Re: OK, here it is …but you’d better be serious!! - Posted by Bill Gatten
Posted by Bill Gatten on April 18, 2000 at 22:18:20:
You?d better listen to me here. Your pokka book is at stake! And I?m only gonna say it once! (Well, maybe not ?just? once?).
If you?re one?a them lurkers on the creative investing sites that never does nuthin? then I?ve wasted an hour of typing (Ok… 20 minutes).
As I mentioned in an earlier post, there are creative real estate investors, and their are creative real estate “acquirers.” I am of the latter ilk: as you apparently are as well (Investors have to invest something?I don?t). And I choose to be an ?acquirer? because I don?t have any competition that way (kind of a white glove junk dealer, as it were).
To buy without cash or credit? or payments or direct risk, you need to find folks who have properties they don’t want, and which they are willing to turn over to you while they keep their existing financing in place. And such properties are not generally going to be those with a lot of equity in them: and, too, if you don?t have fix up money, you?ll need to look at those buyers who are under the gun, out of luck, over the barrel, and in the doldrums.
Of the hundreds of possible approaches, here is an easy one, and one that works real good for me:
Find a property owner who is willing to remain on the current existing loan for you, while you take over his payments and all the management of the property. Explain that you will be putting someone in the property who will cover all costs, maintenance and management responsibilities…and that YOUR responsibility will be to absolutely guarantee their performance (i.e., if they don’t pay you will’ if they damage the property, you’ll repair it; if they move out in the middle of the night, you’ll replace them within a few days). Explain that when these folks come in, you?ll have collected enough advance payments from them to cover any contingency that might arise (eviction, repairs, Unlawful Detainer, etc.).
Now, understand that when you?re dealing in low equity properties (not that you HAVE to, it?s just that they?re more abundant) and you have ZERO competition, you’ll need to do something more than just rent them out. You’ll need to be able to offer tax write-off incentives and all the benefits of ownership, along with the use possession and occupancy of the property: you?ll need to be dealing with prospective homeowners?not tenants. You?lll want them to come in with a pretty good chunk of cash to cover all your costs and make you a profit. This means your arrangement with the seller is going to have to be one that gives you the right and ability to convey tax write-off, appreciation, equity build up by loan reduction, water right, mineral rights, etc?at your discretion.
I do that with a 3rd party trustee, co-beneficiary land trust conveyance. The seller makes me a beneficiary of his own land trust (makes him feel warm and fuzzy to keep everything in his name, and not worry about a due on sale violation). I let him keep from 10% to 50% of the beneficiary interest throughout the agreement, along with the passive tax write-off (Depreciation), which he agrees to “forfeit” to me at the trust’s termination in consideration of my prompt payments and strict adherence to the agreement.
Next, I advertise for and locate a resident beneficiary (a 3rd bene. In the trust) who will live in the property and make all the payments and handle all costs for me?IN EXCHANGE FOR TAX WRITE-OFF AND ALL THE BENEFITS OF HOME OWNERSHIP, PLUS HALF OF ANY APPRECIATION THERE MIGHT BE OVER THE TERM OF THE AGREEMENT. Note that whatever my closing costs are, the resident beneficiary pays them…plus a few thousand to me. Whatever my payments are, the resident beneficiary pays them, plus a few hundred to me. Whatever value I come in at, the resident comes in $10,000 more.
Now, when the trust terminates (3, 4, 5 or 10 years later), I and the resident beneficiary split the net profits to be made on sale or refinance. Note that in doing all this, I have made money up front; along the way; and at the end–in sharing equity build-up (from loan reduction) and the Appreciation. And…oh yeah…I picked up the property for 10,000 less that the amount I charged the resident beneficiary.
That’s all there is to it (but you gotta be quick and keep your fingers out of the way).
Sheeez!! Why doesn?t the rest of the word see this!?