Everything worth having involves risk; and yes I would. - Posted by Bill Gatten
Posted by Bill Gatten on January 31, 2000 at 16:46:55:
You can place property into a PACTrust with them (the current owners), which process incorporates a lease agreement (with them or someone else) without an “option to purchase.” Under the circumstances any option for them to "re-acquire ownership might be risky in terms of their later claiming equity to thwart your eviction efforts.
If there is equity in the property, or if you are in an area where you can reasonably expect some…go for the PACTrust™. It will keep you out of debt and keep you out of trouble and enable you to replace them real fast if they screw up.
First, you put the property in a trust in their names (makes insurance a cinch and accomplishes a ton of other benefits including DOS compromise, alert and enablement, that a trust in your name won’t do…and you lose nothing in the process…a power of attorney can give you full directive control).
Next, you take an assignment of beneficiary interest in the trust (e.g., 90:10 in your favor, with an agreement from them to forfeit their interest in, say, 5,6 years…this avoids reassessment for property tax, documentary transfer fees, etc.)
You then lease to them on a straight rental: or on a triple-net lease basis (the latter will afford them the same tax write-offs they have now, and would justify their paying you more money per-month, while saving them money at the same time (i.e., over what they’d pay after-tax for just renting).
At the end, you will have either agreed to share proceeds on sale or re-fi with them–or not (you can, if you choose, have an agreement to simply buy out their interest for $100 at the time, and not share anything with them).
The key here, Ron, is having enough money to bring everything current, and enough to make payments for a couple months should they ever default…while you’re replacing them. Personally, I would have them begin building a Contingency Fund immediately as a part of their monthly payment, so that if you did have to evict them, you could do it with their money instead of your own.
Remember that even though the trust remains in their name, as does the loan, they do not own the property. They have relinquished 100% of all legal and equitable title to the trustee upon consummation (creation) of the 3rd-party land trust.
In So. Cal. when I do these, I honestly don’t worry much about how much equity a property has…the market has never let me down yet. If there’s none at start, and I have spent nothing, I don’t care much.