Reconsider Seller Financing

By Debbie Wilson
LoanPage.com Columnist

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Now might be the perfect time to sit down with your tax advisor or real estate professional and formulate a long-term plan to defer, or even avoid, heavy gains taxes. By utilizing seller financing, you can get your asking price without the big tax crunch.

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Seller Financing Option

A couple makes an offer on your investment home in which they make a small down payment, take a sizable new home loan, and ask that you, the seller, carry a second mortgage on the property to eliminate the requirement for mortgage insurance. In return for the favor, the buyers are offering a very attractive purchase price. Is this a good reason to consider seller financing?

Mortgage Gains

Today, there are more potential benefits to the seller than there used to be. Property prices have appreciated by mighty leaps over the past several years. And there are ways to soften the blow of taxable capital gains through installment sales or 1031 exchanges. Check with a tax professional or financial advisor before you market your property to determine your best tax reduction strategy.

Seller financing can provide cash flow and interest income. It also ups your risk--in the event of default, your claims are positioned behind the holder of the first mortgage, and perhaps other creditors as well (like local government if the buyer fails to pay property taxes, for example). In a foreclosure proceeding, you could end up with nothing after everyone else takes what they are owed. It is not a risk to be taken lightly.

Conversely, willingness to finance part of a down payment can help you market your property in a soft market. And perhaps financing a percentage of the down payment, knowing that most likely you will be paid, is preferable to just dropping the price and kissing the money goodbye.

About the Author
Debbie Wilson owns and operates a lakeside resort. Her previous experience includes profitability consulting for a national healthcare company. Debbie holds a B.A. in Business Management with a minor in Physical Education.

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