5 Mistakes New Land Investors Make
Jack Butala: 5 Mistakes New Land Investors Make. Leave us your feedback for this podcast on iTunes and get the free ebook at landacademy.com, you don't even have to read it. Thanks for listening.
Jack Butala: Jack Butala with Jill DeWit.
Jill DeWit: Hey there.
Jack Butala: Welcome to our show today. In this episode, Jill and I talk about the 5 mistakes we see new land investors make. Good show Jill. First, before we get into it, let's take a question posted by one of our members on thelandacademy.com online community, it's free.
Jill DeWit: All right. Luke asks, "With owner financing, who do you have pay the taxes if you're carrying the financing? How do you structure this?" Great question because some properties would buy and flip for cash and some would carry, $99 down, $99 a month.
Jack Butala: Exactly, good background.
Jill DeWit: Gosh, okay. I have the property, the guy's paying me $99 for 6 years, who's going to pay the taxes? Jack, do you want to tell [inaudible 00:00:48]?
Jack Butala: Yeah.
Jill DeWit: You're the number person.
Jack Butala: There's 2 ways to do it. Well 3. One way is you build the taxes into the payment. If you, let's say ... Here's the deal. We'll just use a 5 acre property that you purchase for 1000 bucks and you sell it for 5000 on terms, on payments. Let's say it's $99 down and $99 a month, so here's 3 ways you can handle that, paying the property taxes annually on that deal.
You actually build it into the price or into the interest rate or however you look at it, or into the payment and then you pay the taxes, so you take on a note. You basically create a private mortgage and you take on that note and create an income stream. The tax bill comes the next November, whatever the tax time is for that state and you write the check personally.
You take it out, not personally, but your company or whatever. You pay the taxes and you manage it. This is how we choose to do it and have chosen to do it for years because we want to make sure the taxes get paid. We would rather take that responsibility to do that than have the buyer forget to pay the taxes and then we don't know about it. Pretty soon the county is sending us letters saying, "You have back tax property now," so that's one way and I think the best way. To answer your question Luke, that's how we do it.
Another way is to open escrow and then have either a note manager or an escrow manager manage the transaction all throughout the years that they make those payments. They literally collect the payment, the person writes the check out to First American Title, or whoever managing it for you, then at the end of the month, if you have hundreds and hundreds of notes and they're all with the same person, they cut them one big huge check. Some people pay, some people don't, some people are late. They handle all that for you. They also handle the taxes.
The third way, of course, is the first way we mentioned but only the seller actually pays the taxes, so the property is in our name, the sellers name ... I'm sorry, the buyer. The property is in our name for the duration of the payment cycle. Then when we get the taxes, we send the bill to the seller and then just pray that they're going to pay.
Jill DeWit: I know. They really did follow through.
Jack Butala: That's the worst.
Jill DeWit: Then you're kind of babysitting it. I don't feel comfortable, even if they say, "Yeah, done." I kind of want to check it.
Jack Butala: I don't know anybody who does it that way, by the way.