Need ammo for seller finance deal

[Sam M.]

I found a property owned free and clear by someone that now lives in an assisted living home.
I would like to talk to her about seller financing and need to know the pros of a deal like this for the seller.
I am wondering if she was to sell it outright would she be taxed on the lump sum just like the rest of us or is it different for the elderly. I will be asking her what she needs as far as taking care of herself and how to best structure the deal to help her out as well as making it lucrative as a business deal.
I am just now beginning analysis on this property but I see my exit strategies as being fix and flip sold with or without the adjacent build able lot (included with the house) or move a home on to the adjacent lot and sell as a rental or fix it up and sell to an end buyer. Great neighborhood and excellent view, house needs work though and buildable lot is empty. Well almost empty...It has a "garage" on it that is not safe to walk through
:D

[Jeff B.]

As I have a tenant who has recently asked about owner (seller) financing I did a plus and minus.

Pluses for owner:
You can transform home equity into a monthly income stream, typically earning 8-11% interest

It's easier to sell non-standard property, such as undeveloped land with seller financing (land contract sale).

Your closing costs can be much lower.

With seller financing, terms are set by you and the buyer, giving you both greater flexibility.

Unlike a cash sale, seller financing often keeps you from being pushed into a higher tax bracket.

There are services that will handle billing, calculating the changes in principal and interest, and separating the monies for property taxes and insurance for the escrow. They will also send late notices with fees. noteworld is one company, one person said they pay 14.95 a month but this price varies depending on the level of service they provide.

On an installment sale, you only pay taxes on gains to the extent you receive payments each year.

Minuses for seller:
The IRS taxes the Owner on the interest (income) they receive from the buyer. The minimal rate the Owner should use is called the “Applicable Federal Rate†and is updated monthly and is listed on the IRS website. When creating the loan the Owner would reference the Applicable Federal Rate for the month the loan was written and set the interest rate at a rate greater or equal to the Applicable Federal Rate.

Must report to the IRS the total amount of interest paid by the buyer at the end of each year. (1098 mortgage interest statements)

Seller must record the buyers payment, calculate the changes to the principal and interest, subtract the appropriate amount for property taxes and insurance.

The buyer can destroy the contents or the property and let it fall into foreclosure and all the seller would receive back is the property.

Buyer advantages:
Easy qualification, buyer can have poor credit and still qualify for note.

No loan costs.

Faster Closing then having to wait on a bank to qualify and close the deal.

The buyer has time to repair their credit and then try to qualify for a conventional (bank) loan with a better interest rate

The main hurdle you have is in how you approach the home owner. I would approach them and let them know that I believe I can help them with selling their home. Then be honest about what your intentions are and be able to produce the results you present.

The home owner has one thing going for them and that is if this was their primary residence 2 of the previous 5 years they are exempt from capital gains tax of $250,000 for a single or $500,000 for married couple. Hence they can just sell the home on their own and have the gains now to fund their future financial needs.