Scenario

You have a clear title house worth $250,000 and a cash buyer offers you $220,000, which you decide to accept because you’re tired of trying to sell the house and management of tenants is driving you nuts. Your cost basis was $130,000 and you’ve owned the property for 10 years. After paying the Realtor and closing costs, but before paying taxes, your net cash would be $198,000.

Your taxable capital gain would see the government steal about $22,500 from you, for next cash to the bank of $175,500. Assuming the bank paid you 2% on your money and you needed $1,000/month income, your money would last for 17 years.

Solution

If you sold your house directly to Kalomar, you wouldn’t have to pay any real estate commissions and if you let us pay you on terms, we’d buy the house for $250,000, so you are already $52,000 ahead of the example above. But wait, it gets better. Because you’ve sold the house on terms, the capital gains tax is spread over the amount of time we are paying you.

So lets say that we agree to buy your house for $250,000 at 6% over 30 years and we prepay the entire first year’s payments. Now you’d be receiving $1499/month for 30 years; all secured by the house you just sold us.

Summary

So, to sum up, if you want cash, you get $1,000/month for only 17 years. If you sell on terms, you can have your house sold in a week (instead of months and months) and you get $1,499 for 30 years.

Which one do you think is better?