sell to the seller. However, there are many downfalls with this method, leins, encumbrances attaching to the property, but the good news is when a practioners of this method soon finds out how easy it is to get the deed, then they change there method to Subject To so they have full control of the property.

Bill Gatten was ingenious with what he came up, easy sell to sellers on giving up their property or leaving them in it with a quick eviction method when they cannot pay, which chances are they will not.

Then the part about sharing the profits, another easy sell "Mr. Seller you will get XX amount when the property sells, then he adds in a the NARS trust, which anyone who practices this method must use, thereby creating a built in profit center for him and again certainly nothing wrong with that. Of course the reason for the easy sell is you are willing to take less of the real profit on every deal, no problem with this either.

Understand I have no problem with this method, my only gripe is if you are not selling anything why have you mentioned time and time again “NARS Trust”, since this is Bill’s trademark way of doing business. It would be like saying I use “Guru’s Trust” everytime someone asked a guestion about Subject To, Trusts, etc., Thus you would be advertising “Guru’s Trust” also if you said it enough times.

What you are doing is looking for Ground Partners, some call them Jobbers and I call them Bird Dogs. However, if you tried posting about NARS on discussion board “C” you would be run off by the posters as has happened in the past and it also happened on discussion board “T”. Thare are 3 top discussion boards let’s just call them “C”, “T” and REI Club. You know what boards I am talking about, so just try it on those and let me know when you do so I can post back here about what happened.

I hope you did not believe by the way you are posting that this is not something that has not been done before. You and Dave wanted a truce and Dave has held up his end of the bargain, you however broke your word, when you came after me again, when I said nothing about you and said to a poster you can buy a Land Trust fairly cheap for $12 bucks, make sure it is state specific after a poster asked about one. This is your post after we all agreed to a truce.

“John admittedly knows nothing about land trusts. He doesn’t use them … never has. I suggest you go through the topics and you will learn the differences. All land trusts are not the same. You get what you pay for and always use a non-profit corporation as your trustee for maximum protection.” You were trying to discredit me and sell your method.

I just told the truth and for some strange reason you took exception, because what makes the difference what land trust a person chooses to use, unless you have something to gain by using the one your are touting.

John $Cash$ Locke