well i posted on this topic, but not much responses.
what are the seller advantages for holding a 1st position mortage.
what are the seller disadvantages for holding a 1st position mortgage.
say that their property is debt free of course - and they’re selling it, how is seller financing advantages.
mainly i’m interested in the financial side, but also, the responsibility side.
can the lender still claim the interest? is this a hassle for the lender?
what about taxes? if they flip it and make 160k after taxes now
but if they finance a buyer at say 8% with 4% being deferred for 10 years - and they would make 1500 a month on an interest only loan for 5 years, then say 2800 from years 5 to 10, then 4000 from 10 to 30 years…
are the tax implications worse? better? financially, does this sound good to anyone out there?
Tough questions. It’s really up to the seller if they want to act like a bank. Banks are used to taking risks. They do tons of loans and a small percentage don’t pay them back so they raise the rates to compensate for it. Now if the seller is providing financing, then they run the risk of losing a lot of money if the buyer defaults. Sellers typically seem to hold a seller second and in those cases, the selling price is at or above the asking price. Their risk is smaller as it’s a smaller amount of money plus they already got the bulk of their money from the bank.
Once the seller sells the house, the financing is a separate item. Their cost basis for determing their profit is what they bought the house for plus improvements and the sale price. Long term capital gains for properties held over a year can be in the 15% tax bracket. If they lived in it for two of the last 5 years, up to 250k is tax free, up to 500k if married.
For financing, you can claim the interest deduction, they just need to declare the interest income on their taxes for that year.
Personally I can’t think of any advantages for the seller in those scenarios that you outline. Deals have to be a win-win situation otherwise nothing will happen. Sellers are mainly interested in getting their money and forgetting about the whole deal once the papers are signed. The easier it is for the seller, the more likely the deal will go through.
how do you suppose i can structure a win-win for a seller of this type?
I want them to make money. all i want is to be able to pay for the house (this would be my personal house that I live in.
I mean, when I crunch the numbers they look like this…approximately
to sell it tomorrow with a buyer who pays cash or has conventional financing - price would be 620,000
Capital Gain - 175,000 - must roll into another property (this is the seller’s plan in order to continue doing the same thing over and over again at age 60)
house is gone forever.
or
70,000 down from buyer
and seller holds note:
35 year term @ 4% Interest only for 5 years
Seller would make:
505,000 in interest
total payment amount 1,052,654
monthly cashflow
for first 5 years - 1800
thereafter 2625
hell, make it 8% with 4% being deferred until 6th year:
monthly cashflow - 4000
now it’s 1.5million total
To me, this looks pretty good, even at age 60…seller could retire and not have to ffile 1031 exchanges or whtever the heck he’s doing and also…continuing to bust his hump, building houses…working!
You are missing one key item. When the house is sold, the taxes are due for that year. Period.
You’re probably thinking of one of those lease to own type deals where the house isn’t really sold, it’s still in the seller’s name until a certain point. Two different things.
Given a choice between a 1031 and your proposal, I’d do the 1031 in a heartbeat. There’s really no big advantage for a seller to provide below market rate interest rates to the buyer. The only real advantage for the buyer if they get market rate is that there’s not a lot of closing costs as with a traditional loan.
I would own the home, pay the mortgage, taxes, homeowners. it would be my house, just like anyone else who has mortgage .
nevertheless though, you’re right. why would seller take interest rate at lower than market.
hmmm.
it’s my uncle who owns the home - any suggestions. i really want this house. it’s a fantastic personal investment op for me if i can just convince him that there are at least some advantages to selling it to me. i just can’t afford a 4000 payment right now. i’m just getting started with my RE biz.
i think, in like a year, year and a half, i could possibly afford it, but by then, he’ll probably have sold it already.