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Part 2: Capital Gains Mitigation Strategies for Park Owners
If you own a mobile home park, chances are capital gains tax weighs heavily on your retirement plans. You aren’t alone — many park owners I’ve spoken with feel trapped by this hefty tax on the only money they have to live on. So, continuing our mission to educate people on solutions to the capital gains tax problem, I wanted to share my expertise in a niche real estate deal that fits park owner’s needs perfectly: owner financing. Sometimes called seller financing, owner financing mitigates capital gains tax while converting
A good analogy would be that you’re leasing your mobile home park. You don’t have to worry about the management and upkeep while receiving “rent” from the buyer until they’ve fully paid off your loan plus interest. At that point the property officially changes hands. But how is this better than a regular real estate sale? Why not let the buyer go to a mortgage lender and receive a lump sum? It all comes back to capital gains. Receiving one lump sum payment can hit you with a hefty tax bill — the sale of a $3 million-dollar property may only net you $1.5 million. Owner financed deals, on the other hand, mitigate this tax rate by spreading out the money you receive over a longer period of time. This strategy also carries with it several perks for those looking to retire.
Beyond the tax savings and steady income stream, many property owners value owner financed real estate deals for their speed. You don’t have to wait for the buyer to go through the lengthy mortgage process. Furthermore, traditional mortgage lenders normally demand extensive repair work be done on a property before they sign off on a deal. By cutting them out of the process, you are more likely to be able to sell “as-is,” saving yourself time and money.
the equity in your property to a passive income stream you can enjoy for the rest of your life. This allows a seller to turn over the duties of managing their property, and simply enjoy retirement while maintaining a sustainable cash flow. How is this possible? It has to do with the structure of this unique real estate agreement.
Of course, no deal is without risks. By extending credit yourself, there is always the chance that a buyer may default. However, if worst comes to worst and the buyer walks, you still keep the money they’ve already paid and the deed to the property. But with proper credit screenings, you can find a reliable buyer you can trust to make timely payments. While owner financing isn’t as common in the wider world of real estate, its unique strengths match the needs of retiring property owners perfectly. You don’t have to feel trapped by your own property. At Sunrise Communities, we’ve made dozens of these deals, helping park owners enjoy the retirement they’ve earned.
As the name suggests, owner financing refers to an agreement where an owner looking to sell an asset finances the buyer. This is done by extending the buyer a line of credit equal to the value of the asset, minus an agreed upon down payment. Essentially the owner cuts out the middleman by playing the part of the buyer’s mortgage lender. The two parties sign a promissory note containing the terms of the credit extension, the down payment the buyer will make, and how much interest will be added to these payments.
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