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Stimulating Sales - One Solution to the Slow Down

By Niman Singh

Services for Real Estate Pros with SimplifyEm

October 02, 2008 11:48 AM

When Conditions are Not Right, for Buyers OR Sellers...
Sellers: - Finding it hard to hold onto their properties in this market - Can't afford to sell at market price for a loss... Sellers that could be selling, are not selling...
Buyers: -Would love to purchase now while prices are low -Are finding it hard to finance, especially with the current market Buyers that could be buying, are not buying...
Installment sales can be better for both buyers and sellers!

Example:

A property can be sold on the market for $200k
5 years ago, property was purchased for $150k
2 years ago, property was valued at $350k

Warning: If you're not a "numbers" or "example" person, I will probably lose you soon enough....
Before I lose you, these are the main points I am trying to make:

We must evolve with the market conditions,
We must look for creative ways to increase business, often times this means educating ourselves.

Straight Sale	Installment Sale
As a result of a straight sale, the seller gets $50k in capital gains and owes $7.5k in taxes(15%). The actual profit from selling the property is about $42.5k.	Consider a buyer who would like to purchase the property for $200k, but does not qualify for financing - so the seller agrees to finance the purchase for the buyer. Assume the seller charges 30% interest for financing, and the buyer agrees to make 200 installment payments of $1,300. This is a good deal for the buyer and the seller: The seller is getting paid more cash then they would with a straight sale The buyer gets a better deal than the bank can offer

On the right, you can see, that the installment method allows sellers to make much larger profits. Note: Ignore the $500k Exclusion and Depreciation Recapture	After all payments, the seller receives $260k: $60k is taxable interest ($6k at 10% tax bracket) $50k is long term capital ($7.5k @15%) $150k is return of basis and does not get taxed

To avoid confusion, I did not discuss certain factors - like the taxable gain that can be excluded from primary home sales, or the depreciation that is recaptured for investment properties.

I hope this was helpful, at least for your own understanding. Keep in mind that you should always consult with a tax advisor to be on the safe side. Also, you should not give tax advice to clients if you are not qualified to do so - but you certainly should know about the opportunities that are available to them, and you should be able to point them in the right direction.

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Sergio Rebollo Jr.

Real Estate TeamMates - Miami, FL

Niman....Interesting post. You did lose me although I am a numbers guy. It could be that this has been a very, very, very long day with LOTS of bumps along the way. Nevertheless, I have saved as a favorite site to come back with a fresh mind!!

Oct 02, 2008 12:08 PM

Vickie Slade

Colorado Landmark, Realtors - Boulder, CO

Service You Can Trust ~ Someone You Can Depend On

Niman, Interesting diagrams and examples. Thanks for the post.

Oct 02, 2008 12:24 PM

Joe Cafasso

Real Living Wareck D'Ostilio Real Estate - New Haven, CT

I've saved your blog as well, interesting.

Oct 02, 2008 12:30 PM

Tanya Venable

Orlando, FL

SEO, Mobile SEO, and Internet Marketing Consultant

Niman, very interesting post! Private mortgages are a good way for alot of people to become homeowners who maybe would not get the chance otherwise. If the seller can afford it, then it usually works out. Although I have known some buyers who really did not read their contracts well and had some issues.

I would be interested to know if this is done through a real estate agent how the fees would work? If you know could you elaborate on that?

Thanks.

Oct 06, 2008 02:53 AM

The TaxMan

Self Employed - Oakland, CA

Wow... beautiful illustrations, they go hand in hand with the explanation. I couldn't have explained it better myself. In fact, I wrote a blog on this exact topic some time back....lets just say yours is a lot prettier!

Good job, and keep up the great work.

Oct 09, 2008 12:57 PM

Trevor Elliott

RE/MAX Integrity - Salem, OR

I like that you are thinking outside the box. Thanks!

Oct 10, 2008 06:05 AM

Niman Singh

SimplifyEm - Fremont, CA

Property Management Software

Wow, I just now noticed all of these comments, I think there must be something wrong with my email notifications.

Anyway.... thanks to all who took the time to read and comment. I hope it wasn't too confusing, and I'm happy I didn't lose you.

Tanya, to answer your question (sorry I didn't get back to you earlier), yes it is done through an agent, and it is just like any other typical transaction. Let me know if you have any other questions.

Oct 10, 2008 09:28 AM

Stimulating Sales - One Solution to the Slow Down

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