11 Dec Vendor contracting his tenant into a mandatory savings plan.
Vendor contracting his tenant into a mandatory savings plan.
This strategy overcomes one of the main disadvantages of vendor financing and installment contracts, as the sale of the property does not take place until the option is actually exercised by the tenant and funds are exchanged in full.
For Capital Gains Tax purposes, this means you are not paying tax on a profit you have not received. This strategy is best used in a good growth market with strong expected growth in the forthcoming five year period. By targeting a strong growth market, both the vendor and the seller get to share in the capital growth on the property and the vendor has the advantage of good positive cash flow, secured for the next five years.
Typically, the property should be in an area where your research has shown the expected capital growth will be at least 8 %.
We always recommend that you seek professional advice as this blog is for general information only