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Message
Tenants just offered to buy house
Posted on 3/27/14 at 8:02 pm
Posted on 3/27/14 at 8:02 pm
They offered 130 "expecting we will counter higher"
The house is not listed for sale. This is the second tenant that has offered to buy even thou its not listed for sale.
We bought the home 10 years ago. Paid 130. Paid it off in 7 years. Then, last year we borrowed 60 against it to buy a new home.
Realistically, it won't appraise for more than 120.
If we agree on a price, what am I looking at tax wise? Will I be taxed to death on the additional money that I don't have to pay on the loan?
Also, if they can't get approved for a mortgage for more than what the home is appraising for could I owner finance it? How does that work exactly?
The house is not listed for sale. This is the second tenant that has offered to buy even thou its not listed for sale.
We bought the home 10 years ago. Paid 130. Paid it off in 7 years. Then, last year we borrowed 60 against it to buy a new home.
Realistically, it won't appraise for more than 120.
If we agree on a price, what am I looking at tax wise? Will I be taxed to death on the additional money that I don't have to pay on the loan?
Also, if they can't get approved for a mortgage for more than what the home is appraising for could I owner finance it? How does that work exactly?
5
Posted on 3/27/14 at 9:37 pm to CorkSoaker
If you paid 130, then you will only pay tax on what ever you sell it for over that amount. Unless you have been writing off depreciation for tax gains.
A closing attorney can set up owner financing, but if they can't qualify on their own it means a bank thought they were a high risk. Keep that in mind, but if you still want to do it, make sure the closing attorney is writing everything in your favor. Some people make a lot of money off of rent to own houses that always end with tenant not meeting terms of agreement, then the process is repeated.
A closing attorney can set up owner financing, but if they can't qualify on their own it means a bank thought they were a high risk. Keep that in mind, but if you still want to do it, make sure the closing attorney is writing everything in your favor. Some people make a lot of money off of rent to own houses that always end with tenant not meeting terms of agreement, then the process is repeated.
This post was edited on 3/27/14 at 9:39 pm
Posted on 3/27/14 at 9:52 pm to CorkSoaker
Adding to the above post, to determine whether capital gains taxes will be owed, you must determine your basis in the property. Ask your CPA or look at your records to determine how you have been depreciating the home. Also determine whether or not you have made any capital improvements that would add to the basis of your property.
I agree with the warning about the owner financing. That can be risky, but could also provide a good return on your money.
Personally, I would not offer owner financing.
Also, you mentioned you took an additional loan with the rent house as the collateral. When you sell the home to the buyer, that loan will have to be paid. (Unless you did a bond for deed, which I would definitely not recommend).
If owner financing, you would have to pay the loan off yourself at the time of the sale.
I agree with the warning about the owner financing. That can be risky, but could also provide a good return on your money.
Personally, I would not offer owner financing.
Also, you mentioned you took an additional loan with the rent house as the collateral. When you sell the home to the buyer, that loan will have to be paid. (Unless you did a bond for deed, which I would definitely not recommend).
If owner financing, you would have to pay the loan off yourself at the time of the sale.
This post was edited on 3/27/14 at 10:41 pm
Posted on 3/28/14 at 5:43 am to NEWBIE
Thanks guys for the advice. If we do owner financing my brother is an attorney, and a really good/tough one at hat so I don't have any reservations in that regard. I'm very conservative with my money so I tend to steer clear of risky decisions with money. We will see what happens with this one.
So, should I come back at 150?
So, should I come back at 150?
Posted on 3/28/14 at 9:53 am to CorkSoaker
I own rental property. tenants have offered to buy but i always say no. why do you want to sell for no gain? is it a property that produces good cash flow with low maintenance? do you have a low interest rate loan? do you have another investment option that will yield the same return?
these are the kind of questions i ask and i always end up saying no.
nevr do owner financing. the tenants may pay for 5 years but tear up house. i don't know what recourse you would have if they were paying on time buy tearing up a bunch of stuff.
these are the kind of questions i ask and i always end up saying no.
nevr do owner financing. the tenants may pay for 5 years but tear up house. i don't know what recourse you would have if they were paying on time buy tearing up a bunch of stuff.
Posted on 3/28/14 at 9:54 am to oldschoolgreats
He should do owner financing and the when the miss a payment by 10 days in year 12, take the home back.
