Hello BP community,
I am posting this thread to gather information on Seller Financing transactions! I am looking to gain as much information and education now, so I can prepare for this possible scenario. I am looking to gain information about the following concerns:
- My first concern with setting up a Seller Financing deal, is the tax implications that this would trigger. I have never been on the selling end of a real estate transaction but I know that most of the time there is a hefty tax bill on the sellers behalf. In a Seller Financed transaction, what can the sellers expect to pay in taxes, and when will these be due? Will they be able to spread them out? I am really not familiar with this at all, so if you guys have as much detailed insight on the process, that would be great!
- Is there anything that changes here if they were asked to carry part of the note, furthermore, would a bank require a down payment on a partial note? How difficult is this to set up?
- What kinds of contracts will need to be written up, who will they be written up by, and how much will it likely cost? These will probably be residential properties from 1-4 units to start off with.
- Should the seller use a mortgage loan originator? I don't even really know what this means or what they do, I heard it discussed briefly on podcast 123 with Justin Escajeda. What are costs here?
If anyone has any insight to the details of this process, I would be very grateful, thanks all!
When you use the term Seller Financing I assume you plan on acting as the bank for the buyer rather doing a land contract? A seller financed deal puts the title deed in the new owners name and takes it out of yours. A land contract keeps title in your name until certain obligations are met then title is transferred to buyer.
In seller financing, I believe you may trigger capital gains taxes since there is title change. As for property taxes since title is exchanged, your portion of property taxes would likely be due at a closing based on the last estimated bill. Unless the buyer opts for waiting for actual bill, then you would have X amount of days to offer payment for your portion to the buyer.
An attorney would be the best option for having any contracts of seller financing or land contract drawn up.
Be aware, that the most you can seller finance as the lender is up to 4 (?) deals I believe. After that federal rules kick in from the FTC.
In the scenario that I'm thinking about, I would be the buyer, after negotiating with a seller, and them agreeing to carry a note. So yes, a title change would take place, and closing credits for taxes would be handled as normal, I believe I understand this. What I am really concerned about, are the tax implications and a change of deed would trigger, I am trying to find out what this would mean, how it would effect both parties in the transaction, and anyways to combat it/deal with it. Also, if certain sales/capital gains taxes are triggered, when are they due, or is there a way to spread the burden of these taxes out, since the seller is carrying a note?