Rental Property Investor · Overland Park, KS · Member since 2017 · 12 posts · 0 votes
I have found a 4-plex property that is being sold. The owner has past away and the property has been placed into an estate. I have been able to contact the daughter that is currently in charge of the decisions and said she just wants to off load this property as she has been self managing since he has passed and doesn’t want to deal with it especially since she lives about 3+ hour drive away. Another part of info is there are 8 heirs to the estate and she said it does have a small mortgage on the property.
Is there a way or an easy way to do seller financing with this situation? I tried to explain the tax benefits but she said when it is in an estate there are no taxes to be paid. Is this true as I have never worked with an estate before?
Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
6y
The cost basis is reset on the date of the owner's death. So there is no capitol gains due. When the property is sold they will actually have a loss to report because they take the value of the property on the date of the owner's death and can subtract commission, closing costs, etc. This loss may be enough to even "offset" the rental income the property generated.
So yes, she is likely correct.
I managed my mom and dad's estate and Trust. There were 11 heirs. Some of the heirs may be willing to take a monthly payment, but there is no way someone dealing with an estate will want to drag the closure of the estate out, and especially with many heirs. And it is also not likely that all the heirs will want a monthly payment.
You need to find a money partner. Settling someone's estate is not easy and dealing with multiple heirs who want their share yesterday is difficult. So to not loose this deal, find a money partner...even if it is a loan for 3 years and a balloon payment.
Attorney · Sacramento, CA · Member since 2019 · 21 posts · 28 votes
6y
I am a California probate attorney and certainly each state has differences so I can't say for sure. However, at least in California, seller financing would be allowable. The problem is with eight heirs someone will disagree and thus likely make it difficult if not impossible to happen. Additionally, there are likely no tax benefits to them since they got a stepped-up tax basis at the time of the relative's death and thus their basis is likely the same as what you are paying unless it's been a year or more since the death. It thus likely a tax free transaction for them. I thus don't think this is a transaction likely to be completed with seller financing. Good luck to you!
Rental Property Investor · TN · Member since 2018 · 2k+ posts · 2k+ votes
6y
The cost basis is reset on the date of the owner's death. So there is no capitol gains due. When the property is sold they will actually have a loss to report because they take the value of the property on the date of the owner's death and can subtract commission, closing costs, etc. This loss may be enough to even "offset" the rental income the property generated.
So yes, she is likely correct.
I managed my mom and dad's estate and Trust. There were 11 heirs. Some of the heirs may be willing to take a monthly payment, but there is no way someone dealing with an estate will want to drag the closure of the estate out, and especially with many heirs. And it is also not likely that all the heirs will want a monthly payment.
You need to find a money partner. Settling someone's estate is not easy and dealing with multiple heirs who want their share yesterday is difficult. So to not loose this deal, find a money partner...even if it is a loan for 3 years and a balloon payment.
Rental Property Investor · Overland Park, KS · Member since 2017 · 12 posts · 0 votes
6y
@John Palley thank you for this information! So the property is in Missouri and the original owner died in September of 2018 and I know it also has been cash flowing (not sure how much) which was why I was wondering but just realized I didn’t put that info in my original post. Would this make any difference?
I am sure getting the 8 heirs to agree on something would be very challenging. This is why I thought if there was an advantage or disadvantage in either direction it could help all decide the same thing.
@John Palley thank you for this information! So the property is in Missouri and the original owner died in September of 2018 and I know it also has been cash flowing (not sure how much) which was why I was wondering but just realized I didn’t put that info in my original post. Would this make any difference?
I am sure getting the 8 heirs to agree on something would be very challenging. This is why I thought if there was an advantage or disadvantage in either direction it could help all decide the same thing.
It's possible there is a small gain since date of death but I doubt much of one unless the people got a bad appraisal. Plus, you are probably buying for a "deal" so probably not a big gain on sale. Thus I don't see how seller financing helps them. You never know though. Good luck!