The Infamous Question - Is This A Sub To Deal?
Young widow was left with home with IRS liens. She's willing to sell for just enough to pay off mortg. and IRS. She doesn't care about the equity - would rather see someone else get it than the IRS.
Specifics:
Owes approx. 78k on mortg.
Owes IRS 16k, currently working on settlement so they will release liens.
FMV $140k easy
When I told her I would buy it for just enough to pay off mortg and settle with IRS and make her problems go away, she told me she loved me and asked if I was married. LOL . I thought about letting her be the tenant/buyer until I read John's post today about that being a no-no. Soon after I remembered receiving a call a couple weeks ago from someone looking for a rent to own and willing to put down 20k. I haven't had a chance to meet them yet to do the second part of the credit check, but they were talking to me on the phone so I'm pretty sure they have a pulse. Sounds like a marriage made in $Cash$ Heaven. Does anyone else see it that way?
[ Edited by LarryNut on Date 06/03/2004 ]
Sounds like you've got a deal LarryNut. If you have enough to pay off the IRS, you can certainly take the 1st over Subj. To. Make sure to do a title search to confirm there aren't any other liens she 'forgot' about, or doesn't know about.
That's what I'm trying to weigh out. Depending on the IRS settlement, I could be less out of pocket to use my 95% lender and refi/ cash out shortly thereafter. I would have seller cover all closing costs. I'm just crazy about trying this sub 2 method for future....no credit check, no mortg. on credit report, etc. There is SO much equity here, I would only need a 60-70% loan. If she wants to give me the money so bad, I'll just give her FMV and after we close she can just sign her net proceeds check over to me and follow me to the bank, I'll buy her a pizza, all her problems are gone, I'll resell at FMV, have no capital gains or 1031 to worry about, and everyone is happy. LOL . Even I'm curious to see how this will play out.
LarryNut,
I noticed that in severalplaces in this post you've referred to Sub2, and new financing in the same breath. I can tell you're excited, and that's fine.
Sub2 leaves the existing financing in place. Bringing in a new first is not Sub2.
Good luck, You have choices on this one.
Good job.
Jeff
Yea I know, Thanks Jeff and I'm sorry about that. I hope I didn't confuse anyone. I have a bad habit of that sometimes. I start running through every possible scenario in my head and sometimes they end up in the same sentence.
Perhaps silly question, but if she only wants 94K for the place and FMV is 140 that's a 68% LTV.
Why not just grab that and run? Making 46K isn't bad. (LOL)
Also, if you sell at FMV and she gives it back to you, what are you going to tell the IRS as to the source of that $$$. *DELETE*
There are always ways to deal with tax issues.[ Edited by JohnLocke on Date 06/03/2004 ]
cjmazur,
I'm not sure I see the concern about telling the IRS how they're getting paid off, (they're happy about that) and paying taxes on the net profit which included the IRS lien before it was paid, meaning a large tax bill based on $46K profit.
Is there an alternative?
Alan
cjmazur,
This site also discourages the "PM me and I'll tell you more" type responses. There's no need for private seminars here. If you have something of benefit to say, why not let all of us know?
Jeff
$$$
Thanks Jeff good call.[ Edited by JohnLocke on Date 06/03/2004 ]
fearnsa,
The concern cjmazur raises is not related to the IRS liens -- they get paid off. The concern is with LarryNut saying that he will get money back from the seller at closing, but he won't report that money to the IRS.
Technically, cash back from the seller is an adjustment to the basis, so eventually LarryNut will have to pay tax on his true profit when he flips the property. There is no "tax free" profit here as LarryNut proposes with his buy at FMV and get seller to rebate the difference between purchase price and lien payoff(s).
The seller is going to report the sale on her tax return for only the amount actually received -- the loan and lien payoff. The "rebate" given is a seller concession and is not included in the seller's profit on the sale.
Furthermore, if LarryNut has a private agreement with the seller that he does not disclose to the lender, there may be loan fraud issues here too.
Easy guys easy, let's not get carried away. I guess I have to be more careful with my sarcasm. I am not going to get 40k back at close nor am I going to buy her a pizza. If you track my posts, no where will you find me talking about or promoting fraud or doing things under the table. Trust me, I have an RE license in my pocket and am well aware of the fact that I am held to a higher accountability and the laws/ethics involved. I apologize and will in the future just stick to the facts.
LarryNut, I'm so glad you said that. I'm really interested in Sub2, and have ordered the course, but of course it's still there in the back of my head that it may be unethical. I, too, have a real estate license, so I feel like I would be held more accountable if it were to come out as unethical. I'm sort of breathing a little easier knowing that there are RE Agents doing Sub2s out there.
-M
Mike,
Many students of mine are agents or realtors, there is a line that is drawn, if you can't help someone conventionally then help them creatively.
When I say there are a few good ones around, I am speaking of the ones that deep down make the deal a win/win for everyone, even if it means switching to the creative side of investing.
John $Cash$ Locke
Mike,
I'm not concerned about the ethics or legalities of Sub To. I have done extensive research and reading here on the subject. Out of the thousands of posts on the topic and on John, I have only found one that tried to blast both, and he was browsing under someone else's username.....draw your own conclusion. Do a search and read all the threads that say "Received another check today...50k.....Thanks John", and similar. Again, draw your own conclusion. John is right. When conventional doesn't work, you have to get creative. I could probably retire if my inventory was big enough to hold all the people that have money but I can't get financed.
Quote:If she wants to give me the money so bad, I'll just give her FMV and after we close she can just sign her net proceeds check over to me and follow me to the bank, I'll buy her a pizza, all her problems are gone, I'll resell at FMV, have no capital gains or 1031 to worry about, and everyone is happy. LOL
I don't think LarryNut adequately retracted his earlier comment.
For the less experienced members here, LarryNut does have a taxable profit if he resells at FMV under this strategy.
If I am correctly interpreting all of Dave T's comments elsewhere in the Tax
Strategies Forum correctly, LarryNut appears to have a "dealer disposition" when he flips this property. Ordinary income taxes and self-employment income taxes apply to his profits.
It appears that LarryNut is correct when he said no capital gains or 1031 to worry about because capital gains tax treatment does not apply and the property is not eligible to participate in a 1031 exchange.
Larry claims that he was just being sarcastic in his earlier response but he did nothing to clear the air. [ Edited by NewKidinTown on Date 06/07/2004 ]
New Kid,
It was messy and there was plenty of room for the less experienced to think that there was some tax dodge.
Larry knows better but thanks for taking the time to make it a bit clearer.
John
[addsig]
Thank you New Kid and John for cleaning up the mess. This was obviously a post that went in the wrong direction very quickly, which was not my intent. My initial post was just looking for some input from experienced Sub To investors but just went the wrong way. I apologize again if I mislead or gave a false impressions of tax dodging. I do not promote or participate in this type of business in any way, shape, or fashion. I too have referred questions to Dave T on matters to make sure I was doing things appropriately. You are right, I do know better and now that I own the course I know where to go to get my answers. The course also, by the way, preaches doing business in a professional, ethical, and legal manner. This deal is early in the process but I'll be sure to let you know how it turns out.
Quote:
On 2004-06-03 08:26, jeff12002 wrote:
cjmazur,
This site also discourages the "PM me and I'll tell you more" type responses. There's no need for private seminars here. If you have something of benefit to say, why not let all of us know?
Jeff
$$$
Thanks Jeff good call.
<font size=-1>[ Edited by JohnLocke on Date 06/03/2004 ]</font>
Not trying to hijack, just an off topic comment.