Seller Fiancing as a retirement strategy

[Account Closed]

Quite often I hear people talk of seller financing as more of a last ditch resort when disposing of property that one might not be able to sell any other way. I'm sure that many of you have come across these kind of deals.

I have been a buy and hold investor for many years and through various means now have several paid for properties that have substantial built in gains. At this juncture in my life and business, I will be doing 1031 exchanges to build better cash flows and look for better opportunities for appreciation.

I have considered seller financing now, but don't see that as being quite as advantageous as exchanging properties. When I near retirement though, it may make sense to use seller financing as a way of deferring gains recognition. This type of sale would be treated currently as an installment sale which could be quite beneficial. I have a number of properties that between appreciation and depreciation recapture would yield large gains if sold traditionally.

I know that some of you have considered this strategy. I would appreciate hearing your thoughts, opinions, laughter, etc. Feedback is a great way for everyone to learn.

[Frank Adams]

Dan, it's an excellent idea IMO, one that I used and I've been happy with it. However everyone's situation is different.

Rich wrote; .

1. "Once you move out of owning, your future gains from principal reduction, tax benefits and possible appreciation stops instantly."

True, but in my case I owned everything free and clear, and lived in TX where appreciation isn't much of an issue. Since about the 1980s or so whenever someone says "tax benefits", they really mean LOSSES.

2. "Instead of tax breaks, you become taxed, taxed and taxed. First on the gain from sale, and then the income you receive."

See above regarding "tax breaks". Yes you do pay taxes, but you pay taxes on the rent you receive as well, moot point IMO.

3. "Most likely, you'll also lose equity from cost of sale, and commissions."

I've NEVER paid a commission on any seller financed deal I've done. When you ADVERTISE the benefits correctly you'll have your choice of buyers.

4. "You can continue exchanging up forever and change basis and grow your future estate."

That's OK if you're interested in an "estate". I have no interest in leaving an estate. I plan on ENJOYING what I've worked for.

5. "Just re-fi and get your money out to live on,,,tax free!!"

OK, to get access to MY OWN MONEY, I'm going to pay, points, closing costs, fees and then interest to get what I already own. And then have the hassle of my overworked wife writing checks each month. No thanks.

Once I knew that I didn't want to spend the rest of my life in Houston, or be a long distance landlord (IMO there does not exist a reliable, trustworthy property manager) I decided to sell my 16 rentals on a seller financed basis.

As the leases expired I gathered comps from agents and advertised as follows; 3/2 in Running Rat Estates, owner will finance with $2,000 (sometimes as high as $5,000) down.

By and large I was selling for 12-15% OVER COMPS. I generally charged about 1 1/2 to 2 % over the prevailing interest rate. I prepared the documents and charged for it. Closing was handled at my bank, they don't charge for notary service.

I've gotten a few of them back, but always resold at a higher profit and started the clock over.

The downside is that over the years some buyers have refinanced and some have sold so my income has dropped from $130K/year to about $45K. Although I did receive the balance on the sale and reinvested those proceeds.

I looked on this as my own "bond fund" or as my wife says a "FrankieMAE" fund. I've always adjusted the rest of my holdings to reflect this.

Frank