Re: how are you making money when taking deed to full price homes? - Posted by Brad Crouch
Posted by Brad Crouch on April 20, 1999 at 14:13:05:
This senario sounds perfect for a PACTrust. They are good for “no equity”, “low equity” or “overencumbered” properties (not to exceed 10% overencumbered).
The seller gets out of the property without further maintenance or repair obligation but needs to stay on the loan for a few years. The monthly payments are accepted and disbursed by a “distribution” company and the payments are never late because of a “contingency fund” which holds a few months of monthly payments (at least one). So the sellers loan is never jeopardized, and it is the first thing paid when the property is eventually refinanced or sold (at the current FMV - a few years down the road).
You find a buyer who comes in with “closing costs” (which goes in your pocket, similar to initial option consideration on a L/O) and a few months worth of monthly payments (depending on credit worthiness, maybe several months of monthly payments in advance would be required).
The buyer gets all the tax benefits of a homeowner and gets his “closing costs” back, too . . . at the end of the term (a few years). Any “improvements” the buyer wants to make, require YOUR approval (must be something that adds value to the property or you will not approve).
During the time the trust agreement is in force, the loan balance gets paid down, resulting in “principal reduction”, which you split with the buyer at termination of the trust. Also you get to split any appreciation that may occurr in that time, with the buyer.
That’s a pretty fair amount of money to split at the end of the deal, and there is monthly cash flow and initial cash coming in, too.
The PACTrust method looks good to me for any kind of situation where “seller financing” is involved.