How does a Structured Sale work?

The process of executing a structured sale is relatively straightforward, consisting of the following steps:

1. The seller delivers property to the buyer in return for installment payments. The sales agreement contains verbiage in an Addendum that outlines the proposed periodic payments and the payment schedule. The payment schedule is based upon a quote provided by a life insurance company outlining the payment options desired by the seller, proposed by a buyer and/or negotiated between the parties.

2. The buyer immediately assigns their payment obligations to an assignment company (usually a subsidiary of an A+ rated life insurance company) and transfers the agreed upon cash amount to the assignment company.

3. The assignment company funds the agreed upon (negotiated) payment obligation by purchasing an annuity product from a Fortune 100 life insurance company specializing in structured sale transactions.

4. The annuity company makes payments to the seller as agreed to under the terms of the purchase & sale contract and issues an agreement to pay on the performance of the assignment company.

Example 1:

A seller has an income-producing property that was bought for $200,000 15 years ago. The mortgage is paid and the property is currently worth $1,500,000. The Seller wants to retire and, therefore, not engage in an IRC 1031 exchange, so a Structured Sale is being considered.

The $1,500,000 Structured Sale solution could include the following:

• Cash at close of escrow for $700,000.

• Instead of giving $800,000 cash to the seller, the buyer purchases an annuity costing $800,000 through a licensed Structured Sale Broker with the credentials to effectuate a Structured Sale. The annuity will provide the seller with $4,150 per month for life (20 years guaranteed), netting $1,548,850 over the seller's lifetime. Each payment is secured by a major life insurance company rated A+ or better by A.M. Best and includes non-taxable recovery of investment, taxable gain and interest.

• There are no hidden, ongoing or money management fees.

Example 2:

A buyer is interested in an income-producing investment property that has a market value of approximately $2,200,000. The seller is 72 years old and has owned the property for more than 30 years. There is no remaining mortgage and the original cost basis was $200,000. Hence, the seller is faced with a $2,000,000+ capital gain upon sale. The seller is not interested in a 1031 Exchange.

The seller has communicated the need for an income stream to support his lifestyle. The buyer has submitted a full market price offer outlining three payout options of 5, 10 and 20 years. After the seller and buyer have agreed upon an amount the stream of income will equal over time, a Structured Sale Broker can run calculations for the buyer to determine how much would be needed today to fund the seller's time frame.

In this example, the buyer could fund the $2,200,000 obligation as follows:

• 5 Years - $2,048,315 or a discount of $151,685.
• 10 Years - $1,824,045 or a discount of $375,955.
• 20 Years - $1,448,217 or a discount of $715,783.