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Updated over 4 years ago on . Most recent reply

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John Coffey
  • Property Manager
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15
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Higher interest and lower purchase price

John Coffey
  • Property Manager
Posted

I am making an offer on a deal that the owner has said he is willing to finance. I know the guy and we trust each other. I am considering writing an offer with a 10% rate of interest for 5 years and then reducing the purchase price offer by the amount of the interest seller would receive in that 5 years.  This would enable me to deduct the interest expense and get a lower purchase price.  Anyone see any drawback to this i am missing?  Thanks

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Bill B.#1 Real Estate Deal Analysis & Advice Contributor
  • Investor
  • Las Vegas, NV
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Bill B.#1 Real Estate Deal Analysis & Advice Contributor
  • Investor
  • Las Vegas, NV
Replied

The seller shouldn’t want to do this. You’re paying him zero interest for 5 years. You’re making his tax free sale taxable. You’re literally funneling money from him, through the government, to yourself. You’re also setting your basis lower so you get less depreciation and you pay more capital gains when you sell. 

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