All Forum Posts by: SHAW ALI

Example:

1. Seller owns an investment house FREE and CLEAR. 

2. Seller bought house 6 years ago  at $350,000 as investment property.

3. Market price now $550,000 

4. Seller refi's at 70% LTV = $385,000, 30 year at 5%; PMT to bank = $2067 per month

5. Seller sells house at $550,000 receiving 20% down = $110,000

6. Carries $440,000 Note on balance amount 30 years, 8%; PMT from Buyer = $3229 per month

7. Assume for now Seller manages  Due on Sale situation 

8. First Year Interest paid to Bank = $19,121

9. First Year Interest Received from Buyer = $35,067

10. S/L DEPRECIATION ON INVESTMENT PROPERTY FOR 6 YEARS TAKEN

11. 1ST YEAR REDUCTION OF PRINCIPAL TO BANK = $5,680

12. 1ST YEAR REDUCTION OF PRINCIPAL TO BUYER = $3,675

QUESTIONS:

1. WHAT IS THE CAPITAL GAINS TO BE REPORTED THE YEAR FOLLOWING THE SALE? (ignore depr recapture to make calc easy), AND EVERY YEAR THEREAFTER (don't need a number here just the concept what/how cap gains would be calculated each successive year)

2. WHAT WOULD BE A REASONABLE INTEREST RATE FOR A NOTE IN THIS MARKET WITH A 20% DOWN? 6%, 10%, 12%? 

3. WOULD IT MAKE SENSE TO CARRY A SHORTER TERM (12 -24 MONTH) SECOND IF BUYER CANNOT COME WITH 20% DOWN, SAY IS ABLE TO COME WITH 10% DOWN, AND BALANCE IS THE 2ND TD.

4. WOULD A 5 YEAR BALLOON BE WISE FOR THE SELLER WHO IS RETIRED AND HAS NO OTHER INCOME EXCEPT SOCIAL SECURITY?

5. WHAT WOULD BE A NOTE RATE TO CHARGE BUYER (WITHIN CONSTRAINT OF 2 ABOVE)  FOR MAKING TJE RE-SELLING THE NOTE ATTRACTIVE IN THE NOTE AFTER MARKET?

6. WHAT ARE THE PITFALLS, ILLOGIC, BLUE SKY ASSUMPTIONS IN THE ABOVE EXAMPLE? IS IT DOABLE?

7. WHAT IS THE ROI OF ABOVE TRANSACTION?

I left out some detail: Term of loan : 1) 30 year with balloon due in  5 years. 2) FV of property 5 years hence, unknown of course, let's assume 2/3 of peak price of $128K

Question from a newbie in seller financing. Would appreciate receiving all

Analysis question:

Property: SFR Year Built: 2003 State: GA Purchase : $48K Rehab: $3K Status: Vacant Expected Rent: $925 HOA: $150 pm Insce: $60 pm Tax: $60 pm Repairs allowance: $100 pm Vacancy %: Estimated at 15%

Price History: Sold Mar 2006: $128K Sold Aug 2013: $39K Sold Jan 2014: $48K

Averaged Price Estimate from 4 realty sites: $55K,

Question: Have Offer from a Realtor to Buy property at $62K with Seller (me) financing

Realtor will be asking for 3% commission for selling property, possibly towards down payment, so net say $60K (I'll make Buyer pay for other misc chgs and fees)

What would be breakeven interest rate to make comparable the 2 options i)the rental versus 2) seller financed sale at $60K with $6K down and $54K financed?

Dave T.. thanks for the reply.

1. I am all for 1&3 as you put it. But I am unclear about 2 things:

2. The meaning/definition of "non-qualified" use as IRS calls it.
3. If 3 of the last 5 years has been rental, do I get the entire $150K cap gains exclusion or just 2/5 of the cap gains?

Help!

Thanks again

Shaw

My previous principal (primary) residence which I own since 1988 was converted into a rental in 2010. I would like advice whether I should sell the house in 2012 and get the 2 in 5 capital gains exemption or do a 1031 exchange. Assume that the cost basis is $250,000 and net sale price is $400,000. Could a knowledgeable person help me out on the better decision. My tax bracket is in 28%