Hi, can someone give me an idea when it makes more sense to negotiate a seller repair concession versus just asking for a lower purchase price? To clarify, the homes will always have enough damage to support the level of seller concession I ask for.
Without hearing the benefits of each option, the seller concession benefits me because my plan is to purchase cash and refinance equity out. Hire purchase prices allow greater immediate refinancing.
I agree with you in terms of your financing plans.
Another factor though is that a higher purchase price for taxes means you'll be depreciating more, assuming you're holding the house. You depreciate the house over 27.5 years.
On the other hand, if you pay the repair after you have purchased it will be a deduction against your rental income, assuming it's a repair versus a capital expenditure.
Now that I think about it though, maybe you can specify the repair in your contract somewhere, which may well then be permitted as a repair on your taxes...ask your CPA.
The issue is whether you deduct the repair now, or it's depreciated over 27.5 years because it was part of the purchase price.
BTW, I'm not a CPA, so take everything I say with that in mind.
If there are agents involved, you'll pay more commission on a higher sale price.
If the county assesses value based on purchase, you'll pay higher taxes based on a higher sale price.
Just two things to factor into the equation...
What did your inspector say?
Do you have the contacts to get the repairs done?
If you are buying and holding the properties, who do you trust more – the contractor the sellers uses to make the repairs or the folks you work with on a regular basis?
I just bought a house and did both – negotiated a lower price and obtained seller concessions to repair several major items. There were several things that needed fixing that the seller paid partial money into the escrow and I arranged for the repair and paid the rest.
I guess my take on it is that it is not an all or nothing situation. Negotiate fairly and honestly and things tend to work themselves out.
In my example the roof was damaged enough by hail that my inspector assured me that it would not pass a code inspection. I spoke with the seller about it and he talked with his insurance company. They agreed to fix the roof and it did not cost the seller anything. That was one of the seller concessions that I obtained, a new roof and it did not cost me or the seller any “real” money.
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