Good time to buy all cash

|

If you have the dough to make an all cash offer on a building that’s been sitting on the market, now would be a good time to send in the offer.

Why?

Well, it’s pretty clear from the maneuvering in Washington that the capital gains tax rate is not going to stay at 15% next year. No one knows for sure where it’s going to end up, but it’s not hard to imagine the rate being 25% next year.

What does that 10% difference mean?

Let’s say you have a seller who bought his property for $500k. Now, the seller has it on the market for $700k. If it sells at list next year, he’s looking at a capital gain of $200k. If it’s taxed at 25%, he’s looking at a post tax profit of $200k x (1-25%) = $150k.

Instead, imagine you offer to buy it right now for $690k, with closing before the end of the year. He’s got a pre-tax profit of $690k – $500k = $190k and then he pays tax of 15%. So his post tax profit is $161,500.

Are all sellers rational enough to understand this? No. But it’s probably worth a try if you have the cash to close in 14 days.

Share