An installment sale can be very beneficial tax wise should an apartment owner want to retire from the apartment business and still have a monthly income which could actually be more than what they currently receive in cash flow from the property.
Terms and Benefits
The Hanes Installment Sale is tailor made to your individual and financial needs. We are available to meet and/or work with your tax advisor to ensure all aspects of your financial & tax situations are addressed. There are several benefits through this process. Below is a list of common terms and benefits:
- Large Down Payment: The Seller would carry the first loan after substantial down payment to pay off all existing loans, selling expenses & depreciation recapture, plus cash out at close of escrow.
- Monthly Loan Payments: Monthly payments to you could possibly meet or exceed your current monthly cash flow.
- Interest Rates: Variable/fixed interest rates – stair stepped – typically starting around 4%, increasing depending in the length of the loan.
- Life of Loan: Majority of our clients carry the loan for 5-7 years but it can be adjusted for a shorter or longer time period depending on your individual needs.
- Offset Capital Gain: The interest on the loan significantly helps offset against any capital gain due upon payoff of the loan.
- Equity: Keeps your equity working for you.
- Daily Property Responsibilities: No management involvement.
- Income & Capital Gains Tax: You are taxed on monies only as you receive them.
- Collateral: The building is the collateral.
- Loan Assumption: Should the property be sold prior to the due date of the loan, the note may be assumed provided a new buyer meets the same “Buyer Requirements” as listed below.
- Personal Touch: The installment sale terms are tailor made for your financial and individual situation.
The Security of an Installment Sale – Buyer Requirements
We are able to accomplish those benefits primarily through our strict buyer qualification process. The buyer qualification process includes some of the following:
- Down Payment: Verification of liquid funds for down payment, plus 6 months principal and interest.
- Net Worth: Minimum net worth equal to the purchase price exclusive of primary residence and autos.
- Pre-Payment: Loan can not be pre-paid with out sellers’ prior written consent or buyer shall owe all the remaining interest due on the loan. (5+ units)
- Tax Service: Provide seller with a type “B” tax service for the term of the loan.
- Credit: Credit score of 650 (No foreclosures, bankruptcies, etc.)
- Property Management: Previous property management experience is required.
Consult Your Tax Advisor
Should you choose to take advantage of an installment sale; Hanes always recommends that you seek counsel from a tax professional regarding any tax liabilities that may result. Hanes will work with your tax advisor to ensure that the installment sale is suited to your individual needs.