All Forum Posts by: Brad Denkhaus

@Dustin Hood

This is likely a doable deal, without probate, but it will take a competent title company, and cooperative seller(s).  I have purchased many deals in similar situations, and in fact have 2 in the pipeline now.  This is my advise, based on my own experiences.

You can avoid probate by completing affidavits of heirship.  A title company can provide you with a questionnaire to have your seller complete.  They will use the information provided to produce the affidavits of heirship which will need to be signed in front of a notary by his daughter (most logical choice), plus two other disinterested parties (meaning they will not benefit from the sale, but can speak to the accuracy of the affidavits).  The affidavits will then be reviewed by title company's underwriting team, and if given the green light, proceed with closing.

The affidavits will prove to title company who has the legal authority to transfer title and identity who has an equitable interest in the property.  This can be quite simple, or get very complicated depending on the deceased's family history.  Google Texas Instestacy Chart and look at a graph to get an understanding.

One other factor, that I expect you'll fall outside of, is that to insure the transaction, underwriters generally have a 3 - 6 month time from passing that they require when using affidavit of heirship.  

Feel free to reach out if you need further clarification, or help in general.

Best,

Brad

@Ashish Acharya

Thank you for your input. I ended up treating it as an installments sale, which resulted in $5K less tax paid for 2017 than had I recognized the entire gain. Although I'm involved in REI every day, 99.9% of my daily activities are running acquisitions for Texas Home Offers, and so flipping homes myself is not a regular activity.

Again, thanks for your input.

Brad

Perhaps I need to clarify and spell out the situation more clearly.

I purchased a property subject to the underlying lien in Oct. 2017.  I then rehabbed the property, and in December 2017, marketed and sold the property with "owner financing"; creating a new mortgage for the buyer that wraps the note I took sub-to.  So, they pay me, I pay the underlying mortgage, and I make the spread each month (it is not the spread I have a question on). 

There was profit made between my basis (note taken sub-to + rehab costs + closing costs, etc), and the sales price to my end buyer that I hold the note on.  

I am trying to identify if the profit is taxed as a sale of an investment property, and therefore subject to short term capital gains tax that is all due for the year sold, or if it can be treated as an installment sale, and therefore spread out over the term of the note I created.

Hello,

I've asked several CPA's, and gotten varying opinions. Wondering if anyone feels they have fully vetted this subject and come to a definitive answer.

Situation: purchase a property subject to the underlying lien, and then sell with owner financing, wrapping the note that was taken sub-to.

For tax purposes, can it be considered an installment sale, and therefore the gains amortized over the life of the loan, or is this a sale of an investment property, and therefore all the gains will be taxed the year you sold the property?

Thanks!

@Jeremy Wilken I didn't realize you were interested in REI. We should get the families together and chat.

I live in Four Points and invest in and around Austin.  We completed one flip in Lakeway last year and have done a few others over the past few years.  It's a finicky area.  Nearly 100% of my leads and acquisitions are off market and I can say that I don't see many in Four Points.  That said, I did run one in Steiner just last month, so they do exist.

If you have something specific you would like to discuss, or if your are just looking to network, please reach out.

Brad

@Brittany Adams As @Vincent V. stated, the standard trec 1-4 (google that or trec 20-13 for a copy) can be used in sub to deals.  In special provisions you'll want to write "Purchase is subject to underlying lien(s).  The main thing is that you want to work with a title company that is experience and comfortable with these types of transactions, and they can help prepare corresponding docs.

@Devin Mann Hi Devin, I'm quite active, on track for around 50 deals this year, and always willing to chat.  As you've stated, the local rei clubs are a great resource as well.  Welcome to Austin!

@Dan Burstain or @David Ivy, can you help these folks?

I'll PM you.