Many people would like to get involved in investing in Real Estate. However, most are limited with funds with which to buy properties. The myth that most people believe is that if you want to make money in Real Estate you have to have substantial cash to begin with. As I said, this is a myth because it is UNTRUE. There are MANY ways you can buy, sell, hold , or control income producing properties with little or NO CASH. I know and have known several people who have built substantial Real Estate portfolios who started with no cash.
I’m going to tell you the story of Bob and his wife, Greta. I first met Bob when I was a Broker in Arizona. Bob had just moved to Arizona from Florida. He owned a good amount of Mortgages secured by properties he had sold in Florida. He wanted to use these Mortgages to acquire income properties in Arizona. I worked with Bob to help him accomplish his objective. We became close friends and eventually partners in several Real Estate ventures.
But, back to the story - When Bob was in his 50′s he lived in Florida and owned three shrimp boats, with which he made a good living. Then there was a storm which destroyed all the shrimp boats. Bob had NO insurance on the boats. Very shortly Bob and Greta were broke. Bob was definitely an “Entrepreneural” kind of guy. The next part of the story proves it. So to make ends meet, (You may not believe this), Bob and Greta went into the wig business. Most of you won’t remember this but wigs became very popular back around the 1950′s or 1960′s, especially among the ladies.
So, Bob and Greta established a weekly wig route. They would buy these wigs in bulk wholesale for, say $2.00 a piece. On the routes they established they would sell the wigs for, say $20.00 with $5.00 down, then the balance payable at $1.00 per week. Greta would style the wigs for their customers. OK, back to the Real Estate part.
Bob happened to run across a duplex consisting of 2 bedroom units for sale. Both units were vacant, and they needed minor fix-up to make them presentable. The owner was sick and tired of tenants and was a real “Don’t Wanter”. Bob was confident that he and Greta could do the work needed to make the units presentable to tenants. The owner was asking $30,000 for the units (remember this was back in the 1960′s). Bob made the following proposal which was accepted so fast Bob knew he had offered too much.
Here’s the deal:
Bob & Greta bought the units for $25,000 with their work to make the units ready to rent as their down payment (That’s called “Sweat Equity” folks). Then the balance was payable at $150.00 per month to include 6% interest. The first payment was not due until they had rented the first unit. They soon had both units rented at $300 per month each. So – after Note payments, Insurance, and Tax escrows, Bob and Greta’s Net monthly income was $350 a month, not bad for a little “Sweat Equity”.
Well, needless to say Bob knew that he had struck gold. He began looking for properties that someone didn’t want anymore. There are always those around. you just have to look. Over the next 10 years or so, Bob & Greta acquired several properties. When they decided to move to Arizona they sold and financed these properties themselves. When I met Bob he and Greta owned several hundred thousand dollars in Notes and Mortgages. We then used these notes to acquire for them income producing properties in Arizona.
The moral of this story is that there is always plenty of good Real Estate deals out there that can be done without cash; however, you have to look for them. They will seldom come looking for you, EXCEPT when the word gets out that you are looking; then they will even come to you.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Showing posts with label Real Estate. Show all posts
Showing posts with label Real Estate. Show all posts
Monday, January 10, 2011
Tuesday, January 4, 2011
Building Cash Flow Without Cash
The economy today is somewhat stagnant. This is especially true with the Real Estate Housing market. As we are aware there are several factors which have contributed to this current situation, e.g. sub-prime mortgage collapse, government intervention, overbuilding, etc., we don’t really need to discuss how we got to where we are, because we are here. So now we need to address how we, in the Real Estate business, or those who would like to be in the Real Estate business, are going to react and respond to this current situation.
Anytime there is a major action that takes place, there is a reaction. Anytime there is a major action in the Real Estate market that is bad for many, it creates good opportunities for others. For example; in the early 2000′s the Housing market was booming. New construction everywhere demanded land to build on; therefore, owners who had land in the right places received premium prices for their land.
Investors who bought houses in the late 1980′s and early 1990′s sold these homes during the boom for huge profits. Now things have reversed again and we are back to the late 1980′s situation. OK, so enough of the history lesson, except to say that people who become involved in Real Estate would be well advised to consider the past when planning for future.
So, here we are today. Many people who own Real Estate are in trouble. The Real Estate is not in trouble, the owners are in trouble. Real Estate does not have problems, the owners of Real Estate have problems. Therefore, if a person wants to find and take advantage of the current market, that person needs to become a Problem Solver.
In this series of articles pertaining to “Building Cash Flow Without Cash”, I am going to direct my ideas and comments to people who would like to get involved in investing in Real Estate but are short on cash or borrowing power with which to purchase property. Believe it or not, opportunities abound out there for people who have the desire and a little ingenuity, and are not afraid of a little work.
I am going to give you some real Live case histories to prove my point. Some of these will be from my personal experiences and others from previous clients or various other people whom I have come to know in 40 years of experience in the wonderful business called Real Estate.
I’m not so much going to tell you about the great profits of the people involved in my stories, as I am about how they got started by generating positive Cash Flow which allowed them to have living money while making their investments. In order to do any business, a person needs operating or “Living” money; therefore, that will be the thrust of these articles.
The biggest hurdle in any project is getting started. If we can get that round boulder sitting on top of the hill, moving just a little bit, it will generate tremendous momentum going down that hill.
Now, I’m going to give a title to these subsequent articles pertaining to the specific technique that was used in that situation to create Cash Flow; however, remember what I said about problem solving. Most of these techniques worked because the investor solved a problem for someone, usually the property owner.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Anytime there is a major action that takes place, there is a reaction. Anytime there is a major action in the Real Estate market that is bad for many, it creates good opportunities for others. For example; in the early 2000′s the Housing market was booming. New construction everywhere demanded land to build on; therefore, owners who had land in the right places received premium prices for their land.
Investors who bought houses in the late 1980′s and early 1990′s sold these homes during the boom for huge profits. Now things have reversed again and we are back to the late 1980′s situation. OK, so enough of the history lesson, except to say that people who become involved in Real Estate would be well advised to consider the past when planning for future.
So, here we are today. Many people who own Real Estate are in trouble. The Real Estate is not in trouble, the owners are in trouble. Real Estate does not have problems, the owners of Real Estate have problems. Therefore, if a person wants to find and take advantage of the current market, that person needs to become a Problem Solver.
