Seller Financing or Owner Financing a House
Deed of Trust States
Installment Land Contract
Tax Advantages of Seller Financing
- Tax benefits of Installment Sale are not all of the gains are realized in that year and may lower your tax burden
- Seller does pay ordinary income tax on interest paid each year
- Principal payment is taxed at a long term capital gains rate
- Downside of installment sale is the depreciation recapture which requires you to pay 25% tax on the amount of depreciation you have taken on that property. In an installment sale you may end up having to pay more than you bring in initially that way.
Wet Funds vs. Dry Fund States
- AZ, NV, AK, CA, HI, ID, NM, OR, LA are dry fund states
- All remaining are wet fund states
- For dry fund states if you are doing a back to back closing you can use your buyers funds to fund the deal
- Great for beginning investors with limited funds. You won't need transactional funding which typically runs at least $2,500 per deal
Watch at https://youtu.be/osnOG5Cfg9Y
Deed of Trust States
- AK, AZ, CA, CO, DC, ID, MD, MS, MO, MT, NE, NV, NC, OR, TN, TX, UT, VA, WA, WV
- The property is essentially held in a trust until the mortgage is paid off.
- A 3rd party trustee holds the title for the borrower who has equitable title.
- I had a deed of trust go bad in WV and all I had to do was have my title company (3rd party trustee) file a Certificate of Release.
- I did not have to file for eviction since the buyers were willing to leave without any issues.
Installment Land Contract
- AR, AZ, FL, GA, IL, IN, IA, KS, KY, LA, MI, MO, MN, MS, NE, OH, OK, PA, SC, TN, VA, WI
- Deed remains in the owners name until it is paid in full
- Must keep insurance on the property
- Eviction to get rid of buyer.
- Buyer has equitable title. If the buyer fails to pay the seller can exercise the forfeiture clause which will results in the buyer forfeiting all their down money. It's essentially a non refundable EMD.
Tax Advantages of Seller Financing
- Tax benefits of Installment Sale are not all of the gains are realized in that year and may lower your tax burden
- Seller does pay ordinary income tax on interest paid each year
- Principal payment is taxed at a long term capital gains rate
- Downside of installment sale is the depreciation recapture which requires you to pay 25% tax on the amount of depreciation you have taken on that property. In an installment sale you may end up having to pay more than you bring in initially that way.
Wet Funds vs. Dry Fund States
- AZ, NV, AK, CA, HI, ID, NM, OR, LA are dry fund states
- All remaining are wet fund states
- For dry fund states if you are doing a back to back closing you can use your buyers funds to fund the deal
- Great for beginning investors with limited funds. You won't need transactional funding which typically runs at least $2,500 per deal
Watch at https://youtu.be/osnOG5Cfg9Y
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