Last month I explained why sellers who live in the property they are selling usually do not have to pay high capital gain taxes. It is the exact opposite for property owners who do not live in the property they are selling. This is why I always prefer buying properties from sellers whose property is not their primary residence. These sellers will definitely have high capital gains taxes to pay if they get all cash when they sell.
Paying high taxes can be a huge deterrent for many sellers once they understand how much they will be losing. On the other hand, if the sellers do not, or have not lived in the property as their primary residence and you can’t convince them that if they get all of their money from the sale of their property at closing they will have to pay high taxes in the year of the sale you need to explain to them...
They still must recapture all of the depreciation they have claimed over the years they have owned the property, in the year of the sale.
If they have owned the property more than 12 months they will lose 15% of their gain (profit) from the sale in the year of the sale.
If they have owned the property less than 12 months they will pay 20% of their gain (profit) of the profit they make in the year of the sale.
My next question to the sellers is, after you lose all of that money to taxes what are you going to do with what little money remains? I then asked them how much their bank is paying for five year certificates of deposit. I tell them according to the Wall Street Journal, banks nationwide are offering 5 year certificates of deposit with $100,000 minimum deposit, with the highest rate of interest being paid at .08%.
The following are “12” ways I make an attempt to convince even the most non-interested sellers to at least think about giving me seller financing terms I am offering them.
For any seller who has kept their property as some sort of a retirement program where the sellers do not live in or if they really need the money for a specific reason you must be able to convince them that accepting monthly payments from you might be better and more profitable for them because:
If they accept (seller financing) installment payments from you they will only have to pay the capital gains taxes on the profit contained in the 12 monthly payments you send them every year until the property is completely pay for. Not a big lump sum.
You can tell them you can give them many times more interest than their bank is willing to pay. Let me give you an example. If you offer the seller six times the interest rate their bank will pay them for five year certificates of deposit, you should ask the sellers, is there any reason you wouldn't be happier getting six times more Interest from me? (this is just an example) Please notice I did not say 4.8% interest, I said six times what their bank is paying (.08% X 6 = 4.8%). Only if they demand interest.
You could ask them, would they rather get a check from you every month without ever again having to deal with tenants and toilets and the costs and the problems of property ownership.
You could ask, wouldn't you rather be able to travel or do whatever you want without worrying about what your tenants are doing to your property or if there are problems at the property?
You can explain to the sellers, if they sell you their property, they won’t have to chase the tenants who aren’t paying because they will still get a check from you every month.
Explain to them, if they agree to accept monthly payments from you they will never need to deal with a bad tenant or ever have to step into an eviction court ever again if this has been a problem for this seller.
You could explain that the cost of maintaining the property will be your problem and they won't have to come up with any money to fix the property after a tenant moves out ever again.
Until next month be sure to listen to all of my podcasts found on my website www.LarryHarbolt.com. My podcasts are called the Real Deal Real Estate Podcasts. I put out a new podcast every Friday. Also explore my website for all of your real estate education needs.