Help me think "outside the box"! - Posted by Alan-Baltimore

Posted by Jullio on March 13, 2001 at 06:58:25:

So the PC is essentially an agreement on how to share the proceeds between the owner the L/Oer and the Tenant Buyer? Why would the owner or TBer agree to that?

Help me think “outside the box”! - Posted by Alan-Baltimore

Posted by Alan-Baltimore on March 11, 2001 at 19:11:00:

I posted this earlier and didn’t get a response. I’m still hoping for some help in coming up with a creative deal for either of these properties.

These two deals are similar in that they are single family homes that currently have tenants who want to buy the house but have credit problems. Each landlord wants out for different reasons and there doesn’t seem to be much room for profit on the surface.

I don’t yet have all the details but here’s what I have so far:

Deal #1

House owned by a guy who,according to tenants, spends most of his day sitting at the local bar. He’s a couple of payments behind and wants someone to assume his loan (don’t know if this is possible or if he would accept a “subject to” deal). He has mortgaged property for $62K (again, info from tenants) and payments are about $600/month which is what the tenants are paying. I just did a lease/option on this street and was able to get $70K but that was for a substantial rehab. The $62K is about right for this street though there might be a little room to bump up to $65K. I haven’t gotten all the details yet from the tenants as regards more rent or option money but I got the impression that they were just able to pay the current rent.

Deal #2

House owned by out-of-town landlord who is offering his tenants a chance to buy the house for $98K before he puts it on the market in May at $110-115K. This is a somewhat unique property for this area but comps indicate that the $112 is within reason. Tenants are currently paying about $750/month. The tenants have the ability to pay more rent (up to $975) and could come up with an option of about $2500.

In both of these cases, the tenants have credit problems and want to stay in the house. I don’t want to put any of my money in these deals (naturally) especially because they seem kind of skinny to begin with.

I’ve thought about a PACTrust but don’t know exactly how to put one together or if it would be applicable here.

I haven’t yet talked to the actual property owners and am looking for some creative alternatives I can offer them before I make the calls. Any ideas are welcome (even if they are to pass on one or both of these).

Re: Help me think “outside the box”! - Posted by Bud Branstetter

Posted by Bud Branstetter on March 11, 2001 at 23:52:55:


The Pactrust is a way to do subject to property. Of course I think it is a better way. On you Deal #1 the problem is there is not enough tax write off to offer a buyer in return for higher payments or down. Yes, you can give them that ownership advantage like a CFD but safer with the Pactrust. I would ask for half the appreciation if they didn’t have the 10% down. So out they go if he is really a tired landlord.

On Deal #2 there is a possibility since they can pay more. You will have to get him to defer his equity and want no more than what your tenant can put up as cash. It is likely that his loan payments are closer to the $750. He could refi to get some equity out. The tenants would need to be shown that by writing off the interest and taxes that they can afford even more than the $975. Since they don’t have a large down you want half the appreciation from them too.

Re: Help me think “outside the box”! - Posted by Jullio

Posted by Jullio on March 12, 2001 at 06:38:09:

How do you structure the PacTrust to do that? and why is it any better than a land trust spelling out what each is responsible for?

Re: Help me think “outside the box”! - Posted by Bud Branstetter

Posted by Bud Branstetter on March 12, 2001 at 09:12:42:

I’m not sure what you mean by “do that”. If the question is how does it allow the tax write off it is because the tax code allows someone owning a piece of the trust, contractualy obligated to make payments, pay the property and insurance and live there to deduct those items. If the question is how does it not violate the DOS is because the real property is not sold or leased longer than three years. Only a portion of the beneficial interest is transferred. The PT starts with a land trust. Other agreements are added. if you made some of those changes to the land trust and had the agreements that Gatten spent many dollars with attorneys to develop over time I guess you would have the same benefits. Some benfits could be utilized more easily than others but why try to reinvent the wheel. It’s like saying I want an agreement that controls property but isn’t in my name, is beneficiary controlled, etc. The Illinois land trust was created years ago and does not need to be reinvented. The PT does not need to be reinvented.

Re: Help me think “outside the box”! - Posted by Jullio

Posted by Jullio on March 12, 2001 at 09:35:35:

Under the PT can you as a L/Oer get all the tax benefits and depreciation legally and not live there? If not what are the benefits of the PT?

Re: Help me think “outside the box”! - Posted by Bud Branstetter

Posted by Bud Branstetter on March 12, 2001 at 13:40:55:

The resident beneficiary that lives in the property gets the property tax and interest deduction. The investor(non resident beneficiary) gets the depreciation for the portion owned. Even the original owner that keeps a portion of the trust could take the depreciation. The percentage of ownership is not as important as the agreement on spliting proceeds.