Podcast 527 inputed interest

Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes

https://www.biggerpockets.com/...

The latest podcast touting getting seller to carry notes at 0 interest rates. The IR doesn't like that because interest is taxable as income where the higher price and no interest pays capital gains. At this point it is really low so no big deal but should be mentioned.

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Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

Originally posted by @Jeff S.:

@Jay Hinrichs barely registers the needle at this point. If done then worth renegotiating at some point for a big discount. With rates so low maybe can sell at a reasonable discount

with zero interest the term of the note is very short term 3 to 5 years so to find PV of the note the discount to the seller to achieve a 12% return for the investors is not as bad as one might think. but we hold ours.

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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
4y
Originally posted by @Bill F.:
@Jay Hinrichs and @Jeff S.They go open kimono in the podcast:
The only thing left up to the listener's imagination is what is a fair return for the seller and you get the value of the loan in today's dollars.
Considering she was getting around an 10% return from the property as rental [She got $1500/month in rent, assuming 50% expenses and a $80k home value], then a fair haircut would be 2-4%, which still puts you squarely in rip off range, in my opinion.

pretty good guess on my part I figure around 30 to 35k Net present value. so I totally agree with what you have written here.. this is a scheme that only benefits the buyer.. there is no win win or even remotely close.. so again we fall back on what most real estate folks especially wholesalers their sole mission is their own profit period full stop.
Now granted when I build and sell new homes.. I want top dollar and max profit just like every other builder.. I guess the difference is I am risking millions and producing a product and doing a ton of work to create the delta. Not just talking some unsophisticated seller into taking what it appears by your math is a very bad deal. PV is real.. most folks have no clue

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Mary M.
Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
4y
guys - sincere thank you for this enlightening thread.
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John Hyre
Accountant / Attorney · San Juan, PR · Member since 2017 · 67 posts · 171 votes
4y
Sub2 is totally depreciable, FYI, as long as rented out and the paperwork is well-drafted.
I have not listened to the podcast, but a CPA friend emailed me to say the podcast stated that Sub2 property cannot be depreciated.
That is mistaken in most cases, properties acquired in such a manner are normally depreciable assuming that they are rented out and not re-sold via owner-finance or the like.

Apologies if my info is mistaken and the podcast said otherwise. No time to listen to it. The CPA in question is normally punctilious about what he says.
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