capital Gains vs L/O

This should be a relatively easy situation to solve but I need advice; I have found a waterfront property to buy. The owner has agreed to sell to me but because she has a sale pending on another of her properties, she is concerned about too much capital gains and is reluctant to sell this tax year. Instead she offers a lease w/option to buy. I do not want to waste my money on lease payments when 100% of that money should be going toward purchase. What contractual vehicle could I propose to address the tax issue? If I cannot get beyond the L/O, what is the customary % allotted towards ddownpayent or reduction of purchase price. I would stress that this tax issue delay is strictly for her convenience.

Additionally, I believe that a low initial investment in a property is preferable to paying 30 to 60% of purchase price especially when mortgage rates are at a historic low. My partner disagrees saying that the smaller balance resulting from a big initial investment is better. I would expect to keep this home for 10 years or more. Is there a right answer?

Opinions and expertise requested. Thanks guys.

What do you plan on doing with the property for the next 10 years? If you L/O it out to a tenant-buyer, you could make money monthly and possibly up front as well. If you live in it yourself, you are earning equity at least.

I guess my 2 cents is that if you L/O for the next year and still buy it at the current price that you guys agreed to - the equity should go up by then and then you are getting an even better deal. This could be a win-win situation because she gets the tax break while you stay liquid for a year and get a good deal. What does she owe on it and how much are her monthly payments? I guess I would make sure that she’s not making much profit off of me each month and that you are basically making her mortgage payment (or less) each month. I would put as little cash as possible if it were me - however, I am not an expert! Anyone else??


I wouldn’t rule out the L/O route if you can take the necessary steps to protect yourself, like having documents signed up front and escrowed. If you were to go ahead and get a loan, the vast majority of the payment is going towards interest anyway.

You could very easily structure the transaction where you receive rent credits toward the purchase for each payment. This amount would easily surpass any principal paydown you might receive from buying the property now. :boink

Natalie’s question regarding your intent is a very good one as well. Why do you want the property and what do you plan to do with it?

In regards to whether or not it’s worthwhile to put a larger sum of money into a property, there’s no right answer, even from a financial viewpoint in my opinion.

Are you still in the growth stage where leveraging your funds would be beneficial? Are you concerned about possible market downturns where it might make sense to have a much lower portfolio leverage? Are you concerned about security and conservatism or rate of return? The questions go on and on and only you can come up with the “right” answer because it’s specific to you and your goals.

hope it helps…

Thanks for the replies, guys. The seller has said that she would L/O for $1000/mo with $400 going toward the purchase price and $600 paying her existing note ($50,000 balance).

I intend the property to be my principle residence for the foreseeable future and to serve as a better investment vehicle than the stock market).

I am not overly concerned about a market turndown and am looking for both an enjoyable home and a good investment for the longhaul -10 years- and also it is a decent rental when I am out of the country.

I am 54 and my partner is 35 so while we are beginners in RE investing, we are a little slow getting into the game. No family, no bills, and steady income. We look forward to learning from the rest of you. Thanks for your help.