Creative Financing for a paid off Probate

8 Replies

I received a call today from the executor of a will of a landlord I was friendly with. He put I had first dibs to buy his buildings and we're meeting next week. The buildings are 100% paid off and have been kept up really nice over the years, the problem is the area isn't the best and is on the slow upturn from the bottom of the market. I have experience with a couple rentals there so I know I can get them for a solid price.

The issue I'm currently running into is my capital is maxed out on 3 other deals I'm about to start rehabbing/BRRRRing.  I don't want to let this one slip by if the price is right.  I want to propose an owner financing situation but I also want to show the savings they'd get from it over say a 5 year period.  In probate, if a property is sold what does the trust have to pay?  Is there depreciation recapture? Capital Gains tax?  I want to be able to lay it out that if we did owner financing on a 5 year balloon that we could save them $XXXXX in taxes by spreading it out and not having the beneficiaries tax rate go up the year they sell, thus creating less money in their pocket.    Any help would be great.  Lets assume the price is $300k for all 3 buildings if someone wants to help me out with numbers.

There are essentially no taxes due when selling a recently inherited property....the heirs basis is the current market value....so no potential tax savings doing an installment sale.

@Cody DeLong

I'm not an practicing attorney, nor a CPA and this should be confirmed with a licensed and practicing personal.....

The problem is that the only way to make it lucrative to a seller is to explain the tax savings in selling through the estate. A common strategy for reducing taxes is for the trust to distribute any income (from a free and clear sale....) to the beneficiaries prior to completing the process. It gets hit with the capital gains on the undistributed income and any seller financing falls in that category.

Hope I was clear. Good luck.

@Cody DeLong , I think it depends on who the beneficiary is. Immediate family there would be no capital gains taxes as there is a reset of basis. Beyond immediate family, I'm not sure. Perhaps one of the CPAs here on BP can clarify.

Why not just offer to buy at a reasonable price with 100% 30-year owner financing? That way they minimize taxes, get cash flow, and have an easy sale. Even if you pay a slightly higher rate, you're in with no money.

@Tyler Bushey I will let you know. If the price sucks I’ll pass but if the number is good I’m going to have to figure it out. My assumption is it’s going to be good. The guy wanted way too much when he was alive but the sister in charge said that they  would sell for less then what he said cause they know it’s worth less.