Re: Some suggestions - Posted by Ernest Tew
Posted by Ernest Tew on December 25, 2000 at 04:38:56:
One of the problems in Florida and other states that charge a sales tax on homes is that it must be paid every time we change the name on the title. If (when) you get the homes back and resell them, you will have the same problem again.
We minimize the problem by taking title in our name (a corporation or other entity with limited liability) and pay the sales tax on the wholesale cost. Although we offer the homes “for sale,” the documents used are a Net Lease Agreement and an Option To Purchase. No matter how many times we have to “sell” (net lease) the home, no sales tax will be due until and unless the option is exercised. At that time, the tax is lower because the price is lower.
To minimize defaults, we always get at least $750 to $1,500 down. If the buyer appears to be responsible and their credit isn’t too bad, we may take a Promissory Note for some of the down payment. If so, we try to get the buyer to secure the note with a vehicle or other asset. We also ask them if they have a friend or relative that will co-sign on the lease and/or note. We find this helps to minimize defaults. And, even if they skip out before paying off the note, you can take them to small claims court without hiring a lawyer.
Since the title stays in our name until the home is paid for, we take out the insurance and the “buyer” reimburses us by paying three months’ premium before moving in and 1/12 of the premium is added to the monthly payments.
Used correctly, this approach also solves the problem of having to pay income taxes on the entire gain in the year of sale. And, since you are “renting” the home, you can take depreciation to offset some of the rent.
If you would like to have a copy of the forms we use, please send me an e-mail.