In this short, the speaker warns that using seller financing framed as an installment sale carries significant liability and audit risk. He estimates a roughly 70% chance the IRS would reject the arrangement if examined, though there’s a 30‑40% chance it might go unnoticed. He stresses that any seller interested in the tax benefits should consult a CPA, as he offers no tax advice. The speaker outlines a two‑step transaction model: first, a conventional purchase funded with a DSCR loan and full cash at closing; second, a separate post‑closing loan from the seller, akin to a HELOC, used to refinance the equity out of the property. He notes that the IRS will look for evidence of two distinct transactions—such as HUD statements—and may challenge the installment‑sale characterization. The overall message is that the strategy sits in a legal gray area, requiring professional guidance.
Chapters
I will never use that as the carrot to get the deal done because you're putting yourself in a position of liability. So if they were to get audited, I don't know what the percentage is. I'm thinking it's, if I had to guess, 70% the IRS would say no, this is not an installment sale seller financing if they dig deep enough. I think there's probably a 30%, maybe 40% chance that the IRS doesn't even audit it, like they don't even say anything. First of all, they're not really going to dig into this unless you get audited, right? Like, if you're just filing your tax return as an installment sale, like, it could go perfectly fine. I have had sellers tell me that they were interested in this because of the tax advantages, and my answer every time is, hey, you should consult with your CPA. I'm not in a position to give you any tax advice. So I think you should definitely check with them if they're okay with that. Like, that, that's on you to file your taxes however you want. I'm not getting involved in that. I know a lot of people that have used that as a pitch. The— here, I'll explain the IRS gray area legality of it because I'm not going to say it's, it's yes or no. It's gray area because the way that I structure these transactions, there's two transactions. There is a purchase So I am buying the property outright, getting a DSCR loan, bringing the down payment and closing cost, bought the property. There's no seller financing, there's no creative financing, nothing. That's just a straight up real estate deal. The creative finance part is in a second transaction after the closing of the first transaction. Then I've essentially refinanced the equity out of my property and the lender that's providing me that refinance loan, if you look at it, think of it as like a HELOC, right? That HELOC that I'm getting to get my equity out is coming from the seller. So in a separate transaction, the seller has made a decision to loan me money for my equity to get it back out of the property, and then I owe that seller based upon the terms that we've agreed. The IRS will look at, you know, I'm pitching this, and I'm not even saying pitching because that is what's happening. It is two transactions. So if the IRS digs in and you have a really savvy agent on the other side, they're gonna look at the HUDs and they're gonna see two separate transactions because that is what happened. So they're gonna say, okay, cool, so you purchased the property, 100% of the funds were received at closing, right?
