How To Market Yourself As A Real Estate Expert: Understanding a Structured Sale As A1031 Alternative

Understanding a Structured Sale



An alternative to a 1031 Exchange for someone who does not want to continue to hold property is a structured sale.



A structured sale is a simple process by which the seller can diminish the amount of taxable capital gains.



The most common way this is accomplished is by the seller carrying the loan on the property. Essentially the seller has become the bank and the buyer will make payments to the seller.



Remember it is always wise to use a Qualified Intermediary (A Title or Escrow Company). This will ensure that all the legal requirements are being followed and that all tax requirements are being met.



Typically in a structured sale you, as the seller, will want a percentage of the sale price in the form of a down payment. This down payment is usually 10-20% percent of the purchase price. The remaining costs are carried by the seller, at loan terms agreeable to both the seller and the buyer.



For example, assume you have a property that you own free and clear. The property has a value of $500,000. Your goal is to not be taxed up front on income from the sale of the property, but to spread the income out over time. You may sell the property for $500,000 taking $50,000 as a down payment and carrying the remainder as a loan at whatever the current interest rates are. For example, the loan terms may be the remaining $450,000 dollars at 6.5% interest, amortized for 30 years with a 10-year balloon payment.



In this example, the investor would only be taxed on the $50,000 down payment and the $2,844 a month received in mortgage payments.



As you can see, this greatly diminishes the amount of your taxable income. However, it limits that amount of money you receive up front. You also have to be careful that you do not trigger any "due on sale clauses". A "due on sale clause" is typically written into most loans so that if the owner of the property sells that property without paying off the property (carrying the loan "owner financing" yet the person responsible for the loan is different from the individual who has the loan on the property) the bank will/can force the original borrower to pay the property off. That is why this technique works best for individuals who own the property free and clear.



There are many legal ways of keeping your taxable capital gains to a minimum, which makes real estate one of the most attractive investments you can make!



For this and other articles by Brad Hess please visit http://www.mymark.com/blog. Brad Hess is CEO and Founder of MyMark. I made my mark with MyMark, providers of an integrated personal profile, blog, and home base for professionally branding you. This original post can be found at http://www.mymark.com/blog/bradhess/2011/01/18/how-to-market-yourself-as-a-real-estate-expert-understanding-a-structured-sale-as-a-1031-alternative/