In this series of articles pertaining to “Building Cash Flow Without Cash”, I am going to direct my ideas and comments to people who would like to get involved in investing in Real Estate but are short on cash or borrowing power with which to purchase property. Believe it or not, opportunities abound out there for people who have the desire and a little ingenuity, and are not afraid of a little work.
I am going to give you some real Live case histories to prove my point. Some of these will be from my personal experiences and others from previous clients or various other people whom I have come to know in 40 years of experience in the wonderful business called Real Estate.
I’m not so much going to tell you about the great profits of the people involved in my stories, as I am about how they got started by generating positive Cash Flow which allowed them to have living money while making their investments. In order to do any business, a person needs operating or “Living” money; therefore, that will be the thrust of these articles.
The biggest hurdle in any project is getting started. If we can get that round boulder sitting on top of the hill, moving just a little bit, it will generate tremendous momentum going down that hill.
Now, I’m going to give a title to these subsequent articles pertaining to the specific technique that was used in that situation to create Cash Flow; however, remember what I said about problem solving. Most of these techniques worked because the investor solved a problem for someone, usually the property owner.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Thursday, August 19, 2010
Substitution Of Collateral
An extremely valuable and strategic tool to use when acquiring Real Estate is the “Substitution Of Collateral”. As you know, if you have been reading my articles, I am a strong proponent of acquiring (and sometimes selling) properties wherein I can obtain Seller Financing. This tool could also be effective if you, as a buyer, are obtaining Private (other than seller) financing. It probably would be difficult, but not impossible, to obtain this substitution from an Institutional Lender. OK, so what am I talking about with this “Substitution Of Collateral”? Let me give you an example or two. I believe learning sticks better if you can tie it to an example of how something works.
Charlie Barrow is a budding Real Estate entrepreneur who has a mentor. Charlie has a good paying day job; however, he is looking to acquire, hold and manage Rental houses to supplement his income when he retires. Charlie finds a single-family house For Sale wherein the seller, R. Bishop, has already stated that he would consider financing the house for a buyer.
The house needs some repair and Charlie is confident that he can handle that for about $3,000. The estimated value of the home, after repairs are made, is $125,000. The house will rent for $1,100 per month.
So after conferring with his mentor, Charlie makes Mr. Bishop an offer to buy his home. After negotiating, Charlie and Mr. Bishop agree to the following terms:
Sales Price $90,000.00
Down Payment $5,000.00
Seller Financed Loan $85,000.00
Monthly Payment (P&I) $565.51
Estimated Taxes & Insurance $167.00
Total Monthly Payment $732.51
Following his mentor’s advice, Charlie also negotiates the “Right of Substitution” of the collateral for the Loan. The seller agrees that in the future Charlie may move the Loan from the house to another property. The other property would need to have an appraised value of at least as much as the value of the house. The seller further stipulates that the appraised value of the new collateral must be at least $15,000 more than the sales price of the house he is selling.
OK, so they close the deal. Charlie makes the repairs and the house now has an appraised value of $125,000. Charlie has received approval from his bank for a future loan of 80% of the appraised value, payable over 30 years at 6% interest. His monthly payments, PITI, would be $766.55 giving him a positive cash flow of $333.45 per month.
Charlie, feeling very confident now, is looking for another house. He soon finds one somewhat similar to the one he just bought from Mr. Bishop. This house is owned by a Mr. & Mrs. Clarke who are asking $100,000 for the home. The house has been on the market for over 6 months. The Clarkes have indicated they might finance; however, they need at least $40,000 as they are moving to be near their children and need as much cash as they can get.
Sensing an opportunity here, Charlie asks Mr. & Mrs. Clarke what the price would be if he paid ALL CASH. After some negotiating, Charlie offers the Clarkes $85,000 cash for their home. They accept the offer from Charlie for that amount.
Charlie now goes to Mr. Bishop and tells him that he wants to move his loan from the house he bought from Mr. Bishop to the house he is buying from Mr. & Mrs. Clarke. They agree and hire an appraiser for the home. The appraisal comes in at $105,000.
Now Charlie goes to his bank and obtains the $100,000 loan on the house he bought from Mr. Bishop. The loan will close simultaneously with the purchase of the Clarke house and the movement of Mr. Bishop’s loan to the Clarke house.
So, after the smoke clears, let’s see what happened:
1. Charlie obtains a loan from the bank for $100,000.
2. Mr. & Mrs. Clarke receive $85,000 cash for their home.
3. Mr. Bishop’s loan is now secured by the house acquired from the Clarkes.
4. Charlie now has approximately $700 per month cash flow from both houses.
5. Charlie also has $15,000 cash left over from the bank loan. This will repay the repairs on Mr. Bishop’s house and leave more for repairs on the Clarke house.
Now Charlie can repeat this process over and over again. Isn’t this Real Estate business a fun thing?
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Friday, August 13, 2010
Bartering Back In Style
Personal property can often be used as down payment or part down payment to buy Real Estate. Hypothetical Situation: Mr. & Mrs. Weaver want to purchase a new home in ABC Corporation’s Subdivision. This builder, as many others over the last few years, is over-stocked with already constructed homes.
The builder is asking $210,000 for the home that the Weavers would like to buy. He has a construction loan on the home (with his bank) for $170,000 that he needs to pay off when he sells the home. Because of the slow market, the construction loans on these unsold homes are quickly eating up the profits; therefore, the builder is motivated to sell these existing homes. The builder can be flexible to a point; however, he has to have cash to pay off the loan to the bank for each home he sells.
The Weavers really want the house but they have a problem. They have been pre-approved for a loan up to $190,000. The Weavers happen to own a very nice 22 foot fishing boat. The boat is in great shape and Mr. Weaver had it appraised at $20,000. It happens to be in the Winter time when the demand for boats is not too great. I has been said that the two happiest days in a boat owner’s life is the day they buy the boat and the day they get rid of it.
Mr. & Mrs. Weaver made an offer to purchase the new home with a loan of $190,000 cash to go to the builder plus their boat as $20,000 down payment. After a short consideration period the builder accepted the offer. Even the builder may not have need of a boat, but the deal gets the builder’s $170,000 loan paid off to the bank, plus he get $20,000 cash from the buyer’s loan. He can market the boat and probably sell it in the Spring to make some boat buyer’s FIRST happiest day.
