Selling our SFR with Owner Financing - Want to close now and get down payment later

[Penny Myers]

Selling a long time SFR rental with owner financing. For tax reasons, we need to push either the closing or the receipt of cash from closing into Jan 2024. The SFR is ready to sell now, but if we close and take the down payment money in 2023, we take a huge tax hit. To avoid this, we've come up with a few scenarios and need help ripping these ideas apart and pulling something better together.

1) Put it UC, buyer gets possession before closing (as a tenant) and closes Jan 2. (This makes me cringe for lots of reasons. The house was just renovated. Sick of being landlords. I see risk, risk, risk despite being scrupulous at vetting the buyer). Not thinking Lease to Own is the way to go either. 

2) Since we're financing the purchase, do kind of an 80/20 mortgage. Close now with first mortgage loan amount that is 80% of the purchase price, and a “piggyback” second mortgage for 20% of the purchase. The second mortgage would be the down payment we want, and would be due in January 2024. Still concerned that this would trigger the tax event even though the $ from the second is not received until 2024.

3) Hold out on marketing the house until late Nov and set closing for Jan 2. Seems insane and we don't like vacant houses. Unless it's someone elses ; )

Any Ideas, any experience with this? No idea too crazy coz look what we've come up with so far. 

[Caroline Gerardo]

Buyer is getting a HELOC on the subject house at 100% combined loan to value? No one does that. None.

Or are you hoping to get 100% HELOC on the house? Also not a thing.

Buyer can put 20% down into escrow and release contingency then close Monday January 1, 2024. Closing date is what matters. 

Put the house on the market now and itemize in notes that you will not close until January 1, 2024. Buyer won't be able to lock a long term rate as it would cost a fortune. Buyer has to be careful not to change jobs, buy a car or furniture, keep credit score stable. The long wait can cause buyer remorse if market decreases so you need back up offers that you solidify in December.

How much is the tax consequence today? Know the exact dollar amount for October, November December and be willing to negotiate according to what buyer will give towards that amount. Basis, every penny of improvements...  Sometimes paying the tax is not so terrible if you time what you need.

Consider doing a 1031 exchange and buying something else to defer the decision two years? In Class A market driving distance from home. Get a manager and perhaps not as much income but wait to see what 2026 brings? 

Lease options close about 7% of the time. Often a buyer who becomes tenant doesn't love the house once the disposal breaks.

Wrap around is dangerous for you the seller. You take all the risk. Cost to foreclose is $100000. Just do a normal sale. All markets have limited number of houses for sale. Your renovated, it looks sparkling in the photos, get the highest price and walk away without worry January 1.