Using Creative Strategies to Close More Deals and Increase Sales
Sellers that could be selling are not selling, and buyers that could be buying are not buying. That’s because the conditions are not right for buyers or sellers!
Sellers are finding it hard to hold onto their properties in this market, and they can’t afford to sell their homes at market price for a loss. Buyers would love to purchase now while prices are low, but even those with great credit are finding it hard to get financing in the current market.
So what are you supposed to do? Well, you should evolve with the market conditions, and find creative ways to increase your business - often times this means educating yourself so you can better serve your clients.
An installment sale is a perfect example of a topic you should become more familiar with. It might be better for both the buyer and the seller, and if you can present the options to your clients, it might help you close more deals.
Take for example a property that property was purchased 5 years ago for $150k.
- Can be sold on the market now for $200k.
- Could have been sold 2 years ago at $350k
Put yourself in the seller’s shoes, clearly you are reluctant to sell. In a straight sale, the seller will have a $50k capital gain from the sale, and will owe $7.5k in taxes(15%). The actual profit from selling the property is about $42.5k.
Consider a buyer who would like to purchase the property, 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 because the seller is getting paid more cash then they would with a straight sale, and the buyer gets a better deal than the bank can offer.
After all payments, the seller receives $260k:
- $60k is taxable interest ($6k at 10% tax bracket)
- $50k is long term capital ($7.5k @15%)
- $150k is return of basis and does not get taxed
This allows the seller to make a much larger profit $96.5k compared to $42.5k – and this might be just what it takes to convince a seller to settle for the price on the market. More negotiation between the buyer and seller means more chances of a sale for you.
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.
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.
To learn more about how to take control of your real estate investments, check out RealTaxTips at TReXGlobal.com, and be sure to take advantage of the free property management software and tax filing web tools.
Director of Community Relations
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