BRRRR with Seller Financing?

[Melissa Harris]

Has anyone done a BRRRR with seller financing? Was it a success for both sides? What were the pros and cons? I was thinking that this could benefit both parties in ways of, on my end I could save money with not having to pay points or a higher interest rate to a hard money lender and maybe have a lower monthly payment and then for the owner, he could drag out what he pays on capital gains and ultimately pay less in capital gains tax because as it sits right now, he would make around $190k from the sell of the three plex. The three plex needs about $80k in rehab.

Another question I had on top of that was, I have a townhome that I am selling currently and need to do a 1031 exchange. My question is, would the IRS see it as a successful exchange if I put what I make from the townhome towards my down payment to the owner?

[Dave Foster]

@Melissa Harris, Getting a seller to carry the financing can be a great way to maximize your savings and leverage.  There are a lot of tired owners at the end of their investing career who don't want to keep 1031ing to continue their tax deferral.  Selling with owner financing can spread out their tax over time which is an advantage to them.

For you on your side it's perfectly fine to 1031 into a property where the owner is carrying the financing.  The IRS does not care where you are obtaining your financing.  As long as your purchase is at least as much as your net sale.  And as long as you use all of your proceeds in the purchase you'll defer all tax.