Land Contract Offer
(by Tim [MI])
November 2, 2000 10:05:01 
RE: Land Contract Offer
(by [])
November 2, 2000 14:01:22
RE: Land Contract Offer
(by Jerry [GA.])
November 3, 2000 11:59:47
RE: Land Contract Offer
(by ALDO [WI])
November 3, 2000 21:41:30
RE: Land Contract Offer
(by Tom [Indiana])
November 4, 2000 09:14:31
RE: Land Contract Offer
(by Tim [MI])
November 7, 2000 10:56:51 | I am fixing up a home to sell. I am 90% complete. I will ask $245,000 for the home. I have an offer to purchase the home before it is completed for 225,000 on a land contract. I guess, if I was to do anything creative, I would ask for a two year Lease/Purchase agreement so that I could reinvest all the profit and not get taxed (1031 exchange). My profit on the home is around 75 thousand and I question if a land contract or Lease/Purchase agreement is worth it. What would you do? (1)Sell conventually when 100% complete, (2)sell now on a LC or (3)sell now on a lease/purchase(Lease/purchase requires the tennant to buy at the end of the lease agreement, in this case, code 1031 requires two years), or (4)any other thought. 198.88.132.10 |
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You should look at your return and risk for each of the options, it is enough profit that you can afford to pay an account or attorney to help you if you need. Some thoughts: On your conventional sale: Did you figure your profit from a $245,000 sales price? Is it typical in your area to get asking price or 90% of asking price? Did you factor in realtor fee? Land contract/ lease/purchase doesn't have that. How much more time and money do you need to put in to finish last 10% to do a conventional sale? Land contract doesn't have that, lease/purchase will. Conventional sale is going to have a big hit on taxes, land contract will have a distributed hit at a lower percentage, lease/purchase will still have some on income for two years. Lease/purchase is not a guaranteed sale at the end of the term, only an option. Lease/purchase has tenants that can still do damage to the place. 147.72.228.131 |
| I would personally wait and finish the house and sell and get out from under it completly. This is what I would do if I was in your shoes and I could afford to finish it and did not need the money right away. 207.50.25.97 |
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To simplify my response I will address each of the 4 options in your post individually. 1) (Sell when complete) This is a judgement call. You need to decide whether selling now is worth $20K. If the prooperty needs, say, $5K in materials and a lot of sweat equity you have to decide what your time/effort is worth.This might be one of the better options. 2) (Sell on an LC) This could be a capital gains problem. (I'm not a tax expert.) Say it's a 5 year LC with $25K down amortized over 25 years. In the first year you pay capital gains tax on the $25K down and the sum of all principal payments plus income tax on the interest. For the sake of dicussion, say the balloon payment is $190K. You will pay capital gains tax on whatever remains of your $75K profit plus depreciation minus expenses. This is not one of the better options. 3) (lease/purchase) Maybe it's just me, but when I sell a property it's usually because I want to be rid of it. You also have to rmemeber that if the agreement goes sour you have to go back to square one. This is not one of the better options. 4) (other thoughts) Personally, I would complete the work ASAP and sell on a 1031 exchange. If you desire lower priced properties there is the option of applying the proceeds of the sale to multiple properties. 207.250.216.243 |
| As usual, I disagree with ALDO. The lease purchase option is a great way to go. You need a minimum of 3% down to tie up the option. You specify the sales price. No negotiation. Rent to them for a couple of years, and raise the rent perhaps 150 or 200, but give them credit for this amount towards the downpayment. This makes getting a bank loan a lot easier for them. Agree in the purchase option to sell on contract at the end of two years, but only if they have made EVERY rent payment on time. 208.15.188.55 |
| Aldo & Tom, do i not have to lease option a property for a MINIMUM of two years to take advantage of the 1031 exchange? 198.88.132.10 |