Creative financing or impossible to do financing?

[Matt Gilroy]

Hello BP!

I might be a bit ahead of myself but I thought I'd check here and see!

I recently came across an older landlord who has several duplexes, SFR and 6-8 unit buildings. He was selling two duplexes next door to each other but when I finally got ahold of him they were under contract. I asked if he had any other properties they might want to sell, he said yes. His hesitation is coming into a large capital gains tax. Currently, the family (Father in 80's, son is likely in his 60's and a daughter unknown age) has these properties in a variety of different names. None are in a holding company or LLC and they've owned them since the 70's (most of them). None have been acquired in the last 15 years.

My hope is that I can pick the properties that would best suit my investment strategies as a package deal and let him sell the rest to others.  Each of them will need some updating as they're long-time holds from the family with no real updates.  

In order for me to even think about executing on a multi-property deal, I'd need some owner financing.  Since the owner(s) are looking to get rid of multiple properties but don't want to pay a huge tax bill, I wanted to bring some creative ideas to the table.  

Hypothetically, could this work:

- We agree to terms on an overall package - likely at a good discount (50-60% of retail) since there is maintenance and rehab needed.

- Owner(s) refinance all of the properties that I want to buy and cash out a large chunk of money suitable for their needs.

- I execute "subject to" contracts with each property, servicing the refinanced debt and collecting any cash flow.

- I update/rehab the properties

- We refinance/transfer title/"sell" or??? to get the properties in my name and out of theirs.

- Their capital gains is limited since they've taken a large chunk of cash out on a refi and the increased value of the rehabbed units covers enough that I can cash flow on the new "full price" after I refinance them.  

Does this work?  Does this make no sense?  Any other thoughts or strategies to try and facilitate a deal and alleviate some tax burden? I'm newer to investing but would love to put a bow on a package deal to accelerate my portfolio.

Thanks!

Matt 

[Steve Vaughan]

Seller financing, especially on property owned long enough to have pre-1997 depreciation only will be taxed a little with each payment, spreading it out.  A portion of each payment will be cost basis recoup, interest and cap gain.  A good way for older LLs to sell usually.  Talk to a CPA.

I think if you go too far into the weeds with a cash out refi and sub2 you will lose them for sure.  A lot of these old LLs absolutely hate debt.  They remember the 70s and 80s with rates in the teens and the S&L crisis.  A young grasshopper suggesting they go to a bank and get in debt would have to be too crazy to deal with!