Sounds like a good candidate for a PACTrust . . . - Posted by Brad Crouch
Posted by Brad Crouch on June 04, 1999 at 22:41:41:
if the seller is willing to keep his name on the underlying loan for a few years.
Help the seller put the property into a trust, in his own name (as the benificiary). Then advertise for a “buyer”:
NO BANK QUALIFYING - NO DOWN PAYMENT
As little as closing costs and 2 advance payments
can move you in. $130,000 property only $XXX.XX monthly plus tax & ins. Incredible trust opportunity.
Call Mr./Ms. XXXXXXX at (XXX) XXX-XXXX
“NO BANK QUALIFYING” doesn’t mean the buyer won’t be “qualified” . . . only that a bank won’t be doing it. You would be doing it, and you shouldn’t let anybody in there unless you feel comfortable with them, and their ability to pay.
And if their credit is less than “stellar”, you might want more than 2 advance payments. That’s up to you.
The seller assigns 50% of the beneficial interest in the trust to the new “resident”, making him a “resident beneficiary”. The seller also assigns 40% of the benificial interest in the trust to you, the investor.
The new “buyer” leases the property (triple net lease) from the trust for 2 years, 11 months and 29 days. Any time this “lessee” stays longer than the lease period, he is a “holdover tenant” and this status can be maintained for as long as the other beneficiaries allow it. This allows the trust to exist longer than the lease period, without triggering the loan being called “due”.
The buyer comes in with an amount called “closing costs”, but since no closing actually takes place until the property is eventually sold, the money goes into your pocket (like initial option consideration). You may want to agree to split this upfront money with the seller as you mentioned . . . or you could structure the deal so that the seller gets some monthly cash flow, along with you. Or it might be better to give the seller nothing now, but instead let him collect whatever monies he is due when the trust terminates.
The PACTrust is pretty flexible, and you can do it whichever way you want, and can get agreement on.
When the trust terminates, the property is sold for FMV with the resident benificiary getting first dibbs. But the trustee is obligated to sell the property at FMV, regardless of who buys.
Also, when the trust terminates, the seller forfeits his 10% benificial interest in the trust to you, the investor, as consideration for timely payments to the lender, etc… This gives you a 50:50 interest with the resident benificary so you can “split” the net proceeds of the sale, when it occurrs.
The principal reduction that has taken place during the time the trust was in effect, and the appreciation that may have occurred, is yours to split with the resident benificary after the underlying loan has been paid off and the original seller gets whatever he has coming and the cost of the sale has been taken care of.
Oh yeah, the resident beneficiary also gets back all “non-recurring” costs that he has coming (this means the initial “closing costs” and any “approved” improvements that may have been made).
So . . . similar to a lease option, you can get “upfront cash”, a monthly cash flow and a “back end” spread that can be pretty substantial.
There are, of course, more details about this . . . you know, the things that make this method a pretty good “legal sheild” and go the protection of all parties from each other as well as bankruptcies, marital problems, liens & judgements, etc… For more details on this method of property aquisition and disposition, I wouls suggest clicking on the Cal-Equity banner at the top of the main newsgroup page.