Not long ago an attorney was representing an estate that held several real estate notes worth a total of about $8,000,000. Needless to say, the estate taxes were very high, so to reduce them, he hired me to do a Professional Note Appraisal to determine the actual market value of each of the notes.
This attorney knew that a note is almost never worth it’s face value. There is almost always a discount when the note is purchased, and this attorney wanted tax savings for his client based on the true market value of the note (just like an appraisal is done to determine the market value of any real estate).
The gentleman who had died had invested heavily in real estate (mostly commercial) and his exit strategy was to sell and carry back a note and first deed of trust using the installment sale. He successfully converted his real property assets into paper assets, which is what a lot of investors eventually do.
It’s just easier to collect note payments than it is to manage property.
Some of the notes ended up being worth substantially less than their remaining balance, some represented only a small discount, but working together, this attorney and I were able to save the estate about $250,000 in estate taxes!
The IRS has some funky guidelines about note valuation, but the Professional Note Appraisals gave the attorney a starting position from which to successfully negotiate. He feels that this issue is below the radar of most professionals and needs to be brought to the surface for the benefit of estates, like this one, that held a lot of real estate notes.
- I’d Like a Professional Note Appraisal
- I want to carry paper, please help me create a valuable note
- If I Carry Paper, How Much Will I Get Each Month?
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