Re: Cash flow qestion on a rental? - Posted by Bill Gatten
Posted by Bill Gatten on December 21, 1998 at 14:20:19:
If the cash flow is of major concern (which it should be), why not consider trading the tax write and a portion of the principal reduction and appreciation potential for a [much] bigger cash-flow and freedom from expenses.
E.g., place the property into a co-beneficiary land trust (e.g., 3rd party trustee, co-beneficiary conveyance) and make the the tenants a 50% beneficiary. This will eliminate all (100%) of your maintenance, repairs, upkeep, property taxes, insurance, vacancy potential and management costs: and gives you at least 150% higher rents. It also makes eviction much simpler and does not entail the tenant needing to be on title in order to have virtually 100% of the benefits of ownership.
The main concept to keep in mind is that anything you give away in future appreciation will be much more than made up for in higher monthly profits and freedom from the costs and burdens of landlording. When I use this program (about 1,000 times so far) I look at the tremendously enhanced cash-flow and freedom from costs as a guaranteed advance on future appreciation (whether the property ever increases in value or not).
Furthermore, this process elimintes the concern (if you ever had any) about due-on-sale violation relaticve to the owner-carry, and any worry about the property ever being the subject of lines, suits, judegment, BK, marital disputes, etc. by the seller.
What I do is have the owner place the property in a trust in HIS/HER name, and give me 90% Beneficiary interest in their trust, along with an agreement to forfeit their 10% when I refinace in 3-4 years. I then advertise for a buyer to whom I assign a 50% interest. Then upon sale at the trust’s termination, 1) the loan is paid off, 2) I get back any moneys or equity I started with; 3) the 3rd bene gets back any moneys he/she started with; and 4) the remainder (net profit) is shared between us 50:50.