Discounted Sale With Buy - Back

Present Condition   As an exchangor you have an apartment building that has appreciated substantially in the last few years. 
You need cash to start another project, but you don't want to move out of the apartment building, and in this difficult market you also do not want to create a new mortgage as more debt would create negative cash flow.   
You have a low basis of $35,000 in the apartment building, but now the value of your property is over    $450,000. 
You also know that in the present market conditions the only buyers available will be looking for property at a very low price.

Possible Resolution- "Discounted Sale With a Buy-Back."

You locate an investor who also knows the value of your apartment building, but doesn't want to pay    $450,000 for the property. 
The investor agrees to purchase the property for a discounted price of $300,000, a price he is more comfortable with. 
You agree to that price but retain an option to repurchase the property for $150,000 within a three-year period of time. 
One of the terms of the option also allows it to be assigned. 

The Benefits to You – You have not been forced to entirely divest your apartment building at a very low price, and have received a very good amount of cash while retaining control of the property with your ability to repurchase the property. 
You also will not have any negative cash flow because you will have no mortgage payments to make. 
You have lowered your capital gain by agreeing to a low price, and when market conditions improve you may find a motivated buyer who is willing to purchase the option. 
In that situation where the option is exercised, you will have established a new $150,000 basis in the property, which makes for a much lower capital gain.
 

The Benefits to Investor – The investor will win in one of two ways. 
Either he acquired the property at a very good price, or he has "locked-in" an extremely high return on his $150,000 investment. 
You, and market conditions, will determine which way the investor will win, but either way, the investor will be a winner.  
The investor is most likely a lender and because he already owns the property he will not have to go through with a foreclosure on a loan. 

Benefits of the Discounted Sale With Buy-Back –Buyers and Sellers agree on the fact that a property has future value, but they don't agree on the present value. 
A discounted sale with buy-back is a great tool to use when the parties (EGO'S), are stuck on their views of the present situation. 
The transaction takes place and  (Everyone Wins)

 

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