Often times, sellers do not want to take on the risk of owner financing but desire a stream of income and the tax advantages of deferring capital gains. You can now replace the risk of the buyer's non-performance with the security of U.S. Treasury strips held in trust that guarantees the payments by contract and offers more flexible options to the seller.

Significant advantages to the Seller:

  • Preserves tax advantages of deferred capital gains on Installment Sales (Internal Revenue Code Section 453)
  • Takes risk out of solvency or non-performance of buyer
  • Allows flexibility of terms not available with typical installment sale
    Payments can be:
    • paid in lump sums at various periods
    • deferred from 1 to 30 years
  • Flexible payout periods allow extensive planning for taxes, estate planning and charitable giving
  • Provides enhanced rates of return on pre-tax dollars

Advantages to the Buyer:

  • makes the deal work when seller hesitates to owner finance
  • enhances the cash sale with flexible terms, guaranteed returns, and tax deferral
  • allows purchase of property at discounted cost.

Overcoming Objections

What if the capital gains tax rate increases?
The seller can elect to pay capital gains at any time and not affect the income stream. If the capital gains tax rate increases, recognize and pay the tax prior to the increase.

The Buyer is offering a higher interest rate for owner financing.
The net investment rate needs to take into consideration the rate necessary to create the stream of income using after tax dollars. We can illustrate this for you.

How about a 1031 Exchange?
As a means of deferring capital gains, Section 1031 exchanges are often difficult to find suitable replacement properties within the brief time period allotted, so adding language to the exchange that allows this option as a fall-back is advisable.

This product can be another tool/option for your clients to consider that is not available to them in the marketplace, particularly those who find value in a predictable, low-risk source of income.