Lesson Learned. When potential buyers are short on cash, they should look for other assets they may use as part or all of the cash requirement. It could be a boat, a car, an airplane, motorcycle, Jet Ski, etc. Afterall, this is nothing in the world but using barter to make transactions and the Barter System has been around a lot longer than money. The way our money is being devalued, more bartering may be in the Vogue.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
The builder is asking $210,000 for the home that the Weavers would like to buy. He has a construction loan on the home (with his bank) for $170,000 that he needs to pay off when he sells the home. Because of the slow market, the construction loans on these unsold homes are quickly eating up the profits; therefore, the builder is motivated to sell these existing homes. The builder can be flexible to a point; however, he has to have cash to pay off the loan to the bank for each home he sells.
The Weavers really want the house but they have a problem. They have been pre-approved for a loan up to $190,000. The Weavers happen to own a very nice 22 foot fishing boat. The boat is in great shape and Mr. Weaver had it appraised at $20,000. It happens to be in the Winter time when the demand for boats is not too great. I has been said that the two happiest days in a boat owner’s life is the day they buy the boat and the day they get rid of it.
Mr. & Mrs. Weaver made an offer to purchase the new home with a loan of $190,000 cash to go to the builder plus their boat as $20,000 down payment. After a short consideration period the builder accepted the offer. Even the builder may not have need of a boat, but the deal gets the builder’s $170,000 loan paid off to the bank, plus he get $20,000 cash from the buyer’s loan. He can market the boat and probably sell it in the Spring to make some boat buyer’s FIRST happiest day.
Lesson Learned. When potential buyers are short on cash, they should look for other assets they may use as part or all of the cash requirement. It could be a boat, a car, an airplane, motorcycle, Jet Ski, etc. Afterall, this is nothing in the world but using barter to make transactions and the Barter System has been around a lot longer than money. The way our money is being devalued, more bartering may be in the Vogue.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
How To Find Good Mortgages To Invest In
No Question, buying and holding (reselling) private Real Estate Mortgages can be a very lucrative investment or business. By “private” we mean mortgages, (Trust Deeds, Land Contracts, Contracts For Deed, etc.) that wherein one party, the Seller (not a Bank or other Institutional Lender) has sold a Real Estate property to another party and has taken back a mortgage from the second party or the buyer.
Now there are other types of “Paper” or Notes that fit the above description that may be secured by collateral other than Real Estate. Mobile homes, business fixtures & equipment, inventory, cars, boats, phone, etc. We are not going to discuss these here, however, we may do so at a later time because investing in these types of notes can also be very profitable, sometimes more so than Real Estate Notes because of the greater risk. When the risk is greater, the possible profits are also greater as are the possible losses.
So, back to the question; How do we find “Good” Mortgages to invest in? There are a number of ways to do this. If you get active in buying private Mortgages or lending direct, the word will quickly get around and you will have more deals to look at than you can probably handle. Let’s discuss some of the ways to start finding those Mortgages.
* Check ads in the classified section of the newspaper – Look in “Money Wanted”, “Mortgages
For Sale”, or “Investor Needed”.
* Run your own ad: “Mortgage Buyer”, or “Money To Lend On Real Estate”.
* Develop a relationship with a Real Estate Broker that has access to Multiple Listing Service
“MLS”. The Broker can access MLS and find out sales that were made wherein a seller
financed the property. Contact the seller to see if he wants to sell the Mortgage.
The best bet, in my opinion, is to contact a “Note Broker”. This is a person who specializes in finding Mortgages for sale. The Note Broker finds a buyer for the Mortgages and charges the mortgage owner a commission. Or, the Broker may buy the Mortgage himself to resell it to an Investor. You can find these Brokers in several ways, such as:
a. Check the Yellow Pages for Mortgages, or Note Buyers.
b. Check ads in the newspaper which may read: “We Buy Mortgages”, “Mortgages For Sale”,
“Top Dollar For Your Note”, etc.
c. Ask among Real Estate Brokers if they know of any other Brokers who buy Notes.
If you can’t locate a good source, check with the following reference:
Bill Mencarow
The Paper Source
317 S. Sidney Baker, PMB 304
Kerrville, TX 78028
www.PaperSourceOnline.com
email – info@papersourceonline.com
Phone: 830-895-5025
Bill publishes a monthly Newsletter called “The Paper Source”, which is a Newsletter about the Note Business. Bill has a registry of Brokers all over the country. He could probably refer you to someone. You might even want to subscribe to the Newsletter to learn more about the business. If you contact Bill (or Allison, his wife & partner) tell him I referred you!
We have just scratched the surface here. We will continue next time on “How To Find Good Mortgages To Invest In - Part II”. I would appreciate your comments.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Now there are other types of “Paper” or Notes that fit the above description that may be secured by collateral other than Real Estate. Mobile homes, business fixtures & equipment, inventory, cars, boats, phone, etc. We are not going to discuss these here, however, we may do so at a later time because investing in these types of notes can also be very profitable, sometimes more so than Real Estate Notes because of the greater risk. When the risk is greater, the possible profits are also greater as are the possible losses.
So, back to the question; How do we find “Good” Mortgages to invest in? There are a number of ways to do this. If you get active in buying private Mortgages or lending direct, the word will quickly get around and you will have more deals to look at than you can probably handle. Let’s discuss some of the ways to start finding those Mortgages.
* Check ads in the classified section of the newspaper – Look in “Money Wanted”, “Mortgages
For Sale”, or “Investor Needed”.
* Run your own ad: “Mortgage Buyer”, or “Money To Lend On Real Estate”.
* Develop a relationship with a Real Estate Broker that has access to Multiple Listing Service
“MLS”. The Broker can access MLS and find out sales that were made wherein a seller
financed the property. Contact the seller to see if he wants to sell the Mortgage.
The best bet, in my opinion, is to contact a “Note Broker”. This is a person who specializes in finding Mortgages for sale. The Note Broker finds a buyer for the Mortgages and charges the mortgage owner a commission. Or, the Broker may buy the Mortgage himself to resell it to an Investor. You can find these Brokers in several ways, such as:
a. Check the Yellow Pages for Mortgages, or Note Buyers.
b. Check ads in the newspaper which may read: “We Buy Mortgages”, “Mortgages For Sale”,
“Top Dollar For Your Note”, etc.
c. Ask among Real Estate Brokers if they know of any other Brokers who buy Notes.