Posted on 3/28/14 at 10:13 am to Broke
i have never done owner financing. what financial advantage is there over renting? will your monthly receiptst ALWAYS be greater than renting?
the only clear advantage i see is that you potentially lock in a long-term occupant versus a renter moving every 2-3 years. thus, maybe more consistent cash flow with NO MAINTENANCE.
the only clear advantage i see is that you potentially lock in a long-term occupant versus a renter moving every 2-3 years. thus, maybe more consistent cash flow with NO MAINTENANCE.
Posted on 3/28/14 at 10:18 am to oldschoolgreats
quote:
He should do owner financing and the when the miss a payment by 10 days in year 12, take the home back.
Nice
Posted on 3/28/14 at 10:36 am to Broke
quote:It's like a 6 figure payday loan.
He should do owner financing and the when the miss a payment by 10 days in year 12, take the home back.
Posted on 3/28/14 at 12:02 pm to Cold Cous Cous
Your assuming the buyer did not tear the house up while they lived in it.
Posted on 3/29/14 at 9:02 pm to CorkSoaker
quote:
if they can't get approved for a mortgage for more than what the home is appraising for could I owner finance it?
Of course you could.
But that is generally a bad idea. You are betting you know more about the borrower's ability to repay than the bank does. Think very carefully about this and be prepared to foreclose.
Posted on 3/30/14 at 2:17 am to CorkSoaker
(no message)
This post was edited on 12/23/14 at 11:29 pm
Posted on 3/30/14 at 7:39 am to CorkSoaker
Don't owner finance. Read up on"lease to own". That way you can evict instead of foreclose.
Posted on 3/30/14 at 9:11 am to I Love Bama
What's the difference if we own the house? If they miss payment wouldn't we evict them and we get the house plus whatever money they already paid? Why would it have be considered a foreclosure?
Posted on 3/30/14 at 11:51 am to CorkSoaker
It can get messy from a legal standpoint. If you "sell" them the house and hold the note like a bank would, you cannot evict.
I would suggest a rent to own type agreement with a down payment. That way you are protected and can easily get them out.
I would suggest a rent to own type agreement with a down payment. That way you are protected and can easily get them out.
Posted on 3/30/14 at 12:32 pm to I Love Bama
Yes, that is what we would do if we decide to go this route. Hell we are not even sure if we should sell right now. The offer came completely out of the blue. And it is much higher than I thought any offer would be.
With legal matters, I feel very comfortable. My older brother is a damn good attorney and knows how to write the deal 100% in my favor with no loopholes. He's tough and good. Part of the reason why we never got along growing up.
With legal matters, I feel very comfortable. My older brother is a damn good attorney and knows how to write the deal 100% in my favor with no loopholes. He's tough and good. Part of the reason why we never got along growing up.
Posted on 3/30/14 at 1:03 pm to CorkSoaker
don't know all the tax impacts offhand but the taxes on gain (selling price above depreciated cost) may offset any gain you think you are making. in other words, your tax basis may be much lower than original cost thus creating a larger tax gain and more taxes owed. this could eat into cash flow from deal and thus money available to reinvest and achieve same annual cash inflows.
Posted on 3/30/14 at 9:51 pm to oldschoolgreats
Bond for Deed is similar to rent to own.
You need to talk to your CPA about the tax consequences.
I like Bond for Deed deals because you still own the property until the "bond" is paid off. You don't have to foreclose to seize the property. Ask your brother lawyer about this.
I hold a bond for deed deal on a piece of land and charged the guy $1000 down and 8% on a 15% bond. It has been a good deal for both of us. I am in about year 9 of it.
You might have to do something about the mortgage. I don't know. You can probably borrow against the bond to retire the mortgage.
More info
LINK
You need to talk to your CPA about the tax consequences.
I like Bond for Deed deals because you still own the property until the "bond" is paid off. You don't have to foreclose to seize the property. Ask your brother lawyer about this.
I hold a bond for deed deal on a piece of land and charged the guy $1000 down and 8% on a 15% bond. It has been a good deal for both of us. I am in about year 9 of it.
You might have to do something about the mortgage. I don't know. You can probably borrow against the bond to retire the mortgage.
More info
LINK
This post was edited on 3/30/14 at 9:55 pm
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