Selling a Duplex with 2 Buyers interested

Ypsilanti, MI · Member since 2016 · 39 posts · 10 votes

I am selling a Duplex located in Ecorse Michigan. I received 2 offers. They both want all tenants out and I am currently going through an eviction with the remaining tenant who were both not paying.

I will have to pay capital gains taxes in either case as I've owned less than a year. I originally paid 143K for the place.

1. The buyer wants to pay or assume my mortgage, pay 165K and the place is listed as 161K appraised. They probably will pay my mortgage as it does not look to be assumable. They will put 20K down.

2. The second buyer will pay 150K cash after appraisal.

I assuming number 2 is the better deal. I just wanted input or opinions.

Thanks in advance!

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Bill B.

Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes

Unfortunately it’s not capital gains because you owned it less than a year, its regular income tax. “Fortunately” you probably have zero or almost zero gain. Even if you aren’t paying a realtor you;fe got $7k or less gain. (Are you using a realtor? If so you probably have a loss. If not, have you asked any of them what they would list it for? (Probably not enough to net you more than the $150k cash offer but it doesn’t hurt to ask. Maybe the realtor you used to buy it?)

Zero chance I’d take that owner financing deal. It’s less than 20% down and you’d be underwater if you had to foreclose and sell again. If the investment has turned out to be a bad move sell for cash and move on.

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Caleb Brown
Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes
2y
I would lean towards cash. Can you get them up anymore and use the other offer as a negotiating point? Maybe around the 155-158K mark.
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Max Ferguson
Real Estate Broker · Denver/Castle Pines/Colorado Springs, CO · Member since 2021 · 248 posts · 136 votes
2y
After taxes and fees, and depending on if you plan to depreciate it at all, you may not have to pay anything or much in taxes. 7-22k spread minus closing costs (also the eviction costs are a write off as well) isn't going to be too much in taxes depending on what you decide to do.

The first option is a much better deal if they can secure financing, but the owner financing portion is too much headache IMO, but could work something out with a good contract.

Good luck and let us know what you figure out!
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Darrell Kirby
OP
Ypsilanti, MI · Member since 2016 · 39 posts · 10 votes
2y
I got them up to 150K. I will try to see if they can come up higher.
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Darrell Kirby
OP
Ypsilanti, MI · Member since 2016 · 39 posts · 10 votes
2y
Quote from @Max Ferguson:

After taxes and fees, and depending on if you plan to depreciate it at all, you may not have to pay anything or much in taxes. 7-22k spread minus closing costs (also the eviction costs are a write off as well) isn't going to be too much in taxes depending on what you decide to do.

The first option is a much better deal if they can secure financing, but the owner financing portion is too much headache IMO, but could work something out with a good contract.

Good luck and let us know what you figure out!

Thank you. I did not really want to go with the owner financing route if I did not have to.
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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
2y
Unfortunately it’s not capital gains because you owned it less than a year, its regular income tax. “Fortunately” you probably have zero or almost zero gain. Even if you aren’t paying a realtor you;fe got $7k or less gain. (Are you using a realtor? If so you probably have a loss. If not, have you asked any of them what they would list it for? (Probably not enough to net you more than the $150k cash offer but it doesn’t hurt to ask. Maybe the realtor you used to buy it?)
Zero chance I’d take that owner financing deal. It’s less than 20% down and you’d be underwater if you had to foreclose and sell again. If the investment has turned out to be a bad move sell for cash and move on.
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Darrell Kirby
OP
Ypsilanti, MI · Member since 2016 · 39 posts · 10 votes
2y
Thank you for the feedback. You are totally correct Bill. I did read that if you owned less than a year it is income. Thank you for correcting that. I do have a Realtor.
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Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
2y
@Darrell Kirby unless you know what you are doing, letting someone buy your rental, "Subject To" (the existing mortgage) is not advised.
Typically, they will want you to transfer the deed to them, but keep the mortgage in your name. What do you do if they stop paying on your mortgage?
You could consider a Land Contract, which retains an ownership interest on your part. But if they stop paying, you stll have to do an abbreviated foreclosure to get the property back.
May want to do Lease-Option, where they lease the property for X years, with the Option to purchase at a contractually agreed upon price. You typically charge them an Option Fee (the $20k) to lock in purchase terms today.
THIS IS NOT LEGAL ADVICE.
Highly recommend discussing with an attorney if you decide to pursue any of the above.
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Darrell Kirby
OP
Ypsilanti, MI · Member since 2016 · 39 posts · 10 votes
2y
Quote from @Drew Sygit:

@Darrell Kirby unless you know what you are doing, letting someone buy your rental, "Subject To" (the existing mortgage) is not advised.
Typically, they will want you to transfer the deed to them, but keep the mortgage in your name. What do you do if they stop paying on your mortgage?
You could consider a Land Contract, which retains an ownership interest on your part. But if they stop paying, you stll have to do an abbreviated foreclosure to get the property back.
May want to do Lease-Option, where they lease the property for X years, with the Option to purchase at a contractually agreed upon price. You typically charge them an Option Fee (the $20k) to lock in purchase terms today.
THIS IS NOT LEGAL ADVICE.
Highly recommend discussing with an attorney if you decide to pursue any of the above.
Thank you for the information and that was my concern. What happens when they decide to stop paying. They were putting 20K down but as you stated maybe a Lease-Option or Land Contract would be better. I think the 152K is a better option.

Thank you.
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