Strategy 64 of 107
Selling another property? Carry the note and route its payments to principal
What it is
When selling land or a rental, offer seller financing with a recorded note and a solid down payment.
Steps
- When selling land or a rental, offer seller financing with a recorded note and a solid down payment.
- Gain is taxed as payments come in (installment sale), not all in one year.
- Send each monthly note payment to your mortgage principal.
Repeat: Monthly, for the note's term.
Measure: Monthly note payment received.
Try it in the calculator Enter its amount in "Monthly non-income amount to principal". Add a payoff goal of 5 years to see what is still needed.
Risks
- The buyer can stop paying; foreclosure takes time and money.
- Federal rules limit seller financing of homes to consumers; use an attorney.
Who it fits
Grandmas and grandpas (62 and over), Higher net worth, with assets, Business owners, Married couples
Needs
Selling land or another property
How predictable
Depends on people or program rules (tenants, family, IRS records, lenders)
A worked example (hypothetical, not guaranteed)
Picture a hypothetical household (grandmas and grandpas (62 and over)). They owe $300,000 at 6.5% with 30 years left. The required payment is $1,896 a month, and that payment, which comes from income, never changes in this example.
They follow the steps: when selling land or a rental, offer seller financing with a recorded note and a solid down payment.
Suppose it brings $600 a month on principal from this strategy, not from the paycheck. The loan would be paid off in 16 years 3 months instead of 30 years, saving about $196,219 in interest. To finish in five years, they would still need about $3,374 a month more from other strategies. That is why the five-year sequences stack several at once.
The amount above is chosen only to show the arithmetic. It is not an estimate of what this strategy will produce for anyone. Put real numbers from the fact finder into the calculator.
Sources and more information
- IRS Topic 705: Installment sales irs.gov
Where to get help
Related strategies
- 63. Business owners: pay your children for real work
- 65. Bank account sign-up bonuses, without credit pulls
- 62. Self-employed: take the home office deduction and send the tax saved to principal
- 61. Merge households: a parent sells, moves in and shares the costs
- 69. Rent the whole house out and live somewhere free or cheaper
- 70. Move into the accessory unit and rent the main house