Author Topic: Deal Advice or Ideas  (Read 2953 times)

Left Bank

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Deal Advice or Ideas
« on: October 18, 2014, 08:42:10 PM »
Hello Mustachians,
I need a little help with a real estate sale.  I am selling one of my rental properties and got a reasonable, but not great offer.  They want to close ASAP. I want to close after January 1st because of the tax implications.  Closing in 2015 vs 2014 would save me approximately $10K because I will be FIRE'd 2015 and not pulling the generous salary I am now.  Unfortunately, this is killing the deal and they lowered their offer to buy by $7K if we close in 2015.  They must have their own tax issues I assume.

So I had the idea (in the shower, of course) that we close for a price $10K lower in 2014 and they can pay me the $10K in 2015.  It sounds a bit illegal to me but is it?  Why not lower the 2014 price by $50K?  What if they were paying me for a service in 2015 and the money were held in escrow?  I realize this may not be the right way to handle this problem but what is? 
Advice?  Ideas?

escolegrove

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Re: Deal Advice or Ideas
« Reply #1 on: October 18, 2014, 09:19:55 PM »
If you are not desperate, don't want to sell now and the price is not your asking price. Why don't you tell them no? I would tell that I wanted 20k more for a price now or you would wait till next year!

You are in a place of power, a good place. Use it :)

Left Bank

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Re: Deal Advice or Ideas
« Reply #2 on: October 19, 2014, 04:00:03 AM »
Thanks escolegrove, finding another buyer later seems to be the direction the deal is going.  I am not desperate but I am relocating away from the properties soon and will need to manage from afar if I do not sell.  It will be a PITA but doable, I naively think...at least for now.  I thought about property management but as far as I can tell, most are crooks, in Boston anyway, but that is getting off topic. 

Any ideas to make the deal I described in the first post work?

arebelspy

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Re: Deal Advice or Ideas
« Reply #3 on: October 19, 2014, 11:48:34 AM »
Just do an installment sale, for the higher price now, close ASAP, and you carry back a note (a second, if necessary, if they're getting a mortgage) for $20K or $50k whatever, due in January 2015, as long as they can pay it, and aren't depending on a whole .  Hell, you can have the money stuck in escrow even.  They still close today, pay everything today, you just don't realize some of the gains til later.  You must not be able to access that money for any reason until 2015, even if you wanted to.

I think this should work.

Disclaimer: check with your CPA, obviously.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Left Bank

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Re: Deal Advice or Ideas
« Reply #4 on: October 19, 2014, 01:46:48 PM »
Just do an installment sale, for the higher price now, close ASAP, and you carry back a note (a second, if necessary, if they're getting a mortgage) for $20K or $50k whatever, due in January 2015, as long as they can pay it, and aren't depending on a whole .  Hell, you can have the money stuck in escrow even.  They still close today, pay everything today, you just don't realize some of the gains til later.  You must not be able to access that money for any reason until 2015, even if you wanted to.

I think this should work.

Disclaimer: check with your CPA, obviously.

I will definitely look into this!  Thank you Arebelspy. 

Wile E. Coyote

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Re: Deal Advice or Ideas
« Reply #5 on: October 19, 2014, 08:18:43 PM »
Just do an installment sale, for the higher price now, close ASAP, and you carry back a note (a second, if necessary, if they're getting a mortgage) for $20K or $50k whatever, due in January 2015, as long as they can pay it, and aren't depending on a whole .  Hell, you can have the money stuck in escrow even.  They still close today, pay everything today, you just don't realize some of the gains til later.  You must not be able to access that money for any reason until 2015, even if you wanted to.

I think this should work.

Disclaimer: check with your CPA, obviously.

The thing to think about here is that you will still report a portion of the gain in 2014.  Essentially you will calculate the gain on the full price (say $200k price and $50k gain), and then allocate the gain between years based upon the amounts received each year (so if $150k received in 2014, then $37.5 gain reported in 2014 and $12.5 gain reported in 2015 when the additional $50 is received.). So it will help some, but it will not defer the full $50k of gain.

arebelspy

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Re: Deal Advice or Ideas
« Reply #6 on: October 19, 2014, 08:29:28 PM »
Just do an installment sale, for the higher price now, close ASAP, and you carry back a note (a second, if necessary, if they're getting a mortgage) for $20K or $50k whatever, due in January 2015, as long as they can pay it, and aren't depending on a whole .  Hell, you can have the money stuck in escrow even.  They still close today, pay everything today, you just don't realize some of the gains til later.  You must not be able to access that money for any reason until 2015, even if you wanted to.

I think this should work.

Disclaimer: check with your CPA, obviously.

The thing to think about here is that you will still report a portion of the gain in 2014.  Essentially you will calculate the gain on the full price (say $200k price and $50k gain), and then allocate the gain between years based upon the amounts received each year (so if $150k received in 2014, then $37.5 gain reported in 2014 and $12.5 gain reported in 2015 when the additional $50 is received.). So it will help some, but it will not defer the full $50k of gain.

Just tweak the numbers to what you need.

Hell, make it $1 now, $149,999 in 2015.  Or whatever.  Your CPA should be able to run the numbers.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Left Bank

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Re: Deal Advice or Ideas
« Reply #7 on: October 19, 2014, 09:04:44 PM »
Just do an installment sale, for the higher price now, close ASAP, and you carry back a note (a second, if necessary, if they're getting a mortgage) for $20K or $50k whatever, due in January 2015, as long as they can pay it, and aren't depending on a whole .  Hell, you can have the money stuck in escrow even.  They still close today, pay everything today, you just don't realize some of the gains til later.  You must not be able to access that money for any reason until 2015, even if you wanted to.

I think this should work.

Disclaimer: check with your CPA, obviously.

The thing to think about here is that you will still report a portion of the gain in 2014.  Essentially you will calculate the gain on the full price (say $200k price and $50k gain), and then allocate the gain between years based upon the amounts received each year (so if $150k received in 2014, then $37.5 gain reported in 2014 and $12.5 gain reported in 2015 when the additional $50 is received.). So it will help some, but it will not defer the full $50k of gain.

Just tweak the numbers to what you need.

Hell, make it $1 now, $149,999 in 2015.  Or whatever.  Your CPA should be able to run the numbers.

I realized this almost immediately after I posted but did not bother to correct because the gist was there. Need to sell at "cost" and take the profit next year.
LB

escolegrove

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Re: Deal Advice or Ideas
« Reply #8 on: October 20, 2014, 01:07:21 AM »
We have done very well self-managing from a distance. It has certainly had its moment but since you are already in the area you can easily install the first tenant yourself. When things break I just call a local service repairman, arrange payment and than have them talk to my tenant regarding repairs.

My husband is active duty so home is where our orders are currently located. I have had to get really good at managing form across the country. It is very doable and has allowed us to save a ton of money while still maintaing control over our property.