Posted by Ernest Tew on August 14, 2003 at 20:21:42:
Eddie, fresh ideas can be the seeds that grow into huge profits. I must disagree that a person should ‘do a few deals’ before spending money on education. After 43 years of spending money on education, I’m totally convinced that it is the best investment that I’ve ever made.
While you may not like my ‘master lease concept,’ there are many reasons why everyone who has used used it appreciate the benefits. These include passive investors who receive a pre-determined amount of income, growth, and tax shelter–without the ususal disadvantages of management, maintenance, and risks.
For the lessee, it means acquiring a larger property than they could otherwise afford and earning a larger profit than would otherwise be possible. And, if the transaction is set up as suggested, all the gain will be tax-free forever. Avoiding taxes on our profits is like increasing our return by 30% to 65%, all else being equal. In the meantime, almost all the equity that is created is protected in the event of a lawsuit.
Those who understand the program find that they can sell the property at any time–or hold for the long term. In short, a long-term net lease with an option to buy involves the same rights and responsibilities as having a deed to the property–with one exception: the lessee can’t take depreciation deductions. However, as an offset, all the lease payments are tax-deductible. If the terms call for the lessee to make the mortgage payments, then both principal and interest are deductible.
In short, the creative use of a net lease with an option to buy is our most powerful real estate tool. With the advent of the Roth IRA, it is even better.