Where can I learn ,more about this process? I am familiar with the sub to part, but owner finance and selling the note is new to me. I was planning on L/O the properties out that I take sub to…what do you think? Will I be better off, tax wise, to L/O and hold for a year and a day?
Thanks in advance.
Brian
Brian,
You want to flip property – buy SubTo and sell on Lease/Option. Your question is whether selling after a one year holding period gives you a tax break.
In my opinion, your strategy is a dealer dispostion, so the holding period really does not matter. Your tax liability does not change with a longer holding period.
Howdy DaveT:
Will you explain the difference between a dealer who holds long term and a long term investor who buys several properties to hold as investments and then sells for a profit. I have always had a problem trying to figure out the difference tax wise with rei and other investments as well.
Ted,
In a nutshell, it all boils down to intent.
If your intent in acquiring the property is to resell for profit, you are a dealer. Property flips and contract assignments fall into this category, as do most land subdivisions and development.
If your intent in acquiring the property is to hold for the production of income or to hold for future appreciation, you are an investor.
Brian,
If you use owner financing and you carry back a note there are some options that you have. Number one you can just keep that note, collecting payments over the term that you and the buyer agreed to. You would have monthly payments coming to you and a nice stream of income every month. Number two is you could sell the note to an investor and receive a lump sum of cash. Usually you have to take a discount on a note. The discount is contingent upon many things such as payors credit, downpayment, term of note, etc. You almost certainly will have to take some type of discount. A third option is to complete a simultaneous closing on your property that you are selling. In a nutshell what that is you are creating a note and then selling that note right at the closing table and walking away from the closing with cash in hand. Usually, not in all cases, your discount on this process is less than if you were to try and sell your note down the road. Again there are alot of variables that go into notes. Good luck and take care,
Nate Andree