Structured sales for commercial and residential properties: increase your sales + save your clients money = win-win.During the last several years, most commercial and residential property owners throughout the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. have enjoyed watching the appraised values of their homes and businesses increase in value by considerable margins. This accumulation of equity has been a boon to the real estate brokerage community as many owners have used this opportunity to buy up, size down, acquire rental property, start new businesses, purchase vacation homes or otherwise jump into the real estate fray. Overall, almost everybody who has been in the real estate market recently has made money. While most clients who sell real estate use their sales profits to purchase more real estate, a growing percentage of home and business owners are choosing to diversify or simply cash out. Some sellers believe there's a real estate "bubble" about to burst and would like to sit on the sidelines On the sidelines An investor who decides not to invest due to market uncertainty. on the sidelines Of or relating to investors who, having assessed the market, have decided to avoid committing their funds. for awhile. Others, most notably the baby boomer baby boomer also ba·by-boom·er n. A member of a baby-boom generation. Noun 1. baby boomer - a member of the baby boom generation in the 1950s; "they expanded the schools for a generation of baby boomers" boomer generation, are deciding to sell off their property holdings in exchange for less "risky" products (in financial planning Financial planning Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against parlance, real estate is still considered a risky investment) which provide secure, guaranteed cash flow. Until now, sellers of real estate had limited options to cashing out and deferring taxes. 1031 exchanges, TICs and Private Annuity Trusts A private annuity trust (PAT) enables the owner(s) of highly appreciated assets, such as real estate, a business, collectables or an investment portfolio, to be sold without incurring current taxation. are sound options for many. But for certain clients, these choices simply keep them in the cycle they want to jump out of or present other risk factors. For those who are looking for Looking for In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. a secure alternative, a Structured Sale may be just what they've been looking for. What is a Structured Sale? A Structured Sale is a special process that permits buyers and sellers of qualifying real estate and businesses to perfect their otherwise cash transaction on a tax-deferred basis. A Structured Sale offers all the advantages of an Installment Sale Installment sale The sale of an asset in exchange for a specified series of payments (the installments). installment sale A sale in which the buyer is scheduled to make a series of payments over a period of time. without the security risk that makes Installment Sales unattractive for most people. Internal Revenue Code The Internal Revenue Code is the body of law that codifies all federal tax laws, including income, estate, gift, excise, alcohol, tobacco, and employment taxes. These laws constitute title 26 of the U.S. Code (26 U.S.C.A. § 1 et seq. Sec. 453 and various Revenue Rulings permit sellers to defer taxes on all or any portion of their sales proceeds. The terms of the deferral can be extremely flexible and can be designed to meet a variety of future needs. How Is This Better Than A Traditional Installment Sale? Two words: Security and Flexibility. In theory, a Traditional Installment Sale presents a great opportunity for sellers to defer taxes and receive future income. In reality, since the success of the transaction is dependent upon the creditworthiness Creditworthiness The condition in which the risk of default on a debt obligation by that entity is deemed low. Creditworthiness Eligibility of an individual or firm to borrow money. of the buyer, the seller often finds himself with a mere promise from a buyer who files bankruptcy or otherwise defaults on his obligation. And while the seller still holds a security interest in the property, this may not be an attractive alternative. Consider the seller's misery if the default occurs during a down market. How a Structure Sale Works Seller A owns an income producing property. She has seen tremendous appreciation since she bought the property fifteen years ago but has reached a point in her life where she wants to retire. She believes property values have peaked and she wants to take advantage of what she believes is a seller's market. Further, at 57 years old, she just wants to "slow down" and no longer wishes to deal with tenants, repairs, liability and everything else associated with income producing property. She paid $200,000 for the property fifteen years ago and the mortgage is paid off. It is now worth $1,500,000. A cash sale would leave her with a $1,300,000 gain upon which taxes would be due. Faced with this daunting daunt tr.v. daunt·ed, daunt·ing, daunts To abate the courage of; discourage. See Synonyms at dismay. [Middle English daunten, from Old French danter, from Latin prospect of incurring such a large tax liability, she considers holding onto the property even though she prefers to sell. Despite the realtor's recommendation to the contrary, she does NOT want to sell this property for another one because she fears she may be buying at the top of the market. Since a willing buyer stands ready to purchase the property for the seller's asking price, the realtor brings a Structured Sale expert into the negotiations. The Structured Sale expert proposes a $1,500,000 Structured Sale Solution with the following components: * Cash (including Realtor's commissions) at close of escrow $700,000; * A Buyer-purchased annuity costing $800,000 through a licensed broker with the credentials required to effectuate a Structured Sale. The Annuity will provide the Seller with $4,150 per month for life (20 years guaranteed) potentially netting the seller $1,548,850 over her lifetime. Each payment, which is secured by the creditworthiness of major Life Insurance Company rated A+ or better by A.M. Best, consists of (i) nontaxable recovery of investment, (ii) taxable gain Taxable Gain The portion of a sale that is liable to taxation. Notes: When redistributing mutual fund shares that have increased in value, returns may be subject to taxation. See also: Capital gain, Income Tax , and (iii) interest; * No hidden fees are involved. No trust needs to be established. No management fees are charged. Everybody Wins! The Buyer gets the property he wants. The Seller gets the price she wants enhanced with tax deferral tax deferral The delay of a tax liability until a future date. For example, an IRA may result in a tax deferral on the amount contributed to the IRA and on any income earned on funds in the IRA until withdrawals are made. and interest accumulation. The Realtor salvages a sale that otherwise would not have occurred and still receives commission on the full $1,500,000 sales price! While not for everyone, a Structured Sale can serve as a new "tool for the toolbox" that every real estate professional carries with them. It's just one additional option that may fit those unique situations which arise from time to time. It can help salvage a sale that may be going south or it can add value to a sale at no cost to the buyer, seller or realtor. Anyone desiring additional information about this exciting new alternative to cash sales sales made for ready, money, in distinction from those on which credit is given; stocks sold, to be delivered on the day of transaction. See also: Cash is encouraged to call me at 800.531.7466. Dan Finn is a Certified Structured Settlement Consultant in Newport Beach Newport Beach, residential and resort city (1990 pop. 66,643), Orange co., S Calif., on Newport Bay and the Pacific Ocean; inc. 1906. It is a popular seaside resort and yachting center. Manufactures include electrical and medical equipment, computers, boats, and adhesives. , CA, and is with Financial Settlement Services, a company that specializes in Structured Solutions. FSS FSS Federal Supply Service (US General Services Administration) FSS Flight Service Station FSS Family Self-Sufficiency FSS Fixed Satellite Service FSS Forensic Science Service (Great Britain) acts as an advocate to the Structured Sales process A sales process is a systematic approach for performing product or service sales. The reasons for having a sales process include seller and buyer risk management, achieving standardized customer interaction in sales and scalable revenue generation. , assisting all parties by analyzing their needs and preparing structured plans to meet those needs. IMPORTANT NOTES: 1 The use of a Structured Sale is a financial transaction that could have income tax implications tot both the Seller and the Buyer. The Seller and the Buyer should each consult with his or her independent tax and/or legal advisor to determine whether a Structured Sale is appropriate under the circumstances. 2 The payments for the Structured Sale transactions are funded from an annuity from a highly rated Life Insurance Company. 3 Any numbers used in this paper are for illustrative purposes only. Actual rates and returns are based on many factors including market conditions in effect at time of purchase. Some restrictions and limitations apply. BY DAN FINN finnd@nationwide.com Certified Structured Settlement Consultant FINANCIAL SETTLEMENT SERVICES |
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