Posted by michael(AZ) on September 24, 2004 at 23:12:46:
sorry
L/C on personal residence - Posted by michael(AZ)
Posted by michael(AZ) on September 24, 2004 at 23:10:26:
Sorry if this has been answered before. I have tried to search the board before asking this, but I can get the search to return anything less than 1000 hits.
Does anybody have experience or suggestions on L/C your own house.
thanks in advance,
michael
Re: L/C on personal residence - Posted by Erick
Posted by Erick on September 26, 2004 at 14:10:48:
Sure, I’m doing it right now. I’m just finishing up making up my flyers as we speak. I think it’s a really great way to sell your personal residence for a few reasons.
First and foremost, it qualifies as a sale (as an installment sale) which then enables you to take advantage of the capital gains exclusion available to homeowners that have owned/lived in their home for two years. A lease/option would not qualify.
Secondly, you get to wrap a presumably pretty good mortgage. If you’ve got a competitive rate as I presume you would on an owner/occ loan then you can probably impute a higher rate into the land contract. My rate on my current loan is 5% right now and I’m going to charge a couple points higher interest rate. Or, if you think about it, you have a lot of flexibility with respect to the rate you charge. My suggestion would be to charge a much lower interest rate but charge more for the house. You can make it such that the payments for the tenant are the same. But for you, you get a higher gain on the property (which you won’t have to pay cap gains tax on) rather than generating interest income which you don’t get a tax break on.
Also, LC’s are nice b/c (at least in Ohio) until they have been in the house for 5 yrs or built up 20% equity then you can evict them rather than having to go thru the foreclosure process.
I do have a question though. Even though a LC would qualify as a sale, what happens if you have to evict or foreclose on the people? And, what if you have to get them out after your 3 yrs (referring to the “living/owning for 2 of the previous 5 yrs” rule) are up?
Do you take some kind of loss on the LC sale? Does this property then become an investment property? What cost basis do you use?