Lowering Taxes
In reading about all the different creative investing ideas I came up with an idea of my own. I am certain that this has been thought of before. I am also certain that it must be illegal or everyone would be doing it. Can you provide me some feedback.
I have heard of people saying things like, "you set the price and I will set the terms." Then they go on to explain that although the seller raised the price, but the creative buyer got the seller to agree to finance the deal with such favorable terms that they more than made up for the high price of the house.
What then prevents the following scenario. You get the seller to drastically drop his price, but you agree to terms that favor the seller. Instead of paying 100,000 for the house and getting financed at 6%, you pay 70,000 and agree to finance through the owner for 12% for a term long enough so that the seller recoups the 30,000 difference in price.
Then, because the house sold for less, the city taxes it less. Furthermore, because interest is tax deductable, you are now getting a deduction for money you would have otherwise paid straight up for the house.
Certainly something is too "creative" about this scenario.
Disclaimer: This is not something I have tried or am about to try. I ask this question to further my understanding of the limits of creativity in the area of real estate financing.
I'm not sure I understand why the seller would drastically cut his price in exchange for owner financing it. At least in my area, if the buyer wants the seller to take back paper, the buyer's paying close to the seller's asking price.
But in any event, just because a property sells for less, that doesn't necessarily mean that the real estate taxes are less unless the tax assessment is reduced. The assessment gets reduced most often because the owner petitions for it. But maybe things work differently in your area.
Nancy,
The seller and the owner would be the same person. The reason they would lower their price would be that they would make up the difference by collecting a high interest.
On every property I have purchased, about a year after closing I have received a letter from the county auditor stating that my property will now be taxed at its current market value which is set equal to the price I purchased it for.