Re: Just a quick point . . . - Posted by Bill Gatten
Posted by Bill Gatten on April 13, 1999 at 22:53:52:
I fully agree with you and defer to you on this issue (at least in spirit). However… desperately praying here not to sound commerical (YOU DON’T NEED ME TO DO A PACTRUST! AND I THINK THE TERM HAS FINALLY BECOME GENERIC ENOUGH NOW. ARGH!!), let me offer a possiblity that perhaps you haven’t considered.
For someone (newbie or oldie) to acquire income property safely and easily with nothing out of pocket…without having to necessarily always look for the “bargains”… and without negative CF’s and unreasonable monthly expenses, it IS possible to combine your philosphy and mine (a bunch of folks on this board are now finding that out, with no small degree of exhuberance and glee).
In a nutshell: One of the answers to your post was by someone (Alex, I believe) who agrees with you completely (like I do), but said he was having trouble finding properties that were within the standard flip parameters (e.g., the right amount of equity, the right amount of discount, the right payment to rent spread, etc.).
So…how about a way for someone to break-in to this business WITHOUT needing to search for big equity spreads, elbow grease fixer-uppers, widow swipers, etc. And…without having to always resort to fast flips? In other words, how to work with an empty wallet and still be able to hold 'em (as it were).
Very simply–find Don’t-Wanter properties (especially ones with little or no equity) and agree to take over the payments via a land trust in the seller’s name (i.e., in the seller’s name to protect them–and you–from all sorts of legal potentialities, the least of which may the the DOS).
OK, now create an option to acquire the property in, say, another month or two; then advertise for someone whom, for NO Down (Closing Costs only), NO Bank qualifying, minimal credit qualifications and full tax write-off for a specified period of time, would live in the property, covering the closing costs (whatever they may be) and all monthly payments and management expenses.
They–this new resident beneficiary–now comes into the agreement for,say 2,3,4 or 5 years with some beneficiary interest in the land trust (i.e., any percentage over 10% gives them 100% [ALL] of the tax deductions for the interest and property tax they pay).
Within the agreement, you and they can agree (for a higher percentage ownership) to SHARE the profits upon termination of the trust… or you can give them only a minor percentage, so they can take the tax write-off (i.e., in exchange for much BIGGER monthly payments), and NOT give up the property at termination.
At the end of the initial agreement, the resident moves on and you merely raise the monthly payments, put someone else in, and start all over again. You can do this until the cows come home (assuming you have a cow, of course).
Joe, this system allows one to hold the property forever (if you can re-fi someday, or as long as the seller is willing to leave his name on the loan…I sold a house 16 years ago and am still on the loan with Washington Mutual, and we’ve been involved in several 20 and 25 year PACTrusts).
Just some food for thought.
As always, I enjoyed you post. Thanks.