USING HOUSING WEALTH, ENABLE BUSINESS SUCCESSION PLAN SUCCESS
Most of your adult life has been spent as owner-operator of a car repair and detailing shop. Now, preparing to retire, you’ve arranged to sell the business to your son. You’ve worked through various stages of planning, obtained a business valuation, and have made a number of important decisions. One of those decisions is to allow your son to make deferred periodic payments rather than paying a lump sum—meaning the sale will include a seller note.
While you’re confident that your son—and the shop manager who has chosen to stay on—will succeed in taking over and even growing the business, you have some understandable hesitation about your own cash flow during the first few years after the sale. Your wife will be retiring at the same time, and there are still several years to go before either of you reaches normal retirement age for social security.
As you’re learning, the financial side of transferring a business is closely tied to retirement planning. Selling a business in installments can provide steady income, and you want to help your son by giving him time to establish his own systems and policies. At the same time, it’s reasonable to be concerned about maintaining sufficient cash flow as both you and your spouse transition out of the workforce.
A HECM (Home Equity Conversion Mortgage) reverse mortgage set up as a line of credit could be the key to “regularizing” your income during this business transition period. Accessing your home’s equity as needed can provide peace of mind as you gradually reduce your involvement in the business—allowing your son, the existing staff, and any new hires to establish a solid routine and begin making the agreed-upon purchase payments.
Withdrawals from a HECM line of credit are tax-free,* and the unused portion of the available credit grows at the same rate as the interest charged on the borrowed amount. Once the transition period is complete and the scheduled business purchase payments are underway, you may choose—though you are not required—to make voluntary, penalty-free repayments to your reverse line of credit.
Allowing your son to purchase your business over several years, repaying you from profits rather than “out of pocket,” is not only a practical financial strategy—it’s also a powerful expression of your confidence in his ability to carry on the success of the business you worked so hard to build.
https://mutualreverse.com/david-garrison
*Please consult a tax advisor.
David Garrison, NMLS ID 1595194. Mutual of Omaha Mortgage, Inc. dba Mutual of Omaha Reverse Mortgage, NMLS ID 1025894. 3131 Camino Del Rio N 1100, San Diego, CA 92108. Indiana-DFI Mortgage Lending License 43321. Michigan 1st Mortgage Broker/Lender/Servicer Registrant FR0022702. These materials are not from HUD or FHA and the document was not approved by HUD, FHA or any Government Agency. Subject to credit approval. For licensing information, go to: www.nmlsconsumeraccess.org
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