Highly Leveraged Properties - Posted by Mark (SDCA)

Posted by Bill Gatten on March 11, 1999 at 12:53:20:


Just remember that the IRS requirement (guideline) dictates that no beneficiary in a (Illinois-type) land trust may hold less than a 10% interest (serves to limit participants to ten, in order to comply with, and not to be confused with, Security and Eschange Issues and regultions).

You’re right. Any perdentage of beneficiary interest can be granted separate from “voting rights”; however, if you want to avoid property tax increases (in most, if not all, counties), you need to assure than no more than 50% of the voting rights (Power of Direction) is relinquished by the owner of record when title is conveyed to the [living] trust (Rev. and TC Regs).

As far as income tax benefits are concerned, its a matter of who makes the payment: He who pays, deducts–assuming Qualified Residential or Income Property requirements under IRC Secs 163, 167 etc. are met.

As concerns the verbiage you refer to, its from the Trust Agreement itself, and is pretty much boiler- plate, designed to clearly separate Realty interest from Personalty for the beneficiaries: a major benefit of land trusts in general. The reference to “any other trust property” is meant to pertain to other properties previously or subsequently held by the same land trust.


Highly Leveraged Properties - Posted by Mark (SDCA)

Posted by Mark (SDCA) on March 08, 1999 at 15:16:56:

A lot of the techniques/success stories I see revolve around purchasing below FMV, often WELL below FMV. I occasionally run across “motivated sellers” whose property is highly leveraged ie there is little to no equity in the property due to a) brief time in the property- no loan paydown
b) slow market- no property appreciation and so on.

Let’s assume a “motivated seller”.
Any techniques for these properties?

A LO could work, depending on the rent/current payment ratio.
Or maybe a short sale is the bank would go for it.
(I’m starting to free associate… hahahah)
Anyone have any experience with sellers being willing to take a negative monthly on a LO (ie I lease it from them at LESS THAN what they have to pay on their current mortgage)?
Or a seller willing to bring cash to the close to pay down the mortgage?
I welcome all thoughts.

Re: Highly Leveraged Properties - Posted by Bob Eberle

Posted by Bob Eberle on March 09, 1999 at 07:38:35:

I recently had a two family house in not so great area that the sellers had tried just about everything to do to get rid of it. When I went to see it, I explained to them that with their financial situation (very good) no bank was ever going to go for a short sale. I asked them if they had refied recently and they told me yes they had. They now owed $65k on a $59k house. My response was to explain to them that they took too much out of the house and that mortgage broker who refied them and the appraiser didn’t do them any favors, and if they wanted to really sell it they would have to be willing to put some back. They asked me how much. I told them I would option the house for $45k, ended up selling it for the $59k and they came to the closing with a check for $19,649. and gladly did it. Why? The Tired Landlord.

Re: Highly Leveraged Properties - Posted by JohnK(CA)

Posted by JohnK(CA) on March 09, 1999 at 24:36:48:

I had a similar situation with a condo a month ago. The guy was leaving for South America in a week. Had a condo worth 65K, owed 63K. I told him I would take it subject to existing 1st, IF he would GIVE me his Accura (Low book value was about $8000 and I needed a car for my daughter)He was close to going for it, but found a renter at the last minute. Some family member agreed to handle the place while he does his Peace Corp tour.
Think outside of the box
Good Luck

Re: Highly Leveraged Properties - Posted by Bill Gatten

Posted by Bill Gatten on March 08, 1999 at 23:15:59:


I deal almost exclusively in highly leveraged, no equity and over-encumbered properties.

I acquire them via a land trust coupled with a Beneficiary Agreement and Triple Net Lease–not much competition out there.

Once I structure the trust for the seller, I then locate a resident co-beneficiary whom, for the tax write-off and all the benefits of ownership without a down payment or bank qualifying, will live in the property for 5-7 years making all the payments and handling all costs. We (the resident beneficiary and I) strucuture our agreement so as to share all net proceeds upon sale when the trust terminates (the end-result is analogous to an Equity Share, but without any of the down-sides).

In this process, there is no Due-on-Sale violation, no title involvment, no real danger for the seller, and no danger for me relative to the resident beneficiary’s potential for liens, suits, judgement, marital problems, BKS, etc.(i.e., the title never comes to me it stays in the seller’s own trust, in his own name: I am merely a co-beneficiary under contract).

When the trust terminates and the property is sold (or refinanced by the resident),I collect my money and add it to any positive cash flow I may have had over the years, half of the principal reduction in the loan and the cash benefit of my depreciation deduction.

Also… when I bring in the resident co-beneficiary in, he covers my closing costs for my acquistion from the seller, plus a thousand or two to me for my trouble on his behalf.

One can own a lot of properties this way, when they come to you for “nothing down and nothing per month.”

