In WA I like to owner carry with a Real Estate Contract (REC) as opposed to a note and deed of trust. An REC is a hybrid contract for deed. The buyer gets the property in their name, but if they default its easier to get back than a foreclosure.
You have a lot of basic basic questions. Yes, you have to record the sale and pay excise taxes even if you sell the LLC. Get tax help. You can't not report an installment sale and just pretend youre still renting it out.
I usually require at least 10% down and get about 1% above my rate if wrapping, so that sounds close. Vet them well.
Based on your questions, I would sell like a normal person would and not try to carry. Good luck.
Originally posted by @Shaune Pilcher :
I own a commercial property that a current tenant has approached me about selling to them via owner finance. Which I am very open minded to as I was thinking of listing the property anyways. I have searched a little on the forums and haven’t found much information from the seller side. So I have a few questions.
I’m going to structure the deal based on current market value and interest at 1% over my current loan rate or any future loan rates as refinance occurs. Is this normal or fair?
Will a bank still refinance my commercial loan when it comes time in a few more years?
Am I required to report the sale with the county or can I hold the contract until paid in full and then quick claim? The property is in a LLC currently. Could I just sell them the LLC?
Are there forms somewhere that I can download and prefix?
How are my taxes going to be affected? Do I pay the same as if they were renting?
Any tips and advice or anything I’m missing?
This is called an installment sale.
You will recognize gain taxed at cap rate and the interest income taxed at ordinary income with each payment.
Payment to you will have three components:
1) return of the non taxable basis
2) capital gain
3) interest income.
Your basis and the sale price will determine each of those components and your professional should for able to help you after you provide them with more detail.
The interest expense you will incur to hold your own mortgage will stilll be deductible as itemized deduction but is cappped at net investment income. The interest income from this sale should be enough for the interest deduction.
If you will not itemize, you lose the interest expense deduction but have to pick up the interest income from the installment sale.
Hello, i know this thread is from years ago. Just wondering what you did / learned. I am thinking about doing an owner finance as well. It is more difficult to find info on the seller side. Regard,