Re: Thanks Bill - More Questions- from janet … - Posted by sjm(Steve)
Posted by sjm(Steve) on January 28, 1999 at 10:23:52:
Let me try to answer some of your questions. I think I’ve got a pretty good handle on this thanks to Bill’s patience with me.
>>Where’s the book? seminar?..where do I sign !
Visit Cal-Equity’s site at http://www.cal-equity.com. You can order the book from the site. You will also find more info on the PACTrust
>>>I just havea few questions. Explain the part where you find a 3 rd party,
>>>as if you were talking to a three year old.
You advertise that you can put someone in a house with NO QUALIFYING and $XXX a month. In addition, the tenant gets to take all the tax deductions that are afforded to a homeowner, making their effective monthly payment that much smaller.
>>>You mention a triple net lease…is that with you, the trust company,
>>>and your new 3rd party?
A triple net lease means that the tenant pays all of the expenses, including property taxes, water/sewer, maintenance, etc.
>>>Do you tell the owner that this is exactly what you are going to do (net lease
>>>with a third party), if so why would (an intelligent person) need me,
>>>could’nt he just go find a person himself?
They could, but they almost certainly don’t have the knowledge, resources, or contacts to put this kind of deal together.
>>>When you bring in a third party, what do tell the trust company?
I don’t know exactly how you notify the trust, but it shouldn’t matter to the trustee. When you execute the ASSIGNMENT OF BENEFICIARY INTEREST or the BENEFICIARY AGREEMENT (Not sure which of these contains the verbage. Bill?) between yourself and the owner, it specifies that you may assign some or all of YOUR beneficiary interest to another party. That is what you are assigning to the 3rd party.
>>>Could’nt we avoid to use the trust company when we want to stick a person in there
>>>by just simply leasing it out, and give the new person an option?
I suppose you could, but as the person in the middle you need to collect at least as much as your paying to the owner. You’ll have a hard time charging above-market rent when you can’t offer the tenant the tax deductions (which you cannot under this scenario) It might cause the IRS to classify it as an installment sale as well if you set an option price before the end of the trust.
>>>Which brings me to my next question, when doing it via “triple net lease”, do we
>>>sell the house for more money? ie.(from your example) …you agree to
>>>purchase from the owner at 115.000.00 10-90 split. Do you somehow state
>>>in the 3rd parties agreement that he’ll be paying…say 130.000.00
In the agreement you specify that the house will be sold at FMV (according to independent appraisal) at the end of the trust. If you set a specific price beforehand it will probably be classified as an installment sale by the IRS with the associated tax consequences. Hopefully you get a higher price because the house has appreciated. In addition, the existing loan(s) have been paid down during the term of the trust, giving you more equity.
>>>If that is not possible…where do we make our profits? well we have
>>>positive cash flow, maybe a down payment, and equity sharing.Can’t I make more(I’m greedee)
>>>EQUITY SHARING…I get a 90-10 split with the owner, now, when I get a 3 rd party,
>>>how do YOU usualy structure the split with him/her(lol)
This deal is somewhat like a partnership where everyone has a piece of the house and everyone shares in the profit at the end. The way it is divided is determined up front - the original owner gets his(or her) beneficiary contribution(typically the amount of their equity) first; the 2nd party (you) gets their beneficiary contribution (an amount agreed upon up front); and the 3rd party gets their beneficiary contribution(typically the amount of their closing costs) last. Then, any remaining profit gets split according to the proportions negotiated up front.
>>>And going back to the positive cash flow part for a sec. Who does the 3rd party
>>>make his payments to …me? or the trust cie?
>>>If it’s the trust company, when do I get my money? When we sell, in xxx years?
>>>Well, I know your answer…BUY THE BOOK …and I will, it sounds like a good concept,
>>>just trying to figure out how much money there is to be made( I’m really greede)
You have to wait for your money, but since you have none of your own invested your yield is, as Lonnie Scruggs would say, "Good enough!"
Also, if you can lease to the 3rd party for more than your leasing from the 1st party, then you have cash flow as well.
Hope I understand it as well as I think I do. I invite Bill to jump in and set me straight if I’ve misrepresented it in any way. Visit the web site; there’s some good information there.