i'm selling my rental property and the buyer wants me to finance the purchase.  my realtor said its easy and its no problem.  i wanted to get your opinion.

The buyer is asking you to help him/her finance the purchase of your property.  This is called carrying back paper or seller carry back financing. 

While helping your buyer finance the purchase of your property is certainly good for the buyer and may keep the deal intact, agreeing to seller carry back financing may or may not be a good solution or strategy for you.  It will depend on many things such as your financial objectives, income tax position, liquidity needs, etc.  For example, you did not indicate in your post if your were intending to complete a 1031 exchange or just selling the property out right and intending to pay the income taxes.  The structure would be completely different if you are 1031 exchanging versus cashing out and paying the taxes.

Your realtor is correct in that structuring a seller carry back note is relatively easy, but deciding if it is the right choice for you is not so easy.  Again, it depends on your specific objectives and circumstances.  I will recap the various strategies available to you with a seller carry back note.

Seller Carry Back Note - Paying the Tax

You can sell the property and carry back an installment note without completing a 1031 Exchange.  In this case, the seller carry back note would be taxable as an installment sale under Section 453 of the Internal Revenue Code.  The depreciation recapture, if any, would be recognized in the year of sale, and capital gains would be taxable as principal payments are made on the note. 

Seller Carry Back Note - Outside of the 1031 Exchange

You can sell your property and carry back a promissory note with a 1031 exchange and choose to keep the promissory note out side of the 1031 exchange transaction.  In this case, the amount retained inside the 1031 exchange would be tax-deferred and the amount of the seller carry back note would be treated as an installment sale as described above.

Seller Carry Back Note - Inside of the 1031 Exchange

This is where it really gets interesting.  You can sell your property, carry back a promissory note, and complete a 1031 exchange with the installament note included as part of the 1031 exchange so that the entire transaction is tax-deferred.  It requires careful planning and execution.  Here is a link to our web page with more details regarding seller carry back financing issues: http://www.exeter1031.com/seller_carry_back_financing.aspx.

As always, please feel free to contact us with any additional questions. 

thank you mr. exeter.  it is greatly appreciate. 

If you elect to finance the purchase, be sure your note is recorded in the public record (i.e. with the County Recorder or Registry of Deeds) so your lien position is protected. If you don't record the note, another lender providing a second mortgage can move into first lien holder position.

 Also, when you record your first mortgage, be prepared to be solicited by private investors who want to purchase your note at a discounted price.