Better To Sell On Lease Option Or Contract For Deed?
I'm selling some property I've only owned a few months that will involve substantial profit (no rehab, I just got a good deal on it). I've been playing with the tax implications of short term profits via selling now on CD with 2 year balloon vs. delaying the sale (and getting long term gain treatment) by selling on Lease Option that won't allow full closing until 1+ year from now.
I'll be giving up the interest income which would be higher than the Lease payments, but I can't figure out which strategy will leave me in the best shape. Or should I just equilibrate the numbers via payment size and interest rate, then leave it up to my buyer?
loon,
Just one oversight in your tax planning. If you sell the investment property you own on L/O, you will have to factor in depreciation recapture (at 25%).
If your L/O strike price and your CFD sale price are both the same, you may discover that your after tax income is nearly the same for both strategies.
Personally, I like the lease option over the CFD because there is a significant probability the tenant-buyer will not exercise the option. When this happens, you still have the property to sell again at a higher strike price.
If you just want to get the property off your hands, go the CFD route. You will be more likely to have a buyer refi to cash you out at the end of your contract term.
I think the key here for you is opportunity cost. How do you have the property financed? Is this going to prevent you from doing other deals?
[ Edited by myfrogger on Date 10/13/2004 ]
Saving $5000 on taxes is not better than making $20,000 on your next deal