All Forum Posts by: Kelby Schimming

or when the daughter inherits the property, could she immediately sell it to me via seller finance to avoid capital gains tax? the purchase price would be the stepped-up cost of the asset. with this, she would only pay tax on the interest earned, correct? 

Hi BP, 

I am trying to work out a seller finance deal with my neighbor who is 100 years old. The property is a duplex, and he plans to give all the proceeds from the sell to his daughter. Her plan is to get the absolute most she can from the duplex so I suggested seller financing. I am just unsure if we can avoid capital gains taxes if we do the seller financing route. 

His wife passed in May of 2023 so we are trying to work out a deal before May 2025 so we can avoid the capital gains taxes. He has lived in the duplex for the last 20 years and according to my research, you can avoid taxes on capital gains up to $500,000 if the property is sold within two years after a spouse's death. Correct me if I am wrong, please!

If we do a seller financed deal, can we still avoid the capital gains tax? 

Is there a way we can do a seller financed deal and still avoid the capital gains tax? 

Any insight would be appreciated. 

I can provide more info if need be!  

TIA!

Hi BP, 

Does anyone have an idea on how much it cost to modify loan documents? Specifically, extending a seller financed loan. (Ballpark cost)

TIA

Thank you! What is the ballpark cost to modify loan documents? any idea?

Hi BP, 

I currently have a residential property that I acquired via seller financing and the loan matures this December. The seller is willing to extend the financing for another six months or so and I'd like to take advantage of this. 

That said, I am looking for a real estate attorney who can update our agreement and all of the required documentation.

Any recommendations? I am in Galveston County. 

I do know that I can go to a title company for this, however, I thought it would be cheaper to go directly to an attorney. 

Thanks in advance!

Quote from @David M.:

@Kelby Schimming

So, i'm a bit lost.  Have we answered your questions?

 Yes sir, thank you 💪

Quote from @Caroline Gerardo:

Are there are two property tax bills and two separate lots? Will county planning allow adding a "mobile home"?  Will you have two water lines two sets of utilities? County planning office not google allows you to file a 433A and make it real estate with what type of foundation?

Most HELOC lenders will NOT loan on mobile homes.

Adding a ADU to your two lots is a different animal than adding a separate unit on it's own lot. Dividing the lots into two legal parcels with two stand alone units will appraiser much higher than adding a ADU or adding a mobile home.

Look into prefabricated homes rather than mobile and having two sets of utilities and separate lots. They will rent higher and appraise much higher.

Once you put a mobile home on land it devalues by 50%, the cost to install will NOT be the same as value to sell or what a residential appraiser says it's worth.

Hard money is only going to be for 18 months and they might only give you 65% max of valuation NOT the cost to construct. Then you have to sell as a refinance appraisal to conventional is going to come in much lower than the cost to build.

The plan is not a fit for how lending works.

This part: "I think after the addition, the property would appraise for 250k." is the flaw. Find comparable sales that closed with a single family plus your same mobile home that closed WITH A CONVENTIONAL Loan in the past three months nearby/same size, my guess there are none.

Hi Caroline, Thank you for the feedback. I'm glad you made the comment on the prefabricated home. I will look more into prefabs rather than mobile homes. 

Also, "the plan is not a fit for how lending works" thank you for this insight. If I am going to spend the time and money on the project, it sounds like the better plan is to get a prefabricated home and divide the lot into two legal parcels. 

Quote from @Alejandro Lozano:

Quote from @Kelby Schimming:

I like to refer to the rates on a Certificate of Deposit (CD). 

Example: 

If CDs are offering 4% interest, then your offer to the seller should be equal to or greater than 4%. If I was the one selling/financing the property, that would be my perspective. I'd need a reason to invest in you rather than a CD. For me, my reason would be "I'd rather make 5% on my money than 4%" However, every seller has their own perspective and different things that motivate them. 

If ROI motivates them, I would share an illustration that simply shows them the benefits of seller financing rather than investing in a CD. I would highlight the pros of the installment sale and the higher return from seller financing.

Figure out what motivates them and use that as your basis. 

