Best Strategies for Buying from Retiring Investors

Investor · Chambersburg, PA · Member since 2016 · 108 posts · 23 votes

Hello! I have two different people in my local area that are retiring investors. They both have one property FSBO that is residential and they both have one property that they are willing to sell me but it is not currently FSBO or marketed at all.

They both have expressed concern over the Capital Tax Gains if they sell everything all at once.

They both have expressed possible interest in at least partial owner financing.

Can anybody explain to me (or refer me to a friend) what strategy(ies) I could employ that would help me get into their properties (I do not have money to put down) and help them avoid cap. gains tax as much/as long as possible? I'm trying to come up with a win-win scenario for these retiring investors and myself to get into these properties.

Thanks!

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Tim Davis

Residential Real Estate Broker · Lakeland, FL · Member since 2015 · 90 posts · 49 votes

10y

@Chris Jackson...I have bought a lot of property from retiring investors. I have had many of the owners that I work for in my property management business end up selling to me and owner financing 80% to 100% of the deal. The first thing that a retiring owner wants to know before they will consider financing it for you is do you have the capacity to manage the property and make the payments.

If a property is fully depreciated and there is potential capital gains both the capital gains and depreciation recapture are only taxable when they are recieved. So basically as you make the payments every year they will have to pay the tax that is due on those payments as opposed to paying it all at one time if you were to pay cash.

It is a great way for retiring landlords to truly cash out of their property with no more tenant and toilets but continue to recieve some cash flow. It is also a great way for you to begin to build your portfolio. Hope this helps.

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Aaron Vergason
Rental Property Investor · Erin, NY · Member since 2016 · 130 posts · 32 votes
10y
Probably not the answer you want, but it would be best if you could recommend to them to speak with their CPA. Or if they don't have one suggest one to them. It really all depends on their specific situation. If they don't make much income other ways, then a longer term owner financing would help them out. Ask them (or hopefully their CPA can tell them) what income bracket they want to stay in, and structure the payments around that.
If you have no money to put down then they would have to owner finance 100% unless you could get money from a private lender.
I'm wondering if they are only selling the property they don't really want anymore. Most people don't sell their best money maker first. See if you could buy the one that isn't on the market instead. that will tell you if they are just trying to sell their tired dog rather than their golden goose.
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Tim Davis
Residential Real Estate Broker · Lakeland, FL · Member since 2015 · 90 posts · 49 votes
10y
@Chris Jackson...I have bought a lot of property from retiring investors. I have had many of the owners that I work for in my property management business end up selling to me and owner financing 80% to 100% of the deal. The first thing that a retiring owner wants to know before they will consider financing it for you is do you have the capacity to manage the property and make the payments.
If a property is fully depreciated and there is potential capital gains both the capital gains and depreciation recapture are only taxable when they are recieved. So basically as you make the payments every year they will have to pay the tax that is due on those payments as opposed to paying it all at one time if you were to pay cash.
It is a great way for retiring landlords to truly cash out of their property with no more tenant and toilets but continue to recieve some cash flow. It is also a great way for you to begin to build your portfolio. Hope this helps.
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Chris Jackson
OP
Investor · Chambersburg, PA · Member since 2016 · 108 posts · 23 votes
10y
That sounds like what I had in mind. It helps to hear that I am on the right path for these gentlemen. Not sure if they want to finance that much of the property for me or not, but I will be asking today. When you get 80% financing, how do you cover the other 20? Do you just use your own money or are banks willing to take that secondary position?
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Brian Gibbons
Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
10y
@Chris Jackson
You can talk 3 scenarios
1. All Cash 85% ARV
2. 90% ARV with 10%down
3. 102% ARV with 0 down
If you are broke you need private lender partners or jv cash partners
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Mike Hanneman
Investor · Coeur d'Alene, ID · Member since 2016 · 551 posts · 218 votes
10y
@Chris Jackson just make sure to not get too excited about getting property without making sure the numbers will work. You need to figure in expenses, make sure you figure in all expenses, taxes, cap ex, repairs, vacancy, etc...
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Tim Davis
Residential Real Estate Broker · Lakeland, FL · Member since 2015 · 90 posts · 49 votes
10y
@Mike Hanneman is absolutely right. I have seen too many new investors buy a property because they where able to convince the seller to sell it to them and not because the numbers worked.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
10y
@Tim Davis retiring landlords is a nice spin on Burnt out landlord syndrome LOL...
excellent way to get owner financing.. the tougher the hood the more they are likely to do this.
areas were cash sales are common place most will just list and sell.
I see this with folks that built up 100 200 or more C or D class then really have no exit.. If I was an aspiring landlord I would be searching records and finding who owns 50 or more props in C class areas many will be ripe for owner finance
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