Advice on selling seller finance to older owners

[John Boyorak]

I am looking into approaching a previous landlord with purchasing their portfolio via seller financing.  They are an older couple that owns multiple duplexes, and planned on passing down their properties to their children once they passed.  It is my understanding that their children are not interested in running a rental business, and would liquidate the assets once acquired.  As the years go on, the owners are less interested in managing their properties, but feel obligated to continue doing what they are doing for their children.

There are quite a few assumption on my end right now, but I think the right seller finance offer would be a huge win-win. My inexperience prevents me from understanding if it can be done and how to position it.  I think the right deal would give them the following:

1. Give them an out on managing the properties
2. Keep a steady income stream coming in for them
3. Allow their children to inherit what is deserved while avoiding large tax burden.

Has anyone done a deal like this?  Is it possible to transfer property right now, and avoid the tax burden once they pass or is that based off the date of sale?  Any input would be greatly appreciated.  

[Daniel Dietz]

Good questions. You might want to cross post over on the forum that has to do with Taxes too.

To my limited knowledge, if they sell to you now it will be hard for them to avoid the taxes.

From a tax perspective, my *understanding* is that it would be best for them to wait, as when an asset passed on, it gets 'stepped up basis'. Meaning if they paid 500K and it is now worth 1M and they have depreciated it all out, they would owe taxes on 1M if they sold now. If they both passed and it went to the kids, the kids new basis is 1M, in very rough terms. The kids owe no tax on passing, and sell it right away and owe no capital gains taxes.

We did get a similar guy in our town, a friend of ours, to sell when his wife passed on. The 'stepped up basis' ALSO occurs when just one spouse dies and passes their half on to the other. That way he could sell with virutally no CG taxes due. Same story, kids had no interest, but he did NOT want to seller finance. He was elderly and didn't want his kids to have to deal with the 'hassle' of getting payments for the next 30 years.

One thing you might want to look into is a Master Lease. There is a lot on here about it. You control the property with an Option to buy at a future date or event (death) at a set price (could be something like 100 times rent etc..)They still get to pass on to heir who pay no tax then sell to you at a predetermined price and pay no tax.