Very complicated note deal, looking for advice how to structure it.
A money partner with a self directed IRA wants to buy a property and then sell it with owner financing and keep the note. I have the deal for them, and for payment for finding the property, prepping it for sale, finding and vetting the buyer and getting it all to the closing table, I would like to receive a second lien note on the property instead of a lump sum.
How the heck would you create this contract, and what are the tax implications for me? am I going to pay taxes on the face value of the note as income, the payments as they come in, or ....?
Seems pretty simple if you are in agreement with the buyer and Ira owner. The Ira has a first mortgage and you have a second mortgage. Any attorney or title company can most likely do the 2 notes.
Income taxes will most likely be paid when you receive the money but get an accountant to oversee the deal.
@Carl Fischer , thank you. I'm in process of doing one now, and the paperwork for the notes is the straightforward part. What I need help with is writing the agreement with the IRA owner. For a period of time, they will own the physical property in their IRA. Things could go wrong, like the house not selling for our planned price, or damage to the property that one doesn't want to bring to the insurance company. I'm trying to figure our how to write the contract with the IRA owner that allows for multiple exit strategies- just in case.
A few options:
Trusting who you are working with is very important. Discuss it with the parties involved and write down your agreement. Bring the agreement to a lawyer to make the intentions clear and legal
You could own a percentage as tenants in common.
The Ira could allow you to lien the property which could be messy.
The property could be put in a land trust with the Ira and you as beneficial owners.
The Ira could sign a contract to pay you for your work at closing.
Maybe I’m misunderstanding something here....
You want to put the deal together and instead of a fee from the Seller you want a second lien note on the property?
A second lien on the property would be a debt to the Buyer (who doesn’t owe you anything) not the Seller.
If the seller is “holding the note” that means clear title (subject to the seller carried note) gets transferred to the buyer.
It doesn’t make sense to me.
Not sure why you want to structure it this way anyway, it doesn’t change the tax liability of the money received.
I can't give advice on tax implications but after you close if there is a need for liquidity we purchase notes all the time. We can do 30% up to 100% even if the borrower has defaulted.
@Wayne Brooks , because I'd rather earn cash flow than a lump sum.
@Carl Fischer , fortunately this IRA owner and I have built trust through a previous deal. (we did the land trust version sharing a note) So, I can structure the contract to the buyer with two notes and the IRA owner agrees the second one is mine at closing. Thanks for helping me think it through.
My pleasure. Keep my contact info as a resource you never know when an opportunity will come up and you may need help.
Best of Luck
@Amanda G. Wayne’s point is that your structure means the eventual buyer of the house has to agree to have 2 loans.
Why not just write it as a split of each payment that is made on the first mortgage? Or you could take the last X payments of the first?
@Sean McCluskey , yes, that's true. It is more complicated that way to have two loans. on the plus side, mine is smaller and if they pay it off early their monthly payment goes down without having to refi, which is a nice benefit. These are not buyers who are likely to qualify for HELOC, or they wouldn't be getting a private loan in the first place.
We could split the loan, but then we are attached to each other in this deal for the next x years until the buyer refis, sells, or the loan matures (assuming they don't default).
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