Strategies for Seller Afraid of a Huge Tax Bill Selling Portfolio

[Austin Hughes]

I need advice on what options exist for this seller OR what I can say to make the deal look great to the seller. Here's the situation:

I've been working with a seller who owns 13 properties which I'd like to buy. He is open to the idea (somewhere in his subconscious) because he took me to each of his rentals one by one and gave me numbers and info on them. 

He mentioned he would sell for below tax appraised value, which in my area, tax value is usually 20%-40% below actual value, so this would be a killer deal on 13 houses. I could probably pay more than what he wants and still have a solid deal.

After talking a while, he pushed back and said he really didn't want to sell any, and if he did, he might just sell one, because he is very opposed to jumping up a tax bracket. He had been complaining about how much he pays in yearly property taxes ($35K) for these houses.  He is very old (94 yrs old) and he absolutely won't owner finance. His wife is a little younger (early 80's) and doesn't want him to sell, because she likes rental income. (Before you guys jump on me, this guy is as sharp as a tack, and I would never take advantage of an elderly person anyways.)

SO... What angles can I approach this from? Are there tax sheltered methods for this man that would help both of us? Is there a way to frame the conversation, so the large tax bill seems less daunting?

[Dave Foster]

@Austin Hughes, There's only so many ways to squeeze a sale without a tax hit to the seller.  Each has it's own pain and pleasure points.  You can waste a lot of time with sellers like this.  Sharp as they are they don't know their own mind.  When they do they'll act.  But not before than.  

1. Sell and 1031 - they don't have to go into active. They could go into a passive product like a DST or TIC as millions of investors have done over the years and get out of active management but retain the income.

2. Owner carry - They will pay the tax but it will be spread out.  But depreciation would probably be a huge deal and it gets recaptured in the year of the sale.

3. Wait until she inherits.  And then yes she can sell as if she paid market value on the day he dies.  So the tax goes away.

4. Purchase one from him at a time for the next x number of years.  Combine this with a lease and/or option on the entire portfolio so you have control.