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- Aug 30, 2007
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While selling a house or building in CASH is still the preferred option to most sellers, there are at least three others that should be looked at, as a buyer or as a seller:2) Cash and/or VTB: A Vendor-Take-Back mortgage is a 2nd mortgage given by the seller to the buyer on some terms, such as 6% interst only, payable monthly, open, full payment on or before Dec 31 2010 for $300,000. It usually is cheaper for the buyer than a conventional 2nd mortgage with 3-5% fees upfront and 9-15% annually. It allows the seller to get cash now and some income stream for some time. It is a receivable on the seller`s books. They have sold the asset. Hence taxes are payable on the gain on point of sale. A VTB in accounting terms is "like" cash i.e. another asset .. just payment of it is deferred ..
3) Agreement for Sale / Wrap: You stay on titile as the seller, the buyer goes behind via a caveat. The buyer controls the property though like his/her own. An agreement for sale is NOT a SALE in the accounting term .. as the building still stays on your books with the original book value, plus you receive some cash usually upfront (taxable of course !) plus a monthly payment (taxable too) until the title transfers to the buyer .. THEN (much later) does the seller pay taxes on the gain or income ..
An agreement for sale is also called a "wrap mortgage" in US or Australian english real estate speak .. as you wrap a 2nd loan/obligation around the first .. and the risk is hence on the seller for the underlying 1st mortgage obligation ... usually paid out of the monthly payment from the buyer!
4) Lease: a 4th option is to lease the property .. say for a payment of $150,000 upfront and then X $s monthly .. and Y $s 10 years from now .. many options !! I am not too familiar with this 4th option, so ask a lawyer and accountant please on details and implications here ! The main benefit here is that the taxes are spread out over many years for the seller .. so this is good for long-time owners/sellers ! So this may be an option for you (if you are a buyer) and the seller if they trust you! They get income and some money upfront for the RV and you get control of the property and increase rents steadily ... and capture any equity gain on the property .. a potential win/win !
3) Agreement for Sale / Wrap: You stay on titile as the seller, the buyer goes behind via a caveat. The buyer controls the property though like his/her own. An agreement for sale is NOT a SALE in the accounting term .. as the building still stays on your books with the original book value, plus you receive some cash usually upfront (taxable of course !) plus a monthly payment (taxable too) until the title transfers to the buyer .. THEN (much later) does the seller pay taxes on the gain or income ..
An agreement for sale is also called a "wrap mortgage" in US or Australian english real estate speak .. as you wrap a 2nd loan/obligation around the first .. and the risk is hence on the seller for the underlying 1st mortgage obligation ... usually paid out of the monthly payment from the buyer!
4) Lease: a 4th option is to lease the property .. say for a payment of $150,000 upfront and then X $s monthly .. and Y $s 10 years from now .. many options !! I am not too familiar with this 4th option, so ask a lawyer and accountant please on details and implications here ! The main benefit here is that the taxes are spread out over many years for the seller .. so this is good for long-time owners/sellers ! So this may be an option for you (if you are a buyer) and the seller if they trust you! They get income and some money upfront for the RV and you get control of the property and increase rents steadily ... and capture any equity gain on the property .. a potential win/win !