Seller worried about taxes, options?

Question

Hi there, BP community!  First time poster here, excited to learn and grow in the forum :-)   I recently inquired about purchasing an off-market property, to which the seller's son indicated that the owner (his mother) did not want to sell because she was afraid of getting "destroyed by all the taxes as a result of a such a big sale."  Are there any creative options for purchasing a property that could help the seller avoid a huge hit on taxes?  The property is currently rented with stable renters and fully paid off by the owner.  It is a single family home.  Thanks for sharing your ideas and anything that may have worked for you personally in the past!

Frank Fok · Answer

Don't guess, just consult with a lawyer regarding this.

Here's a resource on the tax side of this that you provide them.

https://www.investopedia.com/a...

Andrew Eherts · Answer

@Jake Kavitski yes loan terminology can be cumbersome! The promissory note is half of what we would colloquially call a mortgage. You have the promissory note saying "I pledge to pay this person (or entity) X dollars per month over Y years at Z interest rate", and the actual mortgage itself which pledges the property as collateral for the promissory note.

You will see some investors who do the pen and napkin style of promissory note, others will point you to all the free forms available online. I always recommend you talk to an attorney once you have the terms set. You can either have them vet a document you find online for holes or you can draft one from scratch. There is a cost associated with that, but you would have closing costs regardless if you were to approach a bank for the loan.

Jake Kavitski · Answer

Apparently I need to learn how to tag correctly, as well.  Ha!  @Andrew Eherts

Jake Kavitski · Answer

Thanks for the reply, @Andrew Eherts, I have heard the term "promissory note" before but never knew what it meant.  It looks like I have some research to do.  I love the idea of avoiding banks all together if possible.  Do you have any good resources to share regarding these notes and the process of writing/obtaining one?  Otherwise, I'm off to search the forum and google.... :-)

Andrew Eherts · Answer

Hi @Jake Kavitski looks like you found yourself in a good seller financing situation. If they want to be done with the property but still collect some income, you can avoid banks altogether and do a promissory note with the seller directly. This way, their capital gains are distributed to them over a period of time equal to the note's term.

For example, if they want to spread it out over 5-10 years, you can do a 30-year amortization and refinance when they are ready to be taken out. You can tailor the note to fit their needs, whatever they might be.