Full Funding options - Part 2 - Installment Sandwich

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Posted by John Behle on November 07, 2000 at 19:22:47:

FULL FUNDING OPTIONS (Part Two)

How about a few more ways to fund notes at full face value or very low yields?

HUNGRY FOR AN INSTALLMENT SANDWICH?

There is an exciting opportunity available for creative note investors.

When a real estate investor ends up with a low tax basis in a property, they can have severe tax consequences if they sell their property through a normal cash sale.

For example, I have a client right now that has a tax situtation where 50% of any cash they receive on a 1.5 million dollar property would go for taxes. Their equty of $700,000 would be pulverized by $350,000 in taxes.

TWO GREAT WAYS TO SAVE TAXES

In cases like this, there are two tax saving possibilities. The most commonly known alternative is a section 1031 tax deferred exchange. When properly stuctured and executed, it is possible t8o trade one property for another.

TWO PROBLEMS WITH EXCHANGES

There are a couple problems with exchanging. One is that some sellers don't want to have to trade for another piece of real estate.

The other problem comes when a property owner has been exchanging for a long time and would prefer to go "down and out" of their real estate ownership and property management.

THE "NSTALLMENT"SOLUTION

The other tax saving alternative is a properly structured "Installment Sale"

An installment sale involves seller financing. In a wrap scenario, a seller may be liable for taxes only on the amount of money as it is received.
This is much better than paying out 50% taxes all at once. An installment sale can spread the liability over a lower tax rates and a longer period.

PLEASE DON'T GIVE ME ANY CASH!

In some cases, there is a seller of a property with a tax problem and a buyer that insists on paying cash. If the seller doesn't want a "Starker" exchange, there would seem to be no way to keep both buyer and seller happy.

A CREATIVE CASH RECIPIENT

If I can save someone tens of thousands of dollars in taxes by stepping in and receiving cash for them I am always willing.

An installment sale does not have to be secured by the property that is being purchased. The note can be secured by other assets or even unsecured.

MORTGAGES FOR PROPERTY FOR CASH

I can take my mortgages and use them as collateral to buy the property on an installment sale and then sell it to the cash buyer at the same price.

My paper has been funded at full face value - 100 cents on the dollar. Not even institutional buyers will or can pay par value for paper.

Like they say "don't try this at home". Proper structure is important here. Look for someone who has the technical expertise to help you if you have a portfolio of paper to work with.

RECOGNIZING OPPORTUNITY

Where would you find these type of transaction possibilities?

Realtors and exchangors may know when their client might be a prime candidate. Unfortunitly, many agents are unaware of their client's tax liabilities.

EDUCATE AGENTS

In your education of agents, these potential tax problems can be pointed out. Of course, don't try to explain to an agent what you are going to do at this point, only that they should call you when they become aware of a problem.

AN AGENT'S MOST NEEDED RESOURCE

In the future, the full time seller financing specialist will become an invaluable resource for agents and exchangors alike.

FROM REO
TO RIO

Another "Full Funding" alternative involves saving your banker's hind end.

Your neighborhood banker may be sitting on "non-performing" assets that are hurting his balance sheet.

HERE'S YOUR CHANCE TO MAKE A BANKER DANCE

Let me show you a deal we cut with a bank. They had many million dollars worth of real estate that they had foreclosed on.

The banker agreed to fund $1,000,000 in real estate paper at a 10% W.A.C.

W.A.C. stands for Weighted Average Current yield. In other words the W.A.C. is the average yield on the portfolio of notes.

Paper for Personal Cashout - From REO to RIO


(THE COMPLETE VERSION OF THIS ARTICLE IS HIDING SOMEWHERE ON MY COMPUTER - I'LL KEEP LOOKING FOR IT)

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