If you can’t locate a good source, check with the following reference:
Bill Mencarow
The Paper Source
317 S. Sidney Baker, PMB 304
Kerrville, TX 78028
www.PaperSourceOnline.com
email – info@papersourceonline.com
Phone: 830-895-5025
Bill publishes a monthly Newsletter called “The Paper Source”, which is a Newsletter about the Note Business. Bill has a registry of Brokers all over the country. He could probably refer you to someone. You might even want to subscribe to the Newsletter to learn more about the business. If you contact Bill (or Allison, his wife & partner) tell him I referred you!
We have just scratched the surface here. We will continue next time on “How To Find Good Mortgages To Invest In - Part II”. I would appreciate your comments.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Thursday, August 5, 2010
Want To Invest In Real Estate With Limited $$$ ?
If I wanted to invest in Real Estate today and had little or no money, one place I would look at would be single family houses in NICE neighborhoods. I would find houses that would fall into any of the following categories:
Houses that are vacant, probably with a “For Sale” sign in the yard.
Houses wherein the owners are having trouble making their loan payments.
Houses listed “For Sale By Owner” in the newspaper. Don’t forget to look in “The Shoppers”, “Thrifty Nickle”, etc.
Houses that have signs or are listed in the paper “For Rent”.
I might even run a little ad myself reading “House Wanted For Rent”. How do I contact these owners? If they are still living in the house I would arrange a meeting, preferably in the home where I could sit down with the owners and negotiate a deal.
Houses that are vacant, probably with a “For Sale” sign in the yard.
Houses wherein the owners are having trouble making their loan payments.
Houses listed “For Sale By Owner” in the newspaper. Don’t forget to look in “The Shoppers”, “Thrifty Nickle”, etc.
Houses that have signs or are listed in the paper “For Rent”.
I might even run a little ad myself reading “House Wanted For Rent”. How do I contact these owners? If they are still living in the house I would arrange a meeting, preferably in the home where I could sit down with the owners and negotiate a deal.
In my discussion with the owners I would try to find out what the REAL situation is.
For Example:
Why do they want to sell or rent?
How much is owed on the property?
How much are the monthly payments?
Are the monthly payments current?
How much does average utilities cost monthly?
Are there any other expenses such as Homeowners Association fees, etc.?
Based on how I felt after gleaning this information, I would make the owners an offer to lease their house with lease payments equal to the current monthly payment. This offer would grant me the right to sublease the property. I would also require a 2 year option to buy the property for an amount equal to what they owe on the property now. The “Option Agreement” would contain a clause stating that I could renew the option for an additional 2 years with a payment of $500.00 at the time the option was renewed. Then, additionally, I would make the contract contingent upon me finding a tenant to sublease the property within 60 days.
I would then advertise "Lease With Option To Buy" (in such and such neighborhood) "Credit No Problem" in the local newspapers and in any freebies I could. I am confident I would receive many responses to my ad. (If I don’t, no big deal, my 60 days expire and all I have lost is my time – which is valuable).
There are many people with some cash who want a home to own; however, they have bruised credit or some other reason why they can’t qualify for a loan to buy a home. I would require an option fee of $2,000.00 (or more, depending on the ability of my party) and also a rent amount of at least $100.00 above the amount I am paying. The sale price would be at least $5,000.00 above the current mortgage balance ($5,000.00 more than my option price is.) Then I would give a credit of $100.00 per month for each month that the rent is paid on time. My experience has been that lease options really are motivated by applying a credit from part of the rent towards the purchase price.
I am confident that in today’s market, I could repeat this process over & over – (I have done it when the market was not as bad as it is now). In San Antonio we have over 1,500 properties posted for Foreclosure in January 2010; the MOST in 20 years.
THE DEALS ARE OUT THERE! As an old highly respected investor, entrepreneur, and builder Bill Zeckendorf said, “You make money when the blood is running in the streets.” Well friends, it’s running in the streets now.
By the way, if you are an investor or want to be, I recommend the book “Zeckendorf” – You may find it on Amazon. This man, William Zeckendorf, was the innovator of many things we have today – Shopping Malls, Condominiums, etc.
OK, back to our homeowners who we wish to contact. How do we find them? You can do this online; go to your County Tax Appraisal website. By entering the address, you should be able to find the owner of that property.
Finally, I know I ramble a lot, but if you have any questions about any of our information, please contact us – NO CHARGE!
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Wednesday, August 4, 2010
Making Big $$ With Real Estate Options
Much is written and said about making money with options by Stock Brokers, Commodity, Gurus, etc. They don’t know a thing about a much more profitable, SAFER, way to invest in options. That way is buying and selling Real Estate Options. Almost anyone, with a little coaching or training, can invest in Real Estate Options with VERY little money and reap big dividends with minimum risks. I doubt that you could buy a stock or commodity option for $10.00; however, I have bought Options to buy Real Estate for as little as that. I have known other people who got it down to $1.00. Unbelievable, right? But it’s true.
Now, where in the world would we find properties that we could buy an Option to buy with a small amount of money? Right in the local newspaper and in your area Realtor’s Multiple Listing Service (MLS). This is especially true with today’s lousy (in most areas) housing resale market.
Maybe first, so that we all know what we are talking about, we should explain a few terms, names, etc. about Options. You can’t tell the players without a scorecard.
What is an Option? An Option is a contract between two (or more) parties concerned with one party (the Optionee) buying an Option to purchase, Lease, or whatever, Real Estate from another party, (the Optionor).
Let’s further identify these two parties:
1. The Optionor: This is the party who owns or controls the Real Estate in question.
2. The Optionee: This is the party who wants to buy the Option to buy the property from the Optionor.
The Option, as stated, is a contract which should be in writing. It must contain language showing that the Optionee paid some consideration for the Option. The Option should be for some specific period of time; a month, a year, 5 years, etc. The Option must also include the purchase price of the Real Estate if the Optionor does exercise the Option.
Now, once the Option Agreement is signed by both parties, the Optionee has control over the subject Real Estate for the entire time period of the Option. To protect the Optionee I would recommend that the Option be recorded at the County Courthouse. This protects the Optionee in that if any title search is done it will show that the Option exists.
There are many variations and Objectives that can be included in an Option Agreement. In essence, maybe to better understand an Option Agreement, just look at a standard Sale And Purchase Agreement wherein the buyer has deposited earnest money (somewhat like an option) to buy the property from the Seller. If the Buyer defaults on the agreement he loses his earnest money.
In the next post (coming soon) we will go into some case histories to better explain and to show you how you can make BIG $$ using Options.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Now, where in the world would we find properties that we could buy an Option to buy with a small amount of money? Right in the local newspaper and in your area Realtor’s Multiple Listing Service (MLS). This is especially true with today’s lousy (in most areas) housing resale market.