Always open for questions.


Re: Highly Leveraged Properties - Posted by Stacy (AZ)

Posted by Stacy (AZ) on March 08, 1999 at 16:01:12:

Will they give you the deed for the amount of their outstanding loan (you make the payments)? Is the property in near-perfect shape and desirable?

One technique (I just learned from Legrand at the conference), is to get the deed, and sell the property either with an L/O or preferably with owner financing on contract for deed.

Place an ad “Seller Financing, No Qualifying” and your phone will ring. Sell the house for above FMV by approx 10%, and get as much down as possible, (as close to 10% (or more) as possible). Your note will have a built-in balloon in a year or so to force them to refinance. Work with them and a good mortgage broker to get their credit ready to buy the house ASAP. Buyers with C and sometimes D credit can get money these days with a good recent payment record, with money being so prevalent. You get a big 10% downpayment, and probably within 3 to 6 months, you get the rest of your investment when they refi.

I hope I got the general idea correct. Legrand students can correct me if I’m wrong. I ordered his courses at the conference, so I’ll know more, later.


PS- Don’t ask about the Due On Sale clause, unless you can handle the answer

What is the advantage . . . . - Posted by DB (WI)

Posted by DB (WI) on March 10, 1999 at 09:26:18:

What is the advantage of a land trust vs. a L/O, other than the tax benefit to the beneficiary?

Re: Highly Leveraged Properties - Posted by Roy

Posted by Roy on March 09, 1999 at 20:55:30:

How do you locate the properties/sellers to do these deals with? Are they difficult to find? How tough is it to get them to go for the deal, since they are still on the hook for the loan?

Yes! - Posted by Jim Beavens

Posted by Jim Beavens on March 08, 1999 at 17:23:46:

That’s exactly what I was going to say! Both Bronchick and LeGrand touched upon this exact situation at the conference. I think the realization that all those “pretty houses” with no equity are a potential gold mine was the single biggest eye-opener for me at the conference.

I didn’t get home until about 1:00am Sunday night, and I had to go into work the next day, and I STILL took a few detours to drive through some neighborhoods in the middle of the night to see if there were any FSBOs around. =)

P.S. I ordered LeGrand’s course as well, can’t wait 'til it gets here.

Re: What is the advantage . . . . - Posted by DB

Posted by DB on March 12, 1999 at 17:16:44:

Opinion (this is not to be taken as the be-all and end-all answer… any safe program promoted here is good). The best of all possible worlds might be a “Land Trust Lease Option.” There you have saleable income tax benefits, ease of eviction, no chance of “equity” claims to forestall eviction or trustee sale; no chance of the Optionor’s illicit acts adversely affecting the Optionee (and vice versa); no interference with tax exchange regulations, etc. AND you have annonymity as is “Get the Property Out of Your Name (Bill Bronchik).”


Re: Highly Leveraged Properties - Posted by Bill Gatten

Posted by Bill Gatten on March 09, 1999 at 22:35:04:

To get the properties, I call Landords (SFR houses, twn hses, condos, PUDS) and FSBO’s.

With the For Sale by Owner, I say: “Hi, I say your ad and I’m looking for folks who are selling on their own, who might be willing to stay on the current loan fora while and have someone come in and take over payments and all costs for a couple years.”

With For Rent ads, I say, “Hi, I’m calling about your ‘For Rent’ ad. What I’m looking for is an opportuntiy where… instead of the $___ your asking, I could pay maybe $____ (125% more) in order to be able to have some tax write-off and the ability to maybe buy the property in, say 2-3 years.” At this point, you’ll get: “How areyou going to pull that one off?” or “Sounds too good to be true,” or “What’s the catch?” Any response other than “Shut up and go away!” is an initial accpetance, and an invitation for you to take their fears away, by explaining how they can be protected from you, from title transfer and from a DOS violation (valid or not, its always their concern).

Getting these properties is never a problem. When you’re dealing in no–or low–equity (or over encumbered) properties, its like picking peaches off a loaded tree: you don’t need to bring a ladder or stoop over… there’s plenty that are just waist high and ready. If they’re obstinate, sutbborn or rude, you merely move on. It’s all a matter of dilligence and consistency.

Hope this helps.


Re: Yes! - Posted by Larry TX

Posted by Larry TX on March 08, 1999 at 21:45:15:

Any reason why this couldn’t work with a highly leveraged mobile home? I found a motivated seller who wants to get out of his monthly payments so that he could buy a house.

Re: Highly Leveraged Properties - Posted by Brad Crouch

Posted by Brad Crouch on March 10, 1999 at 18:47:07:


I have been intrigued with your Trust method (PACTrust) for a good while now. Little by little I have come to understand some parts of the method you use. What I know of it, I like.

There are some details that I am missing, however. I was wondering if the techniques you talk about in the above post, are covered in your seminars?

