Why a seller financing (aka owner financing, we will use these two terms interchangeably) offer makes sense for a seller? We list 6 biggest reasons why a seller would do this. It sure is not for everyone who is not not looking for income and preservation of capital and whose property has no equity. But it sure presents a great option for sellers interested in monthly income, interested in deferring capital gains taxes, and want the highest sale price possible. We explain the benefits below:
- Higher Offer: Many times, the owner financing offer can mean higher sale prices than a traditional cash as-is sale.
- Deferring of Capital Gains Taxes: It eliminates a huge capital gain tax bill at the sale of the property. A seller can extend the capital gains tax bill over the life of the loan. It could mean 20% federal and 13% state capital gains taxes on the lump sum of sale. By selling with an installment sale, people cut their bill down to almost nothing the next year and spread that over time.
By deferring it into future years, they give themselves the opportunity to fall into lower tax brackets in future years. The tax laws can change in their favor or they have more deductions in the future years to offset the gains.
Installment sales can also save sellers money if the income from the sale would put them in a higher tax bracket in one year. This is especially important for higher-income sellers who could be subject to the 3.8% net investment income tax that took effect in 2013.
Single taxpayers with an adjusted gross income (AGI) over $200,000, and marrieds filing jointly who have an AGI over $250,000, are subject to this tax. Depending on their income, such tax payers end up paying a 18.8% or 23.8% capital gains tax on their gains, instead of 15% or 20%. The key to avoiding this tax is to keep your AGI below these threshold levels.
- Lump-Sum Option: The promissory note can be sold to an investor, providing the seller with a lump-sum payment right away. The note can be converted to cash in the event of emergency for cash and liquidity.
- Fixed Income: It gives a fixed retirement income for many years to come. Most of our sellers are interested in fixed monthly income. Have you had a feeling of being a “rent stalker” in the past — deals with tenants where it feels like you are constantly waiting, wishing and hoping that the tenant pays the rent so that you don’t have to go through an eviction?
- No Property Responsibility: It removes the headache associated with the property such as tenants, property degradation, etc.
- Note Security: If the buyer defaults on the loan, the seller can foreclose, keep the down payment, and get the house back.
Are you interested in selling your FAST via Seller Financing route? Call Us for a Seller Financing offer at (916) 507-2502 or fill out a form down below. Let’s discuss the option together.