Maybe first, so that we all know what we are talking about, we should explain a few terms, names, etc. about Options. You can’t tell the players without a scorecard.
What is an Option? An Option is a contract between two (or more) parties concerned with one party (the Optionee) buying an Option to purchase, Lease, or whatever, Real Estate from another party, (the Optionor).
Let’s further identify these two parties:
1. The Optionor: This is the party who owns or controls the Real Estate in question.
2. The Optionee: This is the party who wants to buy the Option to buy the property from the Optionor.
The Option, as stated, is a contract which should be in writing. It must contain language showing that the Optionee paid some consideration for the Option. The Option should be for some specific period of time; a month, a year, 5 years, etc. The Option must also include the purchase price of the Real Estate if the Optionor does exercise the Option.
Now, once the Option Agreement is signed by both parties, the Optionee has control over the subject Real Estate for the entire time period of the Option. To protect the Optionee I would recommend that the Option be recorded at the County Courthouse. This protects the Optionee in that if any title search is done it will show that the Option exists.
There are many variations and Objectives that can be included in an Option Agreement. In essence, maybe to better understand an Option Agreement, just look at a standard Sale And Purchase Agreement wherein the buyer has deposited earnest money (somewhat like an option) to buy the property from the Seller. If the Buyer defaults on the agreement he loses his earnest money.
In the next post (coming soon) we will go into some case histories to better explain and to show you how you can make BIG $$ using Options.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Tuesday, July 20, 2010
Want To Buy Real Estate But Short On Cash?
Contrary to what many people think, there are MANY ways to buy Real Estate without either having the cash necessary to buy or borrowing from the bank. In order to accomplish this type of purchase the buyer must think “Outside The Box”, or to use an overworked term employ Creative Real Estate Techniques. In most cases the motivation of the Owner/Seller will determine their being receptive to offers to purchase with little or no cash being part of the deal. As situations change in people’s personal and business lives, their motivation to do many things also change.
To quote from an old mentor of mine, Richard Reno, “Properties don’t have problems, people do.” This being the case, if you can solve a problem for someone, you can probably deal with them. As stated in the “Paper Chase” section, these initial strategies may be very basic to some of the readers, but not to others. I can assure they will be much more interesting as we progress. I personally learn best from examples of how something works. Therefore; I will use that method to illustrate ways to acquire real estate other than with cash down.
Finance One Property With Another Situation: Jones wants to buy Smith’s house priced at $100,000 but has no cash except for closing. Jones also owns a free & clear lot which has a value of $15,000.
Possible Solutions:
Jones gives Smith his lot as a down payment and Smith finances the balance.
Jones creates a note on his lot for $10,000 and gives the note to Smith as down payment.
Jones sells his lot discounted to $10,000 cash to a builder then uses cash as down payment on Smith’s house.
Jones creates a note on his lot for $12,000 then sells the note to a note buyer/investor, discounted to $10,000.
Jones uses cash as down payment on Smith’s house.
Comment: This same formula can be used with personal property. For example: Jones may have a car, boat, airplane, etc. which he could give Smith as down payment or create a note on the personal property and use the note as down payment.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
To quote from an old mentor of mine, Richard Reno, “Properties don’t have problems, people do.” This being the case, if you can solve a problem for someone, you can probably deal with them. As stated in the “Paper Chase” section, these initial strategies may be very basic to some of the readers, but not to others. I can assure they will be much more interesting as we progress. I personally learn best from examples of how something works. Therefore; I will use that method to illustrate ways to acquire real estate other than with cash down.
Finance One Property With Another Situation: Jones wants to buy Smith’s house priced at $100,000 but has no cash except for closing. Jones also owns a free & clear lot which has a value of $15,000.
Possible Solutions:
Jones gives Smith his lot as a down payment and Smith finances the balance.
Jones creates a note on his lot for $10,000 and gives the note to Smith as down payment.
Jones sells his lot discounted to $10,000 cash to a builder then uses cash as down payment on Smith’s house.
Jones creates a note on his lot for $12,000 then sells the note to a note buyer/investor, discounted to $10,000.
Jones uses cash as down payment on Smith’s house.
Comment: This same formula can be used with personal property. For example: Jones may have a car, boat, airplane, etc. which he could give Smith as down payment or create a note on the personal property and use the note as down payment.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Friday, July 16, 2010
Creation Of Wealth - With No Cash
You are a Real Estate Broker/Agent. You have a client named Mr. Carlson to whom you helped obtain a Mini-Storage Facility approximately 3 years ago. The property was in poor condition when Mr. Carlson bought it; however, he has completely renovated it and has increased rents and value considerably. Mr. Carlson wants to acquire more tax shelter; however, even though his cash flow is excellent, he has used most of his cash reserves upgrading the Mini-Storage Units. Also, because he now has great cash flow and property in excellent condition, he wants to hold on to the Storage Units for maybe 3 or more years before considering an exchange into larger property.
Mr. Carlson has now come to you with this situation. He wants your advice and help to accomplish his goal. After a thorough meeting with Mr. Carlson, you begin searching for a property that will provide him with the benefits he needs. You comb through MLS, search the newspaper classifieds, and contact other agents you know who specialize in Commercial and Income properties. You locate through one of the agents you know, a 24 Unit Apartment Complex which has a 30% vacancy problem and needs physical upgrade to the property. The owner, Mr. Mendoza, has had the property on the market for sometime with no acceptable offers. Although he wants out of this property, he is not willing to take what he considers a deep discount.
So you show the apartments to Mr. Carlson. He likes the units and feels that he can do an upgrade and get the units fully occupied again. Still the problem is that he has little cash to buy with, and the units are in such poor condition that it would be very difficult to obtain a loan to purchase them with.
ANALYZING THE SITUATION –
1. Mr. Carlson’s Mini-Storage Units:
Owner’s Value – $260,000
Loans - $0
Equity - $260,000
2. Mr. Mendoza’s Apartment Complex:
Owner’s Value - $400,000
Assumable Loan – $180,000
Equity - $320,000
Possible Solution: Mr. Carlson offers to purchase Mr. Mendoza’s Apartments with a Blanket Note of $320,000 secured by both properties. Terms of the Note would state that after 3 years the Storage Units would be released as security for the Note providing Mr. Carlson has upgraded the Apartments.
