Rental Property Investor · Denver, CO · Member since 2013 · 36 posts · 4 votes
Hey BP -
I’m looking for some capital gains tax advice as I try to convince a seller to owner finance a multi unit property.
From a tax benefit standpoint for the seller, is it more beneficial for him to sell at a lower purchase price and get higher interest rates OR sell at a higher purchase price, and lower interest rate. I can certainly crunch the numbers but I’m asking the question specifically from a capital gains tax standpoint. I would think lower purchase price and higher interest rate would be more beneficial for him. Is this thinking correct?
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
8y
Higher PP and lower interest. Cap gains are favorably taxed (15% for the most part) whereas interest is considered ordinary income at best.
I receive only about $11k in interest per year. When I plug that in to my tax software every year, I watch my tax burden rise over $6k!
Careful giving sellers tax advice though, @Tom Horan. I like to preface anything with "I'm not a tax guy, but if it were me..." or something to that effect.
Rental Property Investor · Denver, CO · Member since 2013 · 36 posts · 4 votes
8y
@Steve Vaughan - Appreciate the insight. That makes sense - I'm assuming this all depends on the owners tax bracket as well. I am far from a tax expert, I just want to have a general understanding of the tax benefits from owner-financing. Still working on the numbers a bit - and need the owner to feel comfortable with this concept.
2 properties next door to each other zoned for mixed use residential/commercial. Also another building out back with an apartment and shop space making 5 units for revenue (I feel there is value add potential as well for another unit or two)
These are the numbers I'm shooting for in an ideal world:
Purchase Price: $550,000
Down Payment: $50,000
Interest at 6% for 5 years with a balloon amortized over 30 years.
I need to see the books to be sure of these numbers - but I'm being told $6,000 in monthly rent. The numbers look good with those figures, but we'll see what happens! Thanks again Steve.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
8y
Curious what your insurance and property taxes would be like P&I w/ your numbers at what almost 3k itself. Also w/ your low down, would you be able to qualify for a refi w/ out having that much equity?
Rental Property Investor · Denver, CO · Member since 2013 · 36 posts · 4 votes
8y
@Matt K. - Insurance I have around $200/month and Taxes another $200/month.
Good question with the refi. I've thought about this as well. My goal is add another unit to add value which should help the refi, but will likely factor in a 2-4 extension in the terms. Other recommendations on how to better position myself for a refi?
@Matt K. - Insurance I have around $200/month and Taxes another $200/month.
Good question with the refi. I've thought about this as well. My goal is add another unit to add value which should help the refi, but will likely factor in a 2-4 extension in the terms. Other recommendations on how to better position myself for a refi?
I think this falls under commercial, I have no idea on that. I can say though counting on appreciation and a appraisal is super risky imo. Also, commercial appraises differently if I'm not mistaken.