Hey gang, what's the deal with investors' reluctance on creative financing techniques? Specifically on the buy & hold/disposition side of things for single-family properties?
A lot of investors are aware of and utilize certain creative financing techniques on the buy-side, such as purchasing properties subject to the existing financing or through direct seller financing but what about on the back end?
There are so many investors here in the KC market that repeatedly struggle with the contracting and property management aspects of the business... Why not do something different? Especially if you own a single-family home and want to keep it as a long-term investment.
It makes perfect sense to have a need for a property manager on a multifamily building but if you have a house, and you're tired of being a landlord, why not try a different strategy? Go for a lease option or a contract for deed or a true seller finance deal? You can get a large, non-refundable down payment on the front end and you get to cash flow each month... All the while you have it structured so that you don't need a property manager and responsibility for the maintenance & upkeep of the home is placed on your tenant-buyer... Why are more investors not using this option???
Wholesale Deals can be absolutely gravy, Fix & Flipping properties is tried and true and, of course, it seems way cooler on TV than it is in reality, and Multi Family dwellings is the new wave... Everything has its place, it's all relative, and it can all make good money for people but are we all just gluttons for punishment or what? Why be a rental landlord on a SFH if you don't have to?? Are there more tax benefits from being a rental landlord? Am I missing the boat here? Someone please enlighten me. ;)
I couldn’t agree with you more! I love purchasing subject to and selling on a lease w/option or contract for deed. As far as the tax implications, contract for deed can hurt a little more because you’re taxed on the sales price, even though you’re not actually getting all that profit up front.
I’ve been trying to research more and get a better understanding of this, but it seems to be a very “GRAY” topic. Our new accountant has us now recording it as an installment sale, but since you’re “selling” within the first year of owning it’s still taxed at higher capital gains.
For this reason, we’ve been leaning more towards subject to purchase and then lease with option or true rental.
The lease with option allows us to write it off as a rental for however long the term is, and then convert to a sale (using contract for deed) that’s taxed at a much lower rate.
But I do agree with you! Contract for deed has worked for us and can work, you just have to be prepared for the tax implications that come with it. My advise, use section 179 bonus depreciation and pay that money towards a new work vehicle instead 😉
Luthor - that's why I want to get some training in on those subjects in 2020 - anyone come to mind to teach selling on lease option . . the big drawback right now is the whole Dodd Frank and SAFE act that made a lot of grey area questions that creative financing on the sell side can create.