BENEFITS TO THE PARTIES –
1. Mr. Mendoza receives full price and has excellent security for his Note.
2. Mr. Carlson receives the Tax Shelter he is looking for and can exchange the Storage Units after 3 years.
3. Each Broker/Agent has earned a commission.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Mr. Carlson has now come to you with this situation. He wants your advice and help to accomplish his goal. After a thorough meeting with Mr. Carlson, you begin searching for a property that will provide him with the benefits he needs. You comb through MLS, search the newspaper classifieds, and contact other agents you know who specialize in Commercial and Income properties. You locate through one of the agents you know, a 24 Unit Apartment Complex which has a 30% vacancy problem and needs physical upgrade to the property. The owner, Mr. Mendoza, has had the property on the market for sometime with no acceptable offers. Although he wants out of this property, he is not willing to take what he considers a deep discount.
So you show the apartments to Mr. Carlson. He likes the units and feels that he can do an upgrade and get the units fully occupied again. Still the problem is that he has little cash to buy with, and the units are in such poor condition that it would be very difficult to obtain a loan to purchase them with.
ANALYZING THE SITUATION –
1. Mr. Carlson’s Mini-Storage Units:
Owner’s Value – $260,000
Loans - $0
Equity - $260,000
2. Mr. Mendoza’s Apartment Complex:
Owner’s Value - $400,000
Assumable Loan – $180,000
Equity - $320,000
Possible Solution: Mr. Carlson offers to purchase Mr. Mendoza’s Apartments with a Blanket Note of $320,000 secured by both properties. Terms of the Note would state that after 3 years the Storage Units would be released as security for the Note providing Mr. Carlson has upgraded the Apartments.
BENEFITS TO THE PARTIES –
1. Mr. Mendoza receives full price and has excellent security for his Note.
2. Mr. Carlson receives the Tax Shelter he is looking for and can exchange the Storage Units after 3 years.
3. Each Broker/Agent has earned a commission.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Tuesday, July 13, 2010
Creation of Wealth - Convert Land Into $$, And You Get To Keep Your Land!
You are a Real Estate Agent and you have a client, Mr. Able, who owns 320 acres of land which he leases out to a rancher who raised cattle and uses the land for grazing. 40 acres of the land is used to raise alfalfa. Mr. Able could sell the land; however, he feels confident the land will greatly increase in value within the next 5 years because of it’s proximity to a major Freeway Interchange. Mr. Able would like to obtain improved property with which he could obtain some tax shelter and the opportunity for additional income. Mr. Able has told you that he would be willing to take property that required some “fixing-up”.
After some research you locate a 32 Unit Apartment Complex which does need some “fixing up”. It currently is only about 50% occupied. The property is in an upper blue collar area near an elementary school. The problem is that the owner who is a widow, Mrs. Calhoon, has little knowledge or desire to solve her problem. She has hired different managers; none of whom have been able to turn things around.
After inspecting the property Mr. Able is confident that he can do the fixing-up and turn the property around. However, he is going to need the cash he has available to buy the materials and labor to do the fixing.
In counseling with Mrs. Calhoon we discover that she needs Long Term income more than she needs a lot of cash. She has some cash from her husband’s Life Insurance. He has managed the Apartments prior to his demise. So let’s analyze the situation:
1. Mr. Able’s Land
Owner’s Value $480,000
Loans $0
Equity $480,000
2. Mrs. Calhoon’s Land
Owner’s Value $384,000
Loans $0
Equity $384,000
Note: Market Comparisons indicate that the value of the Apartments, after rehab and leased up, should be approximately $586,000.
After some negotiating the following transaction was agreed upon -
Mr. Able will purchase the Apartments by creating a First Mortgage to Mrs. Calhoon for $200,000 secured by his land. He will also give her a First Mortgage on the Apartments for $184,000. This will provide a substantial monthly income to Mrs. Calhoon and will get her out of the problem with the Apartments.
Mr. Able now has the tax shelter he is looking for and once the Apartments are upgraded and leased out they will provide more than enough income to pay Mrs. Calhoon’s notes.
You as the Real Estate Agent should receive a nice fee from Mr. Able, your client.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
After some research you locate a 32 Unit Apartment Complex which does need some “fixing up”. It currently is only about 50% occupied. The property is in an upper blue collar area near an elementary school. The problem is that the owner who is a widow, Mrs. Calhoon, has little knowledge or desire to solve her problem. She has hired different managers; none of whom have been able to turn things around.
After inspecting the property Mr. Able is confident that he can do the fixing-up and turn the property around. However, he is going to need the cash he has available to buy the materials and labor to do the fixing.
In counseling with Mrs. Calhoon we discover that she needs Long Term income more than she needs a lot of cash. She has some cash from her husband’s Life Insurance. He has managed the Apartments prior to his demise. So let’s analyze the situation:
1. Mr. Able’s Land
Owner’s Value $480,000
Loans $0
Equity $480,000
2. Mrs. Calhoon’s Land
Owner’s Value $384,000
Loans $0
Equity $384,000
Note: Market Comparisons indicate that the value of the Apartments, after rehab and leased up, should be approximately $586,000.
After some negotiating the following transaction was agreed upon -
Mr. Able will purchase the Apartments by creating a First Mortgage to Mrs. Calhoon for $200,000 secured by his land. He will also give her a First Mortgage on the Apartments for $184,000. This will provide a substantial monthly income to Mrs. Calhoon and will get her out of the problem with the Apartments.
Mr. Able now has the tax shelter he is looking for and once the Apartments are upgraded and leased out they will provide more than enough income to pay Mrs. Calhoon’s notes.
You as the Real Estate Agent should receive a nice fee from Mr. Able, your client.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Substitution of Collateral - "Walking The Loan"
One of the least known and one of the most powerful tools for the Real Estate Investor is the use of Substitution Of Collateral. Let’s look at an example using this technique.Mr. Riley owns 100 acres of prime timberland in East Texas. The fair market value of this land is $500,000. The land is free & clear of encumbrances. Mr. Riley would like to purchase an Apartment Complex in Tyler, Texas – owned by Mrs. Graves. The price of the apartments is $400,000. Mr. Riley buys the apartments with $100,000 down and Mrs. Graves finances the balance for Mr. Riley who executes a $300,000 note secured by a Deed of Trust.
