Credit repair theory - Posted by David
Posted by David on August 06, 2005 at 07:46:57:
Thanks for your time, all. I have a friend (really) who is part of a beginning real estate investor group in my town. His problems have tended to take a disproportionate share of time in our meetings, as he regales us with tales of how the city is driving him to ruin. In reality, the city is apparently trying to take his apartment complex by eminent domain, and he’s fighting it legally. During this fight, the guy’s given back some 10 single family homes to lenders, so his personal credit is absolutely shot.
My friend is buying the apartment complex on a land contract. The complex appraises for about 1M.
I want to give him a solution, if for no other reason than to quell the discussions he has during meetings. I wanted your opinions on my proposal, as I thought it might be a fairly creative solution.
My proposal is that my friend form a C corporation, so he has a new legal entity that would have its own credit rating. He could quit-claim his interest in the land contract into the C-corporation, wait a year or so, and get financing for the balance of the purchase price without much in the way of a down payment (I am familiar with companies that will treat seasoned land contracts and lease options as refinances, using equity in place of a down payment). As long as the amount of the new financing is supported by rents, he could encumber the apartment complex and make the payments, and maybe set aside some amount in case the eminent domain payment is incredibly small.
Then he should take the money and buy property that the city isn’t trying to grab by eminent domain (some SFH’s some smaller apartments, etc.). He says the property appraises for about 1M, and he’s had the land contract for about 15 years now, so he should be able to take in the order of hunderds of thousands of dollars out, depending on what he owes on his land contract, and the C-corp’s credit rating.
My question, as succinctly as I know to put it, is this: Can one repair one’s credit by forming a C-Corporation, and getting financing in the name of the C-corp on a commercial property by seasoning their land-contract buying interest and getting a lender that will treat that as a refi?