Owner Finance issue with L/H in TN - Posted by Dave Baker

Posted by Karl (Oh) on October 22, 2007 at 20:15:19:

A bank loaning money is not the same thing as a dealer buying and selling for a profit.

Karl

Owner Finance issue with L/H in TN - Posted by Dave Baker

Posted by Dave Baker on October 21, 2007 at 19:29:49:

I am a poster on here from back in 2002 or so. I have been involved in other things the last few years and have not had as much time to spend on here.

I recently bought a 16x80 L/H package from a wholesaler. I had to do a little rehab and then my wife and I offered it to a friend of hers, (24 year old female acquaintance with no/poor credit but good payment history and steady employment), for $33,500 with $1500 down and 11.75% interest on a 17 year note…Good cash flow and net and overall fair deal for all considering all factors.

I will doing a full registered, deed of trust financing with us as owner/lender.

I am interested in finding an agent to handle receiving the payments and acting as a “quasi-bank liason” for me in this deal shuttling the payments from her to us. In other words, I do NOT want any monthly interaction with this buyer. I just want to go to an account and retrieve my money and do this month after month. I am sure someone would do this for a small fee?

Who performs these services? A CPA? Attorney? Bank? Realtor?

Also what about tax implications to me with a full “deed of trust” style bank finance?

Is this sale taxed yearly on the interest income or totally up front? I can’t imagine that it would be taxed all up front because this is NOT a land contract/contract for deed, but is a full on sale where the property will be in the buyer’s name and will remain there unless she defaults, (just like a bank).

Any insight?

Re: Owner Finance issue with L/H in TN - Posted by Babacar

Posted by Babacar on October 23, 2007 at 04:41:20:

Hey Dave,
For handling mortgage payments you may want to take a look at www.ownerwillcarry.com. I have not used them yet as like Ann I enjoy receiving the money and walking it to the bank myself.
Hope that helps.
Babacar

Re: Owner Finance issue with L/H in TN - Posted by Tony Colella

Posted by Tony Colella on October 22, 2007 at 11:26:19:

There are a number of tax issues that you need to look into with an expert.

Topics such as those mentioned and others. For example, if you by the property and sell it in less than a year (flip) you have different tax issues than if you have held it longer.

Tony

Re: Taxation - installment sale - Posted by Lin (NC)

Posted by Lin (NC) on October 22, 2007 at 06:14:02:

I’m pretty sure your sale proceeds are taxed as received, with each payment from your buyer broken out into return of your principle, interest, and capital gain. You are only taxed on what you receive each year of the interest and capital gain. I don’t think it matters whether you use a CFD or an actual DOT and convey title immediately. I think it’s treated as an installment sale either way.

Look up installment sales on the IRS website.

Re: Owner Finance issue with L/H in TN - Posted by Anne_ND

Posted by Anne_ND on October 22, 2007 at 04:54:56:

Dave,

Yes, there are services that will act as intermediaries. I have REI friends who are constantly trying to get me to sign up for them, but I refuse to give up $6/month for someone else to do what I enjoy most about this business (i.e., lovingly escort the check to the bank). I can’t recall the names, but you can easily find them doing a google search.

You will probably be taxed up front, like any Lonnie deal (although Tony can tell you better than I). Your contention that since it’s a full-on sale it should not be taxed up front is silly, because you want to argue that it’s NOT a full-on sale if you don’t want to pay taxes up front.

Get Hyre’s book for an explanation of his “aggressive” tax method. I’ve used it with no trouble for paying tax on only the interest portion, not the whole sale.

good luck,

Anne

Re: Taxation - installment sale …Ooops! - Posted by Lin (NC)

Posted by Lin (NC) on October 22, 2007 at 06:58:47:

What I said about the installment sale method applies unless you qualify as a dealer using the IRS definition. Did you buy with the express purpose of selling right away for a profit? I assumed this was a rental that you were selling. That’s why some Lonnie dealers use the method John Hyre recommends that Anne referred to in her post. The IRS considers them dealers and taxes up front.

So while you’re looking up installment sale, also look up “dealer status” and see if you qualify as a dealer.

So banks pay ALL taxes up front? - Posted by Dave Baker

Posted by Dave Baker on October 22, 2007 at 19:00:22:

If they do, then I will admit that I did not know that. That would mean that all home loans everywhere in the US are paid by the bank up front at tax time…That seems unlikely.

If they don’t, then what exactly do they do to avoid it?

This is a mobile home that is permanently attached to the property BY DEED and not by title. The State of Tennessee considers it the same as a house as far as sales and how it is treated.

I am a pretty fair wiz at googling, but must not have the correct terminology to find these places you are speaking of…Again, are these payment intermediary services offered by CPA’s, Attornies, Banks or other parties? I want her to be able to mail these payments to this company, have them handle everything and take a small cut for doing this. All I want to do is go to an account and get my cash every month. My wife does not want

Links, names or search terms would be greatly appreciated.

Thanks!~

Re: So banks pay ALL taxes up front? - Posted by Joe-GA

Posted by Joe-GA on October 24, 2007 at 06:45:11:

If oyu do any FHA loans on these house you STILL need a title for the home… WHoever the "money man"is financing behind the cutrain at FHA lenders, well, he , she , or IT wants a title, retired or not… good luck!

Re: So banks pay ALL taxes up front? - Posted by Anne_ND

Posted by Anne_ND on October 23, 2007 at 06:33:27:

Dave,

You seem a little ticked off here, and I’m not sure why.

Banks are a different animal from someone selling something, as Karl has pointed out. Since I’ve given you the wrong answer, I suggest you talk to your CPA about this, as everyone’s situation will differ.

Also- check with your bank about automatic drafts from your tenant/buyer to you without you being involved. Some banks do it for free. Some intermediaries accept mailed payments.

I googled “tenant automatic payments for rent” and came up with loads of links that I did not go into. I would also suggest you search mrlandlord.com, which is where my friends found the service.

good luck,

Anne