Mr. Riley is an experienced investor who has bought, sold, and/or exchanged several properties in the past. When he negotiates the purchase of the apartments he receives the future right to substitute collateral for the $300,000 he owes Mrs. Graves on the apartments. The contract and Deed of Trust stipulate that the substitute property must be of equal or greater value of the property being substituted for. The wording could also be something like, “The property being offered as Substitute Collateral must have an appraised value of $125% of the amount of the money owed”, or whatever number is agreeable by the parties.
To continue our example: Let’s say that 3 years go by. Mr. Riley has upgraded the apartments, increased rents, etc. and the Fair Market Value of the apartments is now $550,000 and the remaining balance on the loan to Mrs. Graves is $291,840. Mr. Riley has an opportunity to exchange the apartments for a Commercial Strip Center which has a great future growth in value potential. However, the owner of the Strip Center will not accept the apartments with the loan on them. He wants them free & clear.
So, Mr. Riley exercising his right of Substitution of Collateral, moves the loan on the apartments, owed to Mrs. Graves, “Walks The Loan”, to the 100 acres of timberland. The apartments are now free and clear and Mr. Riley can complete his exchange for the Strip Center.
I highly recommend to anyone that anytime they are negotiating a purchase wherein the seller, or anyone else, is providing the financing, always ask for the right to substitute collateral in the future. Even if they, at present, don’t foresee a use for it, it is a good right to have.
Also, it does not have to be Real Estate. The collateral could be Private Property, Stocks, Bonds, Jewelry, Boats, Planes, Automobiles, etc.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Mr. Riley is an experienced investor who has bought, sold, and/or exchanged several properties in the past. When he negotiates the purchase of the apartments he receives the future right to substitute collateral for the $300,000 he owes Mrs. Graves on the apartments. The contract and Deed of Trust stipulate that the substitute property must be of equal or greater value of the property being substituted for. The wording could also be something like, “The property being offered as Substitute Collateral must have an appraised value of $125% of the amount of the money owed”, or whatever number is agreeable by the parties.
To continue our example: Let’s say that 3 years go by. Mr. Riley has upgraded the apartments, increased rents, etc. and the Fair Market Value of the apartments is now $550,000 and the remaining balance on the loan to Mrs. Graves is $291,840. Mr. Riley has an opportunity to exchange the apartments for a Commercial Strip Center which has a great future growth in value potential. However, the owner of the Strip Center will not accept the apartments with the loan on them. He wants them free & clear.
So, Mr. Riley exercising his right of Substitution of Collateral, moves the loan on the apartments, owed to Mrs. Graves, “Walks The Loan”, to the 100 acres of timberland. The apartments are now free and clear and Mr. Riley can complete his exchange for the Strip Center.
I highly recommend to anyone that anytime they are negotiating a purchase wherein the seller, or anyone else, is providing the financing, always ask for the right to substitute collateral in the future. Even if they, at present, don’t foresee a use for it, it is a good right to have.
Also, it does not have to be Real Estate. The collateral could be Private Property, Stocks, Bonds, Jewelry, Boats, Planes, Automobiles, etc.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Friday, July 9, 2010
Investing In Real Estate Is A Two-Way Street
Every Real Estate Investor must recognize that investing is a Two-Way street. Contrary to what we used to believe, Real Estate values can go DOWN as well as up. The last 30 years have given us vivid examples of this roller-coaster ride.Nonetheless, Real Estate is and always will be the best investment vehicle; “Under All Is The Land”. However, the investor who fails to recognize that ANYinvestment can turn into a Two-Way street, can be in for major problems. Checked out General Motors or British Petroleum stock prices lately? Or maybe Real Estate prices in Las Vegas?
By the way, speaking of Las Vegas, I watched a movie last night about “Bugsey” Siegel who built the first hotel/casino in Las Vegas; The Flamingo. Bugsey was killed by his fellow Mafia (The Mob) compatriots because the cost of the hotel/casino ended up being several million more than Bugsey had told them it would be. Also, they did not think that this venture in the middle of the desert would be profitable. To date (or as of the date of the movie) Bugsey’s 6 million dollar venture has turned into 100 billion. How’s that for appreciation?
Anyway – Some ways to protect against the Two-Way street is as follows:
1. Try to invest in areas with varied businesses and economies.
2. Be aware that even though high-leveraged investments have more potential, they also have more risks.
3. Diversify your assets – so that you don’t have to start over from scratch. (I say this with considerable
experience). Try to have some properties Free & Clear, or at least with high equity percentages.
4. Use non-recourse financing whenever possible. I highly recommend getting Seller Financing whenever
you can. As icing on the cake, ask for the right to substitute collateral for the loan in the future.
5. If losses occur, don’t sweat it too much. If you did it once, you can do it again. You still have your
creative and experienced mind. I remember a statement I heard many years ago, don’t know who said it first;
“If you took all the money/assets of the people of the U.S. and split it up evenly among all of the people (with or without money/assets), those same people who have assets now and who gave theirs up, will have it back within a few years.”
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
By the way, speaking of Las Vegas, I watched a movie last night about “Bugsey” Siegel who built the first hotel/casino in Las Vegas; The Flamingo. Bugsey was killed by his fellow Mafia (The Mob) compatriots because the cost of the hotel/casino ended up being several million more than Bugsey had told them it would be. Also, they did not think that this venture in the middle of the desert would be profitable. To date (or as of the date of the movie) Bugsey’s 6 million dollar venture has turned into 100 billion. How’s that for appreciation?
Anyway – Some ways to protect against the Two-Way street is as follows:
1. Try to invest in areas with varied businesses and economies.
2. Be aware that even though high-leveraged investments have more potential, they also have more risks.
3. Diversify your assets – so that you don’t have to start over from scratch. (I say this with considerable
experience). Try to have some properties Free & Clear, or at least with high equity percentages.
4. Use non-recourse financing whenever possible. I highly recommend getting Seller Financing whenever
you can. As icing on the cake, ask for the right to substitute collateral for the loan in the future.
5. If losses occur, don’t sweat it too much. If you did it once, you can do it again. You still have your
creative and experienced mind. I remember a statement I heard many years ago, don’t know who said it first;
“If you took all the money/assets of the people of the U.S. and split it up evenly among all of the people (with or without money/assets), those same people who have assets now and who gave theirs up, will have it back within a few years.”
