Home Owners
Selling your home in a buyers market like the one we are in now doesn’t have to be a long, drawn out, and stressful experience. In fact, it can be just the opposite.
When you are selling a house, there are two key components of the negotiation; the price, and the terms of the sale. When you sell your house to Kalomar, you can pick which ever one is more important to you, and we’ll pick the other one.
For example, you may have your mind set on getting $250,000 for your house. So long as we get to pick the terms of the sale (how much down, and how much per month we have to pay), we’re happy to pay your asking price. If on the other hand you want to receive all cash at closing (the terms), then we get to negotiate the price.
Sound fair? If it wasn’t, we’d never be able to buy a single house.
Now, speaking of cash; its very common for a seller to think they want or need cash, however, in most cases, they want what the cash will get for them. It may be a new house, a boat, or monthly income from the cash. No one just wants cash for the sake of having a pile of money in their living room, do they?
Did you know that there are many ways to sell a house and to get what you want next that don’t involve a lot of cash?
For example, suppose your goal was to sell your rental property (because you were tired of being a landlord) and you wanted the cash to put in the bank to collect interest so that you could have a monthly income. Did you know that due to taxes, recapture of depreciation, and expenses, that you’ll likely only end up with 60-70% of the cash you’d hoped for? And then, to make matters worse, the bank will only pay you less than 2% interest on your money! Ouch.
Once sellers go through the math, they often realize that selling for cash isn’t a very good deal at all. In fact, its usually a horrible deal because in a buyers market, people with cash expect a huge discount!
If, on the other hand, you sell your rental property on terms, you’re income can end up being 3-4 times what ‘cash’ would have got you.
Lets look at an example:
Selling for Cash
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 net 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.
Selling on Terms
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.
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. Tough choice, huh?
