Archive for the 'Land Trusts' Category
If You’re Thinking of Selling Any Time in the Next 10 Years, Don’t Wait Another Minute
August 31st, 2010 categories: Land Trusts, Real Estate News, Seller Financing
Recent email from someone looking for a refinance (from a commercial hedge fund… Chase won’t refinance for them… they just want their $1,157,000 balloon payment):
“Dawn,
You have us thinking. We would like to sell anytime between now and 5 years. What we would like out of a transaction is $100,000 a year for 20 years. Is that doable? Otherwise, it will pay to keep the building.
Meanwhile we are all proceeding to have a loan in place by 10/15. Loan is uppermost in our mind, but thought I’d give you something to think about–for us.”
Yes, great to be thinking… Just off the top of my head…
Installment Sale
- Purchase price: $3,500,000
- Buyer comes in with $1,500,000 down payment (kinda stiff - pays off existing financing and closing costs)
- You carry a first note and deed of trust for: $2,000,000
- At 5% amortized over 240 (20 years)
- Monthly P&I payment from buyer: $13,199.12 (x12 = $158,389.37/year to you)
- This also defers capital gains, but you have to deal with depreciation recapture.
- Buyer pays all taxes and insurance and maintenance
Installment Sale
- Purchase price: $3,500,000
- Buyer comes in with $875,000 down payment (25% is reasonable, more buyers can do this)
- Buyer gets a bank loan for $1,000,000
- Between DP and bank loan you pay off underlying financing and put $375,000 in the bank (for capital gains, or money to make real estate loans with at 9-12% safe returns)
- You carry a second note and deed of trust for as much as the bank will let you: $1,625,000 (alternatively… have the buyer get a private money loan for just enough to get rid of the underlying bank financing… another $600,000 or so, instead of a $1,000,000 bank loan, then you don’t have to worry about the bank not letting you record a 2nd)
- At 5% amortized over 240 (20 years)
- Monthly P&I payment from buyer: $10,724.28 (x12 = $128,691.37/year to you)
- This also defers some capital gains, but you have to deal with depreciation recapture.
- Buyer pays all taxes and insurance and maintenance
Use a Title Holding Trust instead
- You place the property in a title holding (land) trust
- Mutually Agreed Value: $3,500,000
- Buyer comes in with $1,500,000 initial contribution (kinda stiff - pays off existing financing and closing costs)
- You become co-beneficiaries in the trust
- Buyer leases property from trustee
- Monthly lease payment from buyer: $13,199.12 (x12 = $158,389.37/year to you)
- This also defers 100% capital gains and depreciation recapture until trust is terminated (1-20 years) at which point you can potentially do a 1031 exchange if you want to
- Buyer pays all taxes and insurance and maintenance
Sell to conventional buyer, cash or cash-to-new-loan and use Deferred Sales Trust
- Purchase price: $3,500,000
- You pay off underlying financing and put $2,000,000 in a DST (low risk portfolio you help determine)
- Create payout equivalent to 4% amortized over 240 (20 years)
- Monthly payout from trust: $12,119.61 (x12 = $145,435.28/year to you)
- This defers capital gains like an installment sale, but you have to deal with depreciation recapture.
Of course, these numbers are based upon your opinion of value at $3,500,000.
Selling now will get you…
- A simpler life… no management to deal with
- You are buffered against downturns in the market in the next 10 years (very likely)
- You are buffered against major improvements that need to be done, like new roof, etc., new plumbing or electrical… catastrophic events
If you’re thinking of selling any time in the next 10 years,
THE SOONER THE BETTER!!!
Don’t waste another minute. Things are stacking up to get more ‘interesting’, not less. What you need to think about is quality of life, which of course is influenced by monthly cash flow, but also stress level, and how hard you have to work to manage the property, and what you could do with your time if you weren’t managing. Wanting to travel more? Visit family? Take up basket weaving?
If you decide to sell, I would recommend that I co-list the property with an expert in apartment buildings (I know some), and I have the expertise in owner financing strategies and private money solutions that most agents lack. If I am not co-listing the property I will need to charge you an up front deposit for consulting that will be refunded to you at close of escrow when we have the buyer bring in my fees as part of their closing costs.
Anyhow, we’ll talk soon!
Dawn
P.S. Ask questions, make comments and connect on my Facebook Page!
P.P.S. My real live book is available at last: “Seller Financing on Steroids: Pumping Paper for Power, Peace and Profits“ Book purchase includes a complimentary 30 minute consultation, so save the receipt!
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High End Luxury Homes Falling in Value, Agents Looking for Creative Solutions
June 7th, 2010 categories: Land Trusts, Real Estate News
Diana Olick over at CNBC puts out a lot of relevant data. Jumbos are really making the news these days. (You saw my last related post, right?)
“It seems that while the middle and lower end of the market was seeing real price recovery this Spring, the high end, which was pretty flat all fall, started to really tank from March through May.
Not surprisingly, the inventory of high end homes surged in January, just before that price drop and is continuing to climb.”
One real estate broker I’m working with in the Calabasas area is tweaking her business to increasingly implement alternative strategies for her high end clients. One of her listings isn’t moving because the sellers are insisting on $1,100,000, when the market only wants to pay $900K - $950K. (If they wait too much longer, the market might only want to pay $800K!)
If she can get this listing sold, then they’ll buy this other $2mil home they’ve got their eye on, so getting the listing sold for asking price is worth $3mil in business. We’re working on it . . . if we can get them to offer terms, then there’s a good chance they can get their price.
There’s not much help for many high end homeowners who are already far under water and have unattractive short term financing in place, but there are a few we can help who still have equity and happen to have great long term financing . . . but they’d better not sit around! Those trends above don’t look especially promising.
When banks say NO, I say YES!
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California Jumbo Loans at a Standstill Highlighting Opportunity for Title Holding Trusts and Owner Financing
June 4th, 2010 categories: Land Trusts, Real Estate News, Seller Financing
This post explains why, if you own a high-end home, you shouldn’t necessarily “wait for the economy to recover” so you can get your price, unless you’re prepared to wait a very long time.
Keith Jurow over at the Real Estate Channel recently wrote a compelling article that relates specifically to everything I’ve been talking about for a while now. Make sure you read the full article.
As jumbo mortgage defaults have skyrocketed in the last two years, banks have raised down payment requirements for new loans and sharply curtailed the total number of jumbo originations. According to Lender Processing Services . . .
66,000 jumbo loans were originated nationwide in March 2007. In March 2010, a mere 13,000 were closed.
The drying up of jumbo mortgage money has made it extremely difficult to sell almost any California home which is encumbered with a jumbo mortgage. That has put tremendous downward pressure on prices for these homes.
If you want to sell a high-end home and preserve what equity you still have, then
- sell sooner than later,
- be flexible and willing to offer terms in one way or another, and (unless money is not an issue)
- don’t get yourself in a negative cash flow situation by leasing your property out instead of selling it . . . not a good idea heading into uncertain economic times
If you’re a buyer that can afford a luxury home, then just know that there are many opportunities for you to buy without getting a new bank loan if the existing financing is reasonably attractive.
When banks say NO, I say YES!
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