Posted by Ray on January 16, 2000 at 21:17:37:
While I don’t have first hand experience in #1, a big-time investor in my area did the following on a large real estate deal.
He purchased a large, very old hotel, in need of a lot of work. His intention was to rehab and sell off the units as condos. My understanding is that he purchased the entire project and had an agreement with the bank (who was aware of his plans) that the first few he sold, 100% of the price went towards principal, then a sliding scale with a lower and lower percentage going towards principal for each sale. The bank simply released the leins on units as they were “condo’ed”. Of course, this is a little different, as he was not holdign financing on the units, but I suspect the bank would be even happier if he did. Theoretically, if he was selling for $100k, getting 10% down and holding 90% (or whatever the deal), the bank could extend his liability from what’s left of the hotel to include the equity he has collected on the units he has sold.
Obviously, it takes an agreeable bank with whom you have a GOOD relationship.
It happens all the time around here on a smaller scale. We have thousands of “duplex condos”. In a nutshell, you can buy a duplex, take out a mortgage, then “condo” them, to sell each floor separately. When you sell one floor, the bank releases you from that floor, provided they have enough equity in the remaining floor.