and damaging events ( e.g., fire, wind, flooding). Clearly, breakeven won’t be enough.
“flippers,” particularly in a rising market. Typically, the term is under a year because that is often the time frame for a rehab and sale. The “flipper” gets lower interest costs, and the seller gets a share of the profit. This is a good way to convince the seller to make the deal. Also, when selling a property, a SAM can be carried back for the benefits previously mentioned. This is especially true of the “installment sale” under Section 453 of the Internal Revenue Service code. The net profit is basically spread out over the term of the loan, which could
reduce the applicable tax bracket. For the seller, the longer, the better. Definitely consult a pax professional when considering this option. •
CONSIDERATIONS Sometimes a seller who wants to accomplish a sale might not be enthusiastic about carrying back a SAM. In this instance, to encourage the buyer to pay off early (by selling or refinancing), the parties could include a “phase-out clause” that reduces the seller’s percentage based on an earlier payoff. Another consideration is that a SAM works well for property
Bruce Kellogg has been a real estate agent and investor in California for 44 years. He has purchased approximately 350 investment properties for himself,
mostly with high-leverage and tax-deferred exchanges. In the process, he made three fortunes and has experienced three real estate downturns since 1980. Kellogg has transacted roughly 550 properties for clients, creating fortunes for several. His book “Real Estate Investing Wisdom” is currently in publication. He can be reached at Brucekellogg10@gmail.com or (408) 489-0131.
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