100% Seller Financing - Posted by Phil (CO)
Posted by Phil (CO) on February 06, 2002 at 11:33:34:
Let’s say that I sell a SFH for $150k. My basis in the property is $100k. I agree to sell with $15k down and take back a mortgage at a high rate of interest.
Sounds great, $15k in my pocket plus good cash flow from the loan payments.
But what about the taxes on the $50k profit from the sale? Probably eat up the $15k, leaving me with no cash to use for REI. Would be even worse if I wanted to sell to someone no money down.
I guess the real point of the question is that a lot of REI strategies involve an exit strategy where the investor (seller) takes back a mortgage on the property, but nobody seems to talk about the taxes. Can taxes be deferred somehow when you sell with little or no money down?
I’m most interested in the answer from a subject to point of view. Suppose I want to buy a property subject to for 70% of FMV, and then sell no money down on a CFD for 110% FMV. In this case it’s an installment sale (right?) so taxes aren’t an issue. But what if I wanted to sell no money down and take back a mortgage? Where would the money for taxes come from for the 40% FMV that I just profited?