Elderly owner wants to sell, but worried about capital gains hit

[Scott Simpson]

This is now the third owner I’ve met who owns a dilapidated rental property (in an expensive market) who was open to selling but ultimately passed on the deal because of the capital gain tax hit. Their rationale was to hold onto the property, even if goes unrented for awhile, and pass it to their kin for the step-up benefit when they eventually pass.

I pitched an “installment sale” as a way to spread out the cap gains over a longer period but none have been interested. I suppose all of these deals were missing significant “pain” in the equation.

Is there a better solution I can propose in this scenario? Maybe a “master lease” that has an option to buy at a good price when they pass and they benefit from a good down payment they can spend in the mean time? (My concern with this idea is tying up rehab budget for an indefinite period of time).

[Chris Watkins]

Assuming the house is paid off and they don't need the money badly, why not a typical seller-finance deal with a small down payment and a balloon payment down the road past their expected death so you can refi and cash out to their heirs?