All Forum Posts by: Ashton Karp

I have a seller who would like to sell their duplex in Tacoma. I estimate the market value to be 320k. The seller would like to net the most but also carry a note after at least 50k in taxable proceeds, in order to defer her capital gains. She seems to only trust me being the borrower in a seller financing situation. I have ran numbers and the property is only worth 220k to me (100k lower than estimated market value). This is because I would need to gut it and bring it to highest and best. If I were to purchase then I would fix and flip the property. The Deed of Trust for the seller financing would be a "reconveyance without satisfaction" once I sold the property, as I would like to keep the loan and the seller would like to delay realizing the gains. Theoretically, we can then attach the funds to a new property or a temporary escrow account through an already agreed upon "substitution of collateral."

My question is if it's possible for me to have a promissory note signed in order to carry a note even though I'm not the buyer while concurrently having the seller not have a realized gain for the amount we're financing. This would then net the seller the most (320k market value) and give her the passive income/deferred gains as well as giving me a low interest loan to work with. 

 Hey Dave,

My newly refined understanding is that your step up in basis would occur at the time of your spouses passing, so 2019. That’s your new basis and assuming you have lived in the subject property for 2 of the last 5 years then you would be eligible for the $250,000 deduction unless you have remarried then it would be a $500,000 deduction. If you have been taking depreciation, before or after your spouses passing, then I am unsure of that affect but would be interested to know that answer. 
Consult a CPA as I am not one. I am just a simple agent. 

Contact Albert Bui with Avenue One Capital.

(425) 951-5300

[email protected]

Hello, BP. I have a situation that I would like the hive-mind's thoughts on. 

How will the formula for Capital Gains be affected after a spouse passes away?

Real life example for clarification. 

Home is purchased in 2002 for $325,000 and used as a primary residence for the duration of ownership. 

Husband passes away in October 2021. Home is sold in August 2022 for $900,000. The home is in WA state, a community property state. 

How would capital gains be calculated in this situation? I am not looking for a number, but an understand of the process when a spouse dies. 

Is there a step up in basis for the husbands half of ownership, will there be a $250,000 or $500,000 homestead deduction, and are there other mechanisms in play that I may not be aware of?

The seller has consulted their CPA but I am looking for a better understanding here. 

Thank you, everybody!

Unfortunately for MFH sellers, cap rate valuations are inversely related to debt costs. As mortgage rates go up, commercial properties value go down. That being said, a triplex can appeal to commercial buyers as well as residential and you would want to market the property that way. 

Seasonally this is not a great time to list as the market heats up during spring time. Cyclically this market could go either direction. If we tame inflation and experience the Fed's "soft landing" then bonds will benefit and mortgage rates will go down. If we dive into a recession then the Fed will slash rates, bonds will benefit and rates will go down but buyers will be hesitant to purchase due to the unstable job market therefore continuing the fall in prices. Timing the market right now in hopes of locking in a better sale price is tough, from the cyclical standpoint.

A great tactic, if you have a VA or FHA loan on the property, is to market the property with an assumable loan so the buyer can retain your loan. This will open pools of buyers that want to assume your low interest mortgage making it significantly more cost effective. Have a unit vacant for easy access showings and owner occ buyers, have virtual walkthrough and/or matterport tour, and consider a preinspection.

Is there a reason you would want to sell as opposed to keeping the property and just encumbering with debt for other endeavors? 

Definitely a great location, especially with relatively recent zoning law changes. In early 2019 Tacoma made it so all lots have the ability to add an ADU or DADU and use the main structure and/or ADU as rentals. This is a great way to supercharge cash flow in your rental portfolio.

Hey, Moina.

Contact Action Tax in Auburn. A majority of their clients are agents, builders, flippers, etc. and they keep their focus on RE.  (253) 288-8829

Putting yourself in the hole $1200 before expenses is not recommended unless you have substantial reserves to weather storms. Are you going to be able to afford vacancies? What if a tenant stops paying and you need to wait 60 days to evict? What if the tenant then damages property on their way out? The story sounds like you can skim by until any problem comes up and then you’re in deep doodoo.

Is moving out of state a guarantee in your life? Are you sure you're underwater for the property? Can you pivot to a STR and lift your income further?

I think letting this property bleed out will set you back immensely. Rip the bandaid off and move on or stay local until you can lower the debt cost or increase the assets income. 

 Yup, give Action Tax a call at 253-288-8829. I work with Rajbir but any of them will get you pointed in the right direction. Feel free to PM me with any questions as well. 

 Hey Kelly,

I do not have an answer for your question. I would imagine that the 1 year intent to occupy clause would restart at the time of assumption but I could be wrong. I will ask my lender tomorrow and check back in.

I do want to mention that the difference between sale price and loan amount may not need to be paid for with cash. There are plenty of lenders that will give you a second lien loan for a portion of the difference, if not all. I think that would depend what valuation it would appraise at and the bank's guidelines for CLTV