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Thursday, July 8, 2010
The REO Formula - Real Estate Owned
For clarification let’s describe what Real Estate Owned or “REO” is. Real Estate that is foreclosed on by an Institutional Lender (primarily banks, mortgage companies, insurance companies, etc.) and is now owned by that Lender is REO property. Most lenders have within their company an REO department usually managed by an REO officer, employee of the bank, or other lender. Lenders definitely do not want to own property they have had to foreclose on. They are under pressure from Federal and/or other banking regulators to dispose of these properties. This also lessens their ability to make new loans.
Today, the Short Sale is a very popular method of buying these foreclosed (or about to be foreclosed on) properties from the banks. There is another method or technique that has been used by Real Estate Investors for many years that has become known as the “REO Formula”.
Let’s look at an example for the use of the REO Formula.
Let’s say you are a Real Estate Agent with a very active & wealthy investor client who owns several properties and is always looking for a way to acquire more properties and/or raise cash. It seems like many investors are always in need of cash to make another “deal”.
Let’s say that your client owns several parcels of good development land. He would like to acquire more income producing properties. You find out from one of your REO officer contacts about a small apartment complex that the bank would take $250,000 for. You know that the fair market value of the units should be around $350,000.
After conferring with your client, you come up with the following proposal to the bank:
1) Your client will exchange development land valued at $250,000 to the bank for the apartments provided the bank will loan your client $175,000 (70% LTV) cash back on the apartments.
2) Your client then will buy back the land from the bank with $87,500 cash down and the bank loaning the balance of $162,500 (65% LTV).
Let’s look at the benefits to both parties:
A. YOUR CLIENT
1. Has completed a tax deferred exchange of his development land for the apartments.
2. Has $87,500 cash which is also tax deferred.
3. Has exchanged dormant land for income producing property.
B. THE BANK
1. Has exchanged an unwanted REO property (a bad loan) for two good loans from a capable borrower.
Another way this could be structured could be to have the bank make the loan on your client’s land. Then your client could buy the apartments with cash down and a loan from the bank. However, using this method would not have the same tax benefits.
Please be aware that I am not giving tax advice here. Before structuring any transaction that might have tax ramifications, you or any person should consult a CPA or tax professional.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Today, the Short Sale is a very popular method of buying these foreclosed (or about to be foreclosed on) properties from the banks. There is another method or technique that has been used by Real Estate Investors for many years that has become known as the “REO Formula”.
Let’s look at an example for the use of the REO Formula.
Let’s say you are a Real Estate Agent with a very active & wealthy investor client who owns several properties and is always looking for a way to acquire more properties and/or raise cash. It seems like many investors are always in need of cash to make another “deal”.
Let’s say that your client owns several parcels of good development land. He would like to acquire more income producing properties. You find out from one of your REO officer contacts about a small apartment complex that the bank would take $250,000 for. You know that the fair market value of the units should be around $350,000.
After conferring with your client, you come up with the following proposal to the bank:
1) Your client will exchange development land valued at $250,000 to the bank for the apartments provided the bank will loan your client $175,000 (70% LTV) cash back on the apartments.
2) Your client then will buy back the land from the bank with $87,500 cash down and the bank loaning the balance of $162,500 (65% LTV).
Let’s look at the benefits to both parties:
A. YOUR CLIENT
1. Has completed a tax deferred exchange of his development land for the apartments.
2. Has $87,500 cash which is also tax deferred.
3. Has exchanged dormant land for income producing property.
B. THE BANK
1. Has exchanged an unwanted REO property (a bad loan) for two good loans from a capable borrower.
Another way this could be structured could be to have the bank make the loan on your client’s land. Then your client could buy the apartments with cash down and a loan from the bank. However, using this method would not have the same tax benefits.
Please be aware that I am not giving tax advice here. Before structuring any transaction that might have tax ramifications, you or any person should consult a CPA or tax professional.
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Foreclosures & Opportunities On The Rise
We had a lot of foreclosures in 2008. We had more in 2009. We had and/or are having even more in 2010. This trend will continue and increase as long as our unbrilliant Congress and the Administration continue to push Lenders to make loans to people who can’t make the payments.Fannie-Mae and Freddy-Mac were disastrous.
Now they are repeating the debacle with FHA. When some Senators were pushing that the FHA program should require buyers to put at least 5% down, Chris Dodd (one of the authors of the Fanny-Mae & Freddy-Mac crash, along with Barney Frank) said, (you won’t believe this) “If you require 5% down, then the only people who can buy homes will be those who can afford them.”
In any case, enough humor. All these foreclosures and impending foreclosures will provide incredible opportunities for Real Estate Investors; even investors or newbie investors who don’t have a lot of cash to invest, or maybe even NO cash to invest. Please review my recent Posts about Lease with Option with Shared Equity! The program shows you how to acquire nice homes in nice neighborhoods which have little or no equity and earning immediate cash and cash flow. The key ingredient to this program is the Shared Equity – which is future equity for the seller who has NO equity now.
Most sellers have a pride problem with the feeling that they are “Giving Away” their property. This can be overcome by giving the seller something in the future when there is equity to be shared.
I refer you back to several continued Posts that we call “The Eddie Nivens Story”. This story will show you how the Lease/Option With Equity Sharing Works. You can find them in my “Investors Corner” on my blog at www.RealEstateJack.net
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
Now they are repeating the debacle with FHA. When some Senators were pushing that the FHA program should require buyers to put at least 5% down, Chris Dodd (one of the authors of the Fanny-Mae & Freddy-Mac crash, along with Barney Frank) said, (you won’t believe this) “If you require 5% down, then the only people who can buy homes will be those who can afford them.”
In any case, enough humor. All these foreclosures and impending foreclosures will provide incredible opportunities for Real Estate Investors; even investors or newbie investors who don’t have a lot of cash to invest, or maybe even NO cash to invest. Please review my recent Posts about Lease with Option with Shared Equity! The program shows you how to acquire nice homes in nice neighborhoods which have little or no equity and earning immediate cash and cash flow. The key ingredient to this program is the Shared Equity – which is future equity for the seller who has NO equity now.
Most sellers have a pride problem with the feeling that they are “Giving Away” their property. This can be overcome by giving the seller something in the future when there is equity to be shared.
I refer you back to several continued Posts that we call “The Eddie Nivens Story”. This story will show you how the Lease/Option With Equity Sharing Works. You can find them in my “Investors Corner” on my blog at www.RealEstateJack.net
These posts are the opinion of the author who is not engaged in rendering legal, accounting, or investment advice. If such advice is required or desired, the services of competent professional persons should be sought.
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