All Forum Posts by: Neal Collins

Chris Corbin s There are plenty of other owners that will resonate with the message that you can help defer gains and produce a steady interest income without the hassle of ownership that are motivated to sell rather than wait to die for the stepped up basis. If they don’t then a MLO is a good path forward because typically the heirs don’t have the same passion and are looking for cash and not property.

@Anabel Fuentez Where there are chickens there are rats. It's almost guaranteed. Give one of your tenants free pet rent so that they can have a cat.

@Account Closed It looks like you have a background in 1031 exchanges, but I don't think we're looking at this thing in exactly the same way.

The statement "The only way to defer capital gains tax is by doing a 1031 exchange..." is entirely not true. The only way the seller will avoid depreciation recapture is by a 1031 exchange, but doing a seller financed transaction without a 1031 exchange will most definitely defer capital gains taxes as long as the seller is not receiving the principal amount back that is subject to capital gains taxes.

We work day in and day out with sellers that seek out seller financing as a means to defer capital gains and receive secure monthly income. Hardly any have participated in the financing and done a 1031 exchange simply because they do not want to buy more property, not to mention that it becomes messier due to the Qualified Intermediary needing liquid funds to close the new purchase. 

@Wayne Connell  

@Thomas S. is spot on. 

Let's not forget that a great reason to use long term financing for leverage is to hedge your monthly commitment against inflation. I'd rather commit to a much lower monthly payment knowing that as time goes on my payment remains fixed but that same amount of money is worth less than it is now. If your value and rents go up over time then you come out financial far ahead of the person that succumbed to the trap of "financial security means collecting rental income from a free and clear asset."

It's not the asset that generates your financial return. It's the debt. You just need to tune out about 90% of the investor crowd when it comes to their mortgage advice.

@Account Closed Can you expound on this please? There is no reason the seller would need to talk with a 1031 Exchange Accommodator except in the event that the Seller wanted to exchange into another property.

@Ricardo R. I can't say it enough....You have the terms for private financing laid out. There is no need to go with an MLO. Listen to @Mike Dymski as well. The other posters advising you to go with conventional loans do not understand the power of seller financing. It is so much more than interest rate, points, term and LTV. It will be THE BEST source of private money in your real estate business. Build up your track record and deliver service to your lender and they won't want a balloon payment in 7 years. Where else are they going to defer capital gains and get a 5% return with their money secured by a 1st position lien on a piece of real estate that they have owned? Show them that you have the ability to perform and you'll never even need to cash them out, even when you go to sell this property and buy another one.

@Ricardo R. The seller has basically spelled out Seller Financing terms already. Taxable events are triggered when the seller receives profit from the sale. Without getting overly complicated on several different fronts, even if the seller was entering into a MLO with a downpayment, the IRS would treat that as an installment sale and if the $70k downpayment represented profit above their basis, then they would trigger a taxable event upon the receipt of the money.

If their motivation is more on the tax side of the equation, I would keep the conversation going in the same direction with the terms they have outlayed with the only difference being you take title when you give the downpayment. The rest of their equity is secured by a first position Trust Deed or mortgage on the property with monthly payments made. If they want to completely defer capital gains then they can receive interest only payments without having the loan amortize, or conversely, if they want a higher monthly payment and to spread the capital gains taxes out over many years they can amortize the loan. 

No need to do a MLO. Keep the same terms in place and take title. The seller is still participating in the financing and deferring capital gains. Your job then is to perform and give the seller great service so that they won’t want the balloon in seven years.

@Garrett Forthuber Follow your interests and learn and network all you can. No one said you can't work for a big commercial firm or other developer and not do your own deals. Do good work and let the big dogs open some doors for you.

@Chris Holdren Welcome. Wholesaling is great for one-time cash injections, but it still leaves the majority of the opportunity in the deal for someone else to benefit from. What's the ultimate goal with wanting to get involved in real estate investing?