Advice for home owners January 25, 2023

SPECIAL REPORT: Residential Installment Sales ~ Who should consider this type of a home sale? 


For years, sellers of real estate have used Installment Sales (seller carry back financing) to reliably collect income after selling a property… they also did it to defer and minimize capital gains taxes.

When rates were very low last year, buyers had no interest in seller carry financing (because most carry back sellers expect to be paid off in 5 or 10 years… buyers prefer not to have a balloon payment), and sellers certainly were not excited about a 2.75 to 3.00% interest rate (market mortgage rates back in early 2022).

But now, with a qualified buyer, sizable down payment and/or Blanket Encumbrance, sellers who carry back financing can get an excellent after-tax return & reduce risk to a level well below other investments.

Research shows approximately 42% of the potential move-up buyers are sitting with lots of equity and an existing mortgage between 3% & 4%… these are buyers who would pay top dollar for your property if they could get an interest rate close to what they have now.

I am already seeing property owners benefiting from the Market Shift by doing Installment Sales. Once again, there is an abundance of qualified buyers with strong down payments and the ability to make reliable mortgage payments… And, this is exactly what some property sellers want because a standard sale with all profits realized in the year of sale could trigger a very large capital gains tax bill (as much as 38%, perhaps more if the property is highly appreciated and seller has a very high annual ordinary income to begin with).

Another consideration sellers like:  By accepting interest only payments, the capital gains tax can be deferred until the principle is paid off… So, sellers collect interest (for years) on money that would have been paid to the IRS.

A Success Story for Today’s Market

SOLD for $1,550,000 with Seller Financing

3.95% Interest Rate | 15-Year Amortization

48% Down | Balloon Payment End of Year 5

Attached Home | 3 BR | 2.5 BA | 2266 SqFt | Built 1980


Problem: The seller of this Downtown Huntington Beach rental property owned it for over 30 years and was no longer interested in being a landlord. The basis was extremely low, so a standard sale with proceeds received at closing would have resulted in a very big capital gain tax liability. However, he did not know a safer place to invest (secure) the funds than the property itself.

Solution: The seller sold the property using an installment sale. With a $750,000 down payment received from the buyer. The seller was able to pay off the existing mortgage and capital gains taxes due, plus he put cash in the bank for a rainy day. The principal & interest payments received over the next five years spreads out the taxable gain, which offers a nice income to supplement retirement and lowers the tax rate on the funds. Until the loan is paid off, the seller earns interest on money which would have been paid in taxes at year one… this effectively boosts the seller’s yield well above the interest rate being paid by banks.

Safe & Secure: What investment is more comfortable than holding a mortgage on a house in Huntington Beach with 48% down payment, highly qualified buyer, and fully documented loan which meets government standards?

Is an Installment Sale something you should consider?

If you are a homeowner with a highly appreciated personal residence (well above the $250,000 per spouse IRS section121 limit), or if you are a long term “Worn-Out Landlord”, an Installment Sale might be an interesting option to consider.

The capital gains tax liability due on the sale of the property will likely be reduced, and you can begin earning “hassle free” interest on your equity. Use the proceeds & income to travel, purchase an RV, buy/rent a more suitable residence, move closer to friends/family, or even help your kids or grandkids with college.


SCOT CAMPBELL | Global Luxury Specialist | COLDWELL BANKER-Campbell Realtors

714.336.0394 Mobile / / / DRE #00943759

Important – This article is Not Intended to be specific advice: Receiving rent or installment payments tends to be more beneficial under the tax code when ordinary income is low (often when people are retired). Do NOT sell a highly appreciated property without advice from a CPA or Tax/Legal Expert who understands your complete situation. Advice and counsel of a Realtor and Qualified Mortgage Broker who are familiar with the IRS rules, lending regulations, & best practices are an absolute necessity prior to entering into a purchase contract involving an Installment Sale.