We are selling our farm for $800,000.
We do not owe any money on the farm, which was inherited from my wife’s parents. It was appraised at her mother’s death and the price reflects the amount we are asking. One buyer wants to pay the amount in full and the other buyer would pay $200,000 down and make payments for 15 years. (we think this is how we would like to proceed with us collecting the interest.) Our tax man says there will not be any tax issue either way other than reporting the interest income if we finance. Which of these two forms of payment would be best? We are unsure of the best reinvestment of the monies if we finance.
Thank you for your question. That sounds very exciting – we hope it works out for you!
In your situation, there are a number of things that you should consider when deciding which offer is better for you. In most cases, it’s better to get cash upfront if that’s an option. For one thing, you may be able to invest your sales proceeds and earn a higher return than the interest the buyer would pay. Another big consideration is that if you provide seller financing and your buyer defaults, you’ll have to go through a lengthy foreclosure process to take the property back. That can be a nightmare.
However, if you know and trust your buyers and are confident that they’re paying an interest rate that would be hard to match with investments, then seller-financing may be the way to go. Another idea would be if you’re structuring the sale as a lease-purchase – where the title of the property wouldn’t transfer until AFTER the buyers have made all their payments (this would eliminate your risk of ever having to foreclose), that may also offer advantages.
We actually have a great article on Owner Financing that applies to the sale of either businesses or property. There’s a great pro-con section at the end that may help you further.
Best of luck!
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