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My dear CashFlowDepot friends, I am looking to get some feedback, advice and wisdom on whether or not we should sell our personal home with seller financing.
We have lived in our home for 30 years. We have a mortgage (business loan actually) on the house for $160,000. We could most likely sell it for $265,000. We are full time realtors and know what it takes to get top dollar.
I know that since it is our principal residence that we would take the proceeds tax free if we sell it outright.
On the other hand, to help with our retirement income, I have been contemplating selling our house with owner financing. It could very easily give us monthly income but I’m not sure if we’d receive the money tax free or have to claim it as income. Any thoughts?
Interest rates are very low right now, I could refinance the house at 3.5% for 30 years, either the current balance or take all I can get out of it and then sell it. I am open to suggestions.
If we sell it on payments, I would charge at least 8% interest for 30 years, 10% down payment.
We would love to get out of debt completely but we also need to ramp up our retirement funds. We see seller financing as a great way to create monthly income. I’m not sure if this would be best since it’s our personal residence.
The current loan was for some rentals we bought 15 years ago and recently we bought my mother’s house to help her out. It is currently at 3.875% for another 8 years then it goes to a variable rate. We figured at the time we would be selling outright.
Otherwise, our house should be paid off. We’re ready to downsize, and may be rehabbing my dad’s house if he goes to a nursing home this year.
I would really appreciate your input and ideas. I want to look at this situation from all angles.
Thanks!
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Darcy, you have some complex challenges — some we can take a stab at addressing here and probably some that will need some outside expertise.This is one of the few countries that transfers the oldest generation into assisted living or nursing homes. (A buddy of mine pays $5,300/mo in an assisted living facility.) Most countries keep them at home where the younger generations cares for them as much as possible. That decision could factor into your complexities.
Another issue is the actual rate of currency purchasing power loss, euphemistically labeled as inflation, but in fact is federal theft of purchasing power via counterfeiting. The BLS publishes a bogusly low inflation rate in the 2-3% range typically, which is used as a cheap index to cheat social security recipients out of significant purchasing power. Instead, a realistic loss of purchasing power in major city by major city is posted online at
Look it over and see what the history of purchasing power loss has been in the nearest major city to your location. Then consider that the Federal Reserve is likely to power an enormous amount of freshly digitally created money into the system this year — which has the potential to wreck the purchasing power of a many-years-long stream of seller financed payments (on both the principal and the interest payments).
If for example, you unwisely believed the BLS inflation rate of 2-3% when the actual rate near you has been running in the 8-14% range, and you priced your interest to be received around, say, 5-7% — BEFORE the Fed does the next monster money dump, PLUS whatever the tax bite would be on the interest you receive — what does that do to your incoming payment stream?
Such a tax bite (on top of the inflation hit) requires a conversation with the best tax accountant you can find. Only that way can you begin to estimate what some future numbers might be.
Are you prepared to index your incoming payment stream’s interest rate to however flaky the inflation rate may vary or even soar? The problem with a fixed rate is that nobody is a good fortuneteller in such circumstances. Prior to 1933 it was very common to index interest payments to the price of gold. Such loans were known as gold contracts. Then when FDR shut down the ownership of gold bullion and bullion coinage for mere mortals (leaving collector coins and offshore held gold untouched, so as not to offend the uber-wealthy class) in March of 1933, gold contract loans died as well, even though there was a long history of state courts upholding them. It wasn’t until the 1970s when private ownership of gold bullion and gold coins became legal again. What’s not clear is if state level courts could again rely on that ancient pre-1933 history of upholding gold indexed loan interest payments or not.
This is discussed in great detail in the 1980 book by law professor Henry Mark Holzer titled “The Gold Clause — what it is and how to use it profitably.”
With all the news of a huge global depression in the works, with Federal Reserve indications of QE coming (euphemism for digital money printing without asset backing), and with prices of goods about to skyrocket because of the just-in-time supply of all kinds of goods being shut down in China because of the exploding coronavirus mess, if you can’t be sure of being able to index your seller financed mortgage payment interest (your ARM loan) to something like gold and not know if a court challenge would threaten your contract, then the alternative of renting out the house with the likely freedom to raise the rent as money values plummet could look much more attractive — unless your house is in an area where local politicians are strongly in favor of rent controls.
One really interesting alternative could be, IF you decide to sell for upfront cash, is to use those funds to create an international charge card, backed by gold bullion in a Swiss vault, via
It is a UK outfit in partnership with Mastercard that extended its services to America about a year ago from last November at the international boat show in Ft Lauderdale. Compare that to gambling in the stock market as the Fed-created decade long credit bubble comes crashing down, or stuffing cash into a bank account where the yield is even worse than the phony BLS-published inflation rate.
Other issues that may or may not be relevant are things like the federal gotchas on disability payments. If you or your spouse are receiving, or may possibly intend to receive disability payments sometime in the indefinite future, I just recent read where a federal rule limits the amount of cash you’re allowed to possess to something around $3,000 so the feds won’t start cutting back on such disability payments. Or … this may not be relevant to you at all. The ancient Roman historian Tacitus wrote that the more corrupt the state, the more rules are created — and we are up to our earlobes in rules.
If you should decide to rent out the house and use that for an income stream, there are three ways to do that, which would include 1) managing the property yourself (which works for some people, but not for others), 2) using a formal property manager (which is widely done, but has its own gotchas, or 3) locating a skilled master leasing practitioner (as is advocated here on CFD) which is far better if it’s not appropriate for you to manage the property yourself.
That could give you the ability to adjust the rent over the years to cover whatever flakiness the inflation rate surprises us with. And that would create an inheritable property that would come with a 100% step-up tax basis and with a built-in income stream as well.
All I can do is point out some additional issues here that you may not have considered. I would not presume to be able to stir all the complexities into a bubbling cauldron to cook up your final solution.
–Dee
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Dee,
Thank you so much for your detailed analysis. You brought up some very good points. Things I’ve never either heard of or thought of, mostly the inflation index which really could eat away at any income that our home could produce if sold with seller financing.
The idea of renting is a real possibility for flexible income changes but it does come with it’s caveats. We’ve “been there done that” and really don’t prefer to either manage it ourselves or hire a property manager. Master leasing is something I haven’t studied up on much and I may check that out on CFD to see those options.
I agree, it’s difficult to see what either the economy or the laws and how they would change in the next 10 plus years. So far, it doesn’t look great. I hadn’t heard about the Quantitative Easing possibility but it’s probably a given, with the extreme debt our country has currently.
I really appreciate the time and thought you put into this idea. We have done many other deals where we turned tenants into owners with seller financing. It has given them opportunity when they didn’t have a chance and gave us a nice, easy return over 5 to 7 years usually. These were small inner city houses ranging from $15,000 to 30,000.
Our house is in a good suburban area and county. Very good schools and prices are very strong right now. Currently, I’m leaning to selling it for top dollar and moving on from there. There are too many variables as you have mentioned that it might not be worth it in the long run.
Thank you again for your input. I love the way our CFD forum folks think! Always thoughtful and creative. 🙂
Darcy Tafoya
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