Fremont, California
T-ReX Property Management Software for real estate investors to save them TIME and MONEY
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Oct. 2, 2008
When Conditions are Not Right,
for Buyers OR Sellers...
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Sellers:
- Finding it hard to hold onto their properties in this market
- Can't afford to sell at market price for a loss...
Sellers that could be selling, are not selling...
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Buyers:
-Would love to purchase now while prices are low
-Are finding it hard to finance, especially with the current market
Buyers that could be buying, are not buying...
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Installment sales can be better for both buyers and sellers!
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Example:
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A property can be sold on the market for $200k
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5 years ago, property was purchased for $150k
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2 years ago, property was valued at $350k
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Warning: If you're not a "numbers" or "example" person, I will probably lose you soon enough....
Before I lose you, these are the main points I am trying to make:
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We must evolve with the market conditions,
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We must look for creative ways to increase business, often times this means educating ourselves.
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Straight Sale
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Installment Sale
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As a result of a straight sale, the seller gets $50k in capital gains and owes $7.5k in taxes(15%). The actual profit from selling the property is about $42.5k.
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Consider a buyer who would like to purchase the property for $200k, but does not qualify for financing - so the seller agrees to finance the purchase for the buyer.
Assume the seller charges 30% interest for financing, and the buyer agrees to make 200 installment payments of $1,300.
This is a good deal for the buyer and the seller:
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The seller is getting paid more cash then they would with a straight sale
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The buyer gets a better deal than the bank can offer
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On the right, you can see, that the installment method allows sellers to make much larger profits.
Note: Ignore the $500k Exclusion and Depreciation Recapture
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After all payments, the seller receives $260k:
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$60k is taxable interest ($6k at 10% tax bracket)
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$50k is long term capital ($7.5k @15%)
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$150k is return of basis and does not get taxed
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To avoid confusion, I did not discuss certain factors - like the taxable gain that can be excluded from primary home sales, or the depreciation that is recaptured for investment properties. To learn more about how to take advantage of Taxes and Real Estate Investments, check out RealTaxTips at TReXGlobal.com.
I hope this was helpful, at least for your own understanding. Keep in mind that you should always consult with a tax advisor to be on the safe side. Also, you should not give tax advice to clients if you are not qualified to do so - but you certainly should know about the opportunities that are available to them, and you should be able to point them in the right direction.
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