Archive for October, 2009
My Client Would Like to do a 1031 Exchange, But He Needs to Sell His Commercial Note First . . .
October 29th, 2009 categories: Seller Financing, Selling Your Note
A few days ago I was talking to an agent that was trying to put a commercial real estate transaction together . . .
His client owned a nice free and clear 9,000 sqft commercial property on historic Camino Real Road in Northern California. A couple of years ago, the property would have fetched close to $3 mil. Now it was listed at $1.6 mil, and there was one lone buyer who wanted it, only he couldn’t get traditional financing.
He needed owner financing.
He would pay the $1.6 mil if the seller would take $400K down and carry the rest at 6.5% over 30 years.
Well, because the seller doesn’t want to pay ANY capital gains, his agent was trying to see if we could create and then sell the note so the seller could put all the money towards a 1031 exchange, deferring all of his capital gains and depreciation recapture.
Good idea, except for this…
The discount on a ‘green’ commercial note (even with a good down payment and good buyer credit score) would be so high that it just would make sense (especially with that low interest rate!).
At the very best, he might get $800K for that $1.2 mil note, so it didn’t really make sense.
Here are the seller’s options:
- Just carry the note and defer most of the capital gains through the installment sale IRC 453. You’re getting your price, for heaven’s sake! And after some seasoning, you can sell the note for a smaller discount!
- Drop the purchase price and hope for a cash buyer, or one who can actually get a loan, so you can do a 1031 Exchange or Deferred Sales Trust to defer most, if not all, of your capital gains
- Lease the property out and be prepared to wait 10-15 years before you can sell at $1.6 mil, or better.
Owner financing is a great way to put real estate transactions together in today’s market. We just have to know what matters most to the seller, and what the buyer is able and willing to do.
Be sure to sign up for: Seller Financing on Steroids: Pumping Paper for Power, Peace and Profits. Defer capital gains & sell fast for top dollar, regardless of market conditions (and have a note that’s worth something!)
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Broke or Broker? Realtors Turned Note Brokers
October 13th, 2009 categories: Real Estate News, Seller Financing, The Note Business
I had an especially exciting conversation with a Realtor recently . . . one of the few that totally gets how a little knowledge of the discounted note business helps put more real estate transactions together.
Instead of going broke with many of her colleagues, she’s a real estate broker, turning note broker as well.
So here’s what she’s doing . . .
She’s taking all these good buyers who can’t qualify for bank financing, and hooking them up with FSBOs who are willing to carry paper (of course, she does a lot of educating in the process).
She collects a consultation fee from her buyers after she qualifies them, and knows they have a decent down payment.
Then, she goes out and finds FSBO sellers who are having a hard time competing with all the short sales and REOs. She shows these sellers how they can carry paper (offer owner financing) and still walk away with cash when they let their note season for 1-12 months, and then sell it.
And guess who will most likely be brokering that note?
So, she may not make a big commission selling the property, but she’ll make a commission when she helps those sellers/note holders get cash for their note. And because she understands the note business, she knows how to help those sellers create a note that will sell for a decent price on the secondary market.
Fun, huh? She’s a visionary and a leader, and she’s passionate about helping the economy, and preserving the dream of home ownership for her clients.
Real estate brokers should be note brokers, as well. These markets dovetail nicely, and the specialized knowledge can make the difference between a broker going broke . . . or not.
Be sure to sign up for: Seller Financing on Steroids: Pumping Paper for Power, Peace and Profits. Defer capital gains & sell fast for top dollar, regardless of market conditions (and have a note that’s worth something!)
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