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Old 10-17-2012, 01:23 PM
 
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I have a SFD that at some point in the near future I will want/have to sell. There will be no capital gains tax. The property conservatively would net me about $450K. I am 61. I could rent it out for a little less than what the mortgage payment would net me if I carried back, but I don't want the headache of being a landlord. I could sell it outright and bank the money but with all this talk of dollars being devalued so drastically I'd be hesitant to take that much cash only to see it dwindle rapidly. Last option is I could carry back the mortgage and have the income for 15-30 years, not have the responsibility of paying property taxes & insurance, but still having to watch the mortgagees to make sure they paid theirs, not to mention the possibility of having a total loss on the place through fire/earthquake and having them walk away.

Which option sounds the best overall? Thanks to all for any advice.
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Old 10-17-2012, 01:49 PM
 
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This is SoCal, by the way.
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Old 10-17-2012, 01:55 PM
 
Location: The Triad (NC)
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If you can afford to do without the lump sum from a sale... sure.
Still... not for a 30 year term (15 or 20 years max) and not without substantial down payment;
and of course not without market rate on the loan itself.

Which brings the question back to just what sort of buyer the property can attract.
Unless there are defects of some sort that would scare off a regular lender...
why would a qualified buyer go through you if they don't have to?
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Old 10-17-2012, 02:53 PM
 
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Quote:
Originally Posted by MrRational View Post
If you can afford to do without the lump sum from a sale... sure.
Still... not for a 30 year term (15 or 20 years max) and not without substantial down payment;
and of course not without market rate on the loan itself.

Which brings the question back to just what sort of buyer the property can attract.
Unless there are defects of some sort that would scare off a regular lender...
why would a qualified buyer go through you if they don't have to?
No major defects--some cracks in patio concrete. I hear you about 30 years. I don't plan on sticking around that long and there's always the likelihood that the owners will simply want to sell after 5 years or so. The reason for going through me is that I'd be more "lender-friendly" but still diligent about qualifying the buyers. The difference between renting and selling and carrying back is that the rent would be 100% taxable while the mortgage would be taxable only to the extent of the interest, which is nearly 100% of the monthly payment in the early years, I grant you. Additionally, renting it out, I have no depreciation to offset the income because the property is inherited and the original cost-basis is only $30,000. I am really in a quandary about which is the best choice.
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Old 10-17-2012, 04:39 PM
 
Location: The Triad (NC)
26,469 posts, read 57,156,603 times
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Quote:
Originally Posted by thrillobyte View Post
...but I don't want the headache of being a landlord.
I am really in a quandary about which is the best choice.

Take The Money And Run - The Steve Miller Band (Lyrics + HQ) - YouTube
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Old 10-17-2012, 05:51 PM
 
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Point taken.
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Old 10-18-2012, 06:42 AM
 
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If you're a multi-millionaire (which is doubtful, otherwise you wouldn't be asking us for investment advice), it would be okay to consider taking back a mortgage since it would be only a small percentage of your total investments. But since the net proceeds of your sale ($450K) will likely be a large percentage of your total investments, then you should definitely NOT take back a mortgage.

Although you technically won't be the Landlord, you will still retain a lot of the headaches and worries. You can be very diligent about checking to see that everything is still in order, but if for some reason they let their insurance lapse for a short period and the house burns down--or is destroyed in an earthquake--then you lose everything. Or they could also trash the property, get divorced, declare bankruptcy, abandon the property...or die. (Worse would be if it became a meth lab!) Sure, you could get the house back after spending money on legal fees, but in what condition and at what value? What if the house itself goes down in value, like so many others?

You need to cash out and then diversify your investments. Don't just keep all of your money in the bank. Even tax-wise, you can do a lot better than just receiving fully taxable interest payments. Dividend paying stocks, mutual funds...even real estate. But you need to be diversified. Don't put all of your eggs into one mortgage basket. Consult with a financial advisor (but don't necessarily jump to take their advice). See what they have to say and weigh your various options. Even money in the bank is better than worrying about whether you'll have any money at all.
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Old 10-18-2012, 07:57 AM
 
Location: Chicago area
12,876 posts, read 7,090,385 times
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How about selling and buying a beach condo somewhere. Buy one with on site management and go there once a year for vacation and write off the trip as a business expense. You can probably downsize into a small house or condo and have the profits from your vacation condo cover most of your living expenses. Just a thought. We plan on doing a 1031 exchange with our rentals and investing in vacation condos. I don't want to be a landlord anymore either.

Last edited by animalcrazy; 10-18-2012 at 08:31 AM..
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Old 10-18-2012, 10:49 AM
 
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I've bought several properties where the seller has carried back the mortgage... twice, it was their idea.

The longest term was for 15 years... I put down 50% and the retired couple were looking to add income...