You recently had a seminar in Palmdale, I was told. Sorry I missed that one as it would have been only an hours drive for me. Please put my name on your mailing list so I may not miss the next seminar.

I remember a post you made about 3 months ago that demonstrated how you explain to a seller, how the PACTrust works. I understand that this was an “abbreviated” version, but I was curious whether or not some folks asks for “more” information or detail?

If these types of deals are like “picking peaches off a loaded tree”, I definitly need to get to one of your seminars.


Then what do you do with them? (nt) - Posted by -

Posted by - on March 09, 1999 at 23:52:08:

Get to Gatten’s Seminar! - Posted by JimPruett (CA)

Posted by JimPruett (CA) on March 11, 1999 at 21:14:48:

Brad -

I went to Bill Gatten’s seminar in Palmdale two weeks ago and it was great!! In addition, he has four follow-up weekly training sessions (for those that make the commute or you can listen by tape), I just returned from the first one about an hour ago and am looking forward to the next three. The guy is a class act and treaches everything you need to know to add this approach to “your toolkit.” If fact, I had so many questions today, I just kept firing them at him as he carried the boxes back to his car after the training session. Afraid I was going to follow him home, he then spent another two hours with me in the hotel lobby and bar, (amazing what people will do for a drink)answering every question I posed until I finally got too tired to ask any more! It was great!!

I find that what he has to offer compliments the techniques I have learned on this web site the past few months. I have read this board almost everyday since November, have purchased courses from Bronchick (3), Diamond, Kaiser, LeGrand and Lonnie Scruggs (only bought his two books) and love what this site has to offer. I have spent alot of money educating myself on Lease Option and Flipping techniques and do not regret spending a single dime for these materials. But what I have learned from Gatten’s materials is how I can use the PACTrust for that little extra protection (“Legal Shield”) using the wonderful techniques taught by the informed on this board and the course materials available for purchase on this site. You owe it to yourself to get to his seminar whenever you can. Anyway, this is my first real post to this board and it is far longer than intended. Hope this helps! Jim

Answer to yours - Posted by Bill Gatten

Posted by Bill Gatten on March 11, 1999 at 11:27:35:


Check you e-mail for dates and times for workshops and seminars in your area (no charge to you).


Re: Then what do you do with them? (nt) - Posted by Bill Gatten

Posted by Bill Gatten on March 10, 1999 at 20:36:36:

Zamborooni (Kevin),

I advertise for folks who, for no down and no bank qualifying and full tax benefits and a share in future appreication will come in as a 3rd beneficiary and make all the payments and handle 100% of all costs for 3,4 5 or ? years.

Sometimes I end up with a few (or several) thousand over closing costs up front, and a reasonable (to “good”) postive CF; but if I don’t I still will probably do well at the other end when the properties sell at the termination of the trust. In a worst case scenario, I’ll have someone esle reducgin the loan principal for me without any money out of pocket.


Re: Get to Gatten’s Seminar! - Posted by Brad Crouch

Posted by Brad Crouch on March 12, 1999 at 02:36:10:


Thanks for taking the time to make this report. I suspected it would be worthwhile. I have talked with Bill a few times and we even had lunch. He strikes me as a guy who knows what he is doing, and is accustomed to dealing with lawyers and professional folks. At one time I thought he might even be a lawyer (he isn’t but his son is).

He also seemed to be a very accomodating fellow. But the most important point is the system he teaches. I guess I’ll find out more about it because I’m taking your advice and getting to the next seminar (on the 18th).

You seem to be interested in the same strategies as I am. And have followed the same educational regime as me. Sooner or later I’ll probably run into you since we live in the same general area.

Take care and thanks again,


Re: Answer to yours - Posted by frankCA

Posted by frankCA on March 12, 1999 at 10:26:46:

Bill…What is your e-mail address…frank

Re: Then what do you do with them? (nt) - Posted by Kev.

Posted by Kev. on March 11, 1999 at 24:10:15:

Hey, Bill!
Just finished reading your book again.
Still learning.
I find that the idea of having a THIRD beneficiary is VERY appealing. I understand you can assign any % interest you feel is a good deal for everyone, as long as it is at least a 10% interest.
How are the tax benefits determined and distributed to the different parties?
Would 2 of the beneficiaries be taking deductions as investors (depreciation) and 1 as occupier taking mortgage interest and RE taxes?
Basically, who gets what percentage of what?
Also, in your book Pactrust, page 98- #3. Interests of beneficiaries as personal property- It states that “No beneficiary has now, nor shall subsequently at any time have, any right, title, or interest in or to any proportion of the real estate as such, either legal or equitable, NOR IN ANY OTHER TRUST PROPERTY”. I am not quite clear on this part.
Thanks for all your time and patience!