In this coaching session, participants discuss a real‑estate scenario involving a $200,000 condo that the homeowners can no longer rent because the HOA prohibits rentals. The owners want to sell the property and use the proceeds in a 1031 exchange, but the HOA restriction complicates traditional sale and rental‑income strategies. The group explores creative financing alternatives—owner financing, lease‑purchase agreements, sandwich leases, and the less‑common sub‑2 transaction—evaluating their feasibility given the HOA rules and the fact that the property is owned free‑and‑clear. They also examine tax implications, focusing on the seller’s adjusted basis, the capital‑gains exposure, and how a premium can be built into a seller‑financed deal to cover expected taxes. Throughout, they draft a script to explain these options to the seller, stressing the need to check the basis with an accountant and to present the owner‑financing premium as a way to defer taxes and potentially increase net proceeds. The conversation highlights practical challenges of executing 1031 exchanges, especially for sellers unfamiliar with the process, and underscores the importance of clear communication and tailored financing structures when HOA restrictions limit conventional approaches.
Chapters
Yeah. It's sort of a script and also help. So had a potential seller that had— it's a condo that I guess is no longer allowing them to rent out. So one, is that even worth pursuing? 2, for someone who doesn't necessarily have a convert that issue but just wants to sell and they want to do like a 1031 exchange. How do I handle that?
I'll, I'll hit the rental one because it just came up this week in the community. It might have been one of you. And if I miss anything, you guys chime in. If you can't rent in any HOA, you can buy and sell owner financing. That's that simple. What was the 1031 tied to that? And then we'll go to the coaches.
Um, they were looking to sell and then do a 1031 to buy another property. So I'd asked them, you know, if they'd be willing to wait for their money and they said yes, but then she mentioned 1031. Okay.
I'm not an expert on the twist that I'm about to say. So if anyone else is, tell me. You can absolutely be on a shadow of a doubt, do the sandwich lease. And at the end of that, it becomes a regular sale and they 1031 it just like a regular deal. You just, you sort of delayed their plans by doing a sandwich, but you got them more money out. That would be why they would do it. I don't know of a sub-2. You— I don't think you can, but I'm not an expert in it. Do a sub-2 and then 1031 it in 3 years. I think—
I don't, I don't—
I, I can't imagine that being possible because the deed transfers. You just screwed it up.
Josh, do they have another home already? Ready to go?
No.
Oh, perfect. Just tell them that, hey, we can do a lease purchase for you know thirty-six months, and then when we're ready to cash out, and then you guys can start looking.
But is this the condo same?
HOA won't allow that.
Yeah, it's the same house.
Gotcha. So yeah, and and they own it free and clear. There's no mortgage on it.
So it wouldn't be a sub to be owner financing, but same issue is gonna apply. I'm pretty sure I'm not an accountant, but pretty sure.
Because the deed transfers.
So it's like they got to pick one or the other, Josh. If you can— if they're free and clear, here would be my script. If you're free and clear, Brian, then why don't we price— how long can you go instead of doing a 1031 to make more money? That's what they're doing, save on taxes. How about we put a premium on this and pay over time? You don't have to worry about all the rigmarole with 1031.
How much is the condo?
I got back a look. I think it's like $200,000.
They get that tax-free anyways. I don't know what they're trying to do.
What's that? Is this their residence?
No, it's a rental. Oh, still, I think they were just—
a $200,000 condo. They're only getting taxed on— they're only protecting the profit above their basis. How long have they owned this?
I think 7 years.
So the basis isn't that low. So what— I'm just making these numbers up. What if $100,000— I don't think it is. What if $100,000 is, is, is potential tax liability times whatever capital gains is? Well, what if you brought this thing over 10 years and gave him a little bit more? You're going to get close to that. Yeah, that's the script I would use. You guys agree? Yeah.
He's saying cover the tax. So if they got to pay 50, they got to pay 10 grand in taxes.
Give them that.
Or at least get close to it.
As a premium.
Something like that. That's what he's saying.
Yeah. Okay.
Super hard to execute that. It's so hard to execute those 1031s.
Yeah, that's, that's, that's what I mean. So get close and you're going to be a better deal.
And it doesn't sound like they've ever done one before either. So it's going to be probably even more complicated because they've never done it before. Yeah.
Okay. So they're probably going to need you to tell, to say what we just said and explain to them that, because I don't, some people don't understand it, Josh. They're only getting taxed on that differential. So say if you check with your accountant to see what your basis is, if your basis is like $160,000, I'm making that up. Your only exposure is $40,000 times your tax times the capital gains tax. It's not a ton of money.
Okay. I'll just, I'll, I'll follow up with them.
Yeah.
And see if I can, If I can convince them to, you know, go with us on owner financing and just, you know, push it out over a longer term, and maybe we could give them a little bit of a premium.
Yeah, and record that call for sure since you asked us, and then send it to me and Brian.
