Off-Market Deal but Seller Needs Tax Deferral

2 Replies

I have the chance to purchase a six-unit apartment property from the father of a friend of mine. The opportunity is a great one - the building is in good shape with minimal deferred maintenance, solid rental occ. history, below-market rents, etc. The only catch is that the seller wants to defer his capital gains, but doesn't want to go through a 1031 process - he's much older and doesn't want to deal with the hassle.

Does anyone have any creative suggestions as to how to do this (my initial thought was a lease with an option to purchase at a per-determined price at a point in the future) or has pulled off something similar?

Thanks in advance. - Ben

This is the type of situation where a monetized installment sale (M.I.S.) could come in handy. The seller can defer their capital gains tax for 30 years and walk away from the sale with 93.5% of the net sales proceeds in cash.

There are other approaches that could be considered, such as a deferred sales trust, although that ties one's money up in a non-liquid fashion, capital gains are recognized gradually over time, and the plan has some ongoing costs and hassles. 

If the seller just wants a simple cash exit with deferred capital gains then he should look into the M.I.S. option.