 Ok yes thank you for the advice I think im going to start off offering a little more that the what the cds are offering. I would also like to wholesale the seller finance deal. Can I lease option a seller finance deal? or I was also thinking wholesaling the contract to another investor with a downpayment of like $5K and a higher interest rate like a lease option.Thats what im working on trying to figure out right now.  Thank you for getting back.

I think the person who the seller is doing business with is a huge factor in getting a seller to finance the property. That said, I think you may have trouble getting into an agreement with a seller because the seller has no idea who will be responsible for paying and taking care of the property. 
The seller is going to want some comfort in the deal. Comfort in who they are doing business with and comfort from a sizeable down payment. For example, if you guys get the deal done with a 5k down payment and then 6 months later you or the other person forecloses, who's to say there is not more than 5k worth of damage done to the property. Now the seller has to come out of pocket to repair the damages and still has the property he thought he sold 6 months ago. 
With only 5k down, I think that is a risky deal for the seller. To justify the risk, I would have to really trust you, or the interest rate would have to be very high. 

Why wholesale the deal? If it's a good buy and there is value in the financing, why not just keep it for yourself and rent it out for at least a year? When the market gets hot again, sale the house and make your chunk of change then. 
I am currently in midst of something similar. I got a seller financed deal May 2023 and was going to flip the property. However, once I realized I'd have to pay short term capital gains tax, I decided to keep it for at least a year and when the market is piping hot again, I'm going to sell it.
It sounds like you are getting some traction. Keep in mind you can put anything into the agreement so if he has some other concerns, put them in the agreement to give him that comfort. 

Quote from @David M.:

@Kelby Schimming

What's your ultimate goal?

You say its two lots, but one mailing address.  So if its really two lots, just get a second address from USPS.  Maybe its different in Louisiana...

Are you truly affixing the mobile home to the property so that its a "house made from a mobile home?"  Lenders don't loan on a mobile home, by themselves.

What is the current value of the property?

Its almost like you are getting a fix n' flip loan. You need to show that the improvements justify the loan.  Currently as one property, the 85k loan will be first lien and your PML will be 2nd until you pay off the 85k.  Then, when you get the heloc you say you will pay off the PML and then the heloc will be 1st...

If you can pay off the 85k in under a year...  Why not just use that cash to build the mobile home this year?  Then, do whatever you want?  Your timeline is sort of close to the same thing...

Also, why a pml?  Why not a construction loan?  No, I haven't done those but as I am typing it sounds like a similar situation.

Good luck.

My ultimate goal is to get a mobile home on my property and create a new stream of income asap. 

I would truly affix the home to the property so an appraiser would recognize the value of the addition. 

The value 8 months ago was 150k. If I did a HELOC based off that value, I would only have access to about 20k. ((150,000 X .70) - 85,000) I think after the addition, the property would appraise for 250k.

I don't want to use the 85k cash I would earn throughout the year because it will take me a year to start the project. If I borrow the money, I can start the project now and once its complete, the money the mobile home would generate would cover the interest owed to the PML. 

So I want to do the project now rather than later because it's a good opportunity to build trust on a safe investment with my private lender.  Doing the project with my pml will cost me 10k in interest but will be covered by income from mobile home. If I wait it out and use my own cash, I won't have the income from the mobile home. So the only difference between the two is that one option allows me to build trust with my private money lender...I guess that is part of my ultimate goal. 

Quote from @Chris Seveney:

@Kelby Schimming

Where the challenge will come in is even though two homes it is still one property thus the new lender will be behind the original lender

By adding a mobile home which is treated as personal property not real property in many locations are you adding value to this property

Meaning if you owe $85k will the property after adding this home have an appraiser appraise it for over $200k as a second position lender won’t go above 70-75% ltv

In Louisiana, a manufactured home is considered real property when a document describing the home and the land is recorded in the local parish records. (per google) This will take some extra legwork with the parish as well as removing the wheels from the home and creating a legitimate foundation. 

Once I get the manufactured home considered real property, I would request a HELOC and the property should appraise for more considering the addition of the manufactured home, even it is still one address. So yes, I believe I am adding value to the property, 

With the new value of the property, I would get a HELOC to compensate my private lender.