Last year, I let them know I was planning to pay it off early... I'm at 5% interest... they were disappointed and asked me if I would consider not paying it off if they lowered my rate to 4%... which we did and recorded the loan modification.

I have never put down less than 25% when seller financing was involved... each of my seller/lenders have been extremely pleased and they have friends that wondered why no one suggested it when they were selling their homes.

I've got another one at 5% with 12k owed... I'm going to pay it off next month rather than let it go for another 30 months...

If you get enough of a down and are looking for better than Bank Interest and don't need the lump sum... I would consider it...

I know someone that deals in property and always carries the note... he will do interest only or 30 due in 7... so far, he has taken a few properties back and said he still came out ahead... the last one had a new roof, kitchen and a family room added...

As mentioned above... I guess there is always the possibility of a meth lab. Most other contingencies can be planned for... insurance and a big enough down payment.
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Old 10-18-2012, 04:50 PM
 
10,158 posts, read 10,451,755 times
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Quote:
Originally Posted by jackmichigan View Post
If you're a multi-millionaire (which is doubtful, otherwise you wouldn't be asking us for investment advice), it would be okay to consider taking back a mortgage since it would be only a small percentage of your total investments. But since the net proceeds of your sale ($450K) will likely be a large percentage of your total investments, then you should definitely NOT take back a mortgage.

Although you technically won't be the Landlord, you will still retain a lot of the headaches and worries. You can be very diligent about checking to see that everything is still in order, but if for some reason they let their insurance lapse for a short period and the house burns down--or is destroyed in an earthquake--then you lose everything. Or they could also trash the property, get divorced, declare bankruptcy, abandon the property...or die. (Worse would be if it became a meth lab!) Sure, you could get the house back after spending money on legal fees, but in what condition and at what value? What if the house itself goes down in value, like so many others?

You need to cash out and then diversify your investments. Don't just keep all of your money in the bank. Even tax-wise, you can do a lot better than just receiving fully taxable interest payments. Dividend paying stocks, mutual funds...even real estate. But you need to be diversified. Don't put all of your eggs into one mortgage basket. Consult with a financial advisor (but don't necessarily jump to take their advice). See what they have to say and weigh your various options. Even money in the bank is better than worrying about whether you'll have any money at all.
Excellent, points, Jack. You mention several things that would bother me, even give me nightmares eg earthquake, fire,) about carrying back the entire amount, though I wouldn't consider only a portion--just not worth the headaches of being behind the 1st lienholder. This WOULD be the major source of income for me aside from a small ($500-after Medicare Pt.B Deduction) SS check. As the money will probably outlive me, the non-interest banks are paying is not really a concern. Thanks much for your advice.

Quote:
Originally Posted by animalcrazy View Post
How about selling and buying a beach condo somewhere. Buy one with on site management and go there once a year for vacation and write off the trip as a business expense. You can probably downsize into a small house or condo and have the profits from your vacation condo cover most of your living expenses. Just a thought. We plan on doing a 1031 exchange with our rentals and investing in vacation condos. I don't want to be a landlord anymore either.
A nice idea for someone with means but my wife would never agree to a vacation condo with all the fees and upkeep even on a Starker exchange and as this money is not taxed an exchange doesn't become a necessity. Thanks much for your input.

Quote:
Originally Posted by Ultrarunner View Post
I've bought several properties where the seller has carried back the mortgage... twice, it was their idea.

The longest term was for 15 years... I put down 50% and the retired couple were looking to add income...

Last year, I let them know I was planning to pay it off early... I'm at 5% interest... they were disappointed and asked me if I would consider not paying it off if they lowered my rate to 4%... which we did and recorded the loan modification.

I have never put down less than 25% when seller financing was involved... each of my seller/lenders have been extremely pleased and they have friends that wondered why no one suggested it when they were selling their homes.

I've got another one at 5% with 12k owed... I'm going to pay it off next month rather than let it go for another 30 months...

If you get enough of a down and are looking for better than Bank Interest and don't need the lump sum... I would consider it...

I know someone that deals in property and always carries the note... he will do interest only or 30 due in 7... so far, he has taken a few properties back and said he still came out ahead... the last one had a new roof, kitchen and a family room added...

As mentioned above... I guess there is always the possibility of a meth lab. Most other contingencies can be planned for... insurance and a big enough down payment.
You sound like a pro who's been doing this for a long time and is attentive to the lienholder, Ultra. I wish I was lucky to get you when I'm selling.

I think the likelihood that the owners will sell way before the loan is up combined with the chance that something might cause a total loss combined with possibility that the owners aren't carrying insurance makes it likely, given all the excellent advice I have gotten here, that I will just take the lump sum and be done with it.

Thanks much, everyone. You gave me the courage to just take the money and run, financial crash or no financial crash. People here on City_Data and especially RE Forum are the best.
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