The Importance of Equity

   The Business of Solving Real Estate Problems

             Real Estate Exchanging

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Wayne H. Wagie - President

  The Wonderful World of Real Estate

How important is Equity when buying selling or exchanging property

Which property is more valuable to the prospective parties.

The property with a small amount of equity or the property with a large amount of equity?

Lets look at each property

Present Condition -  (Taxes and Insurance are not to be considered in this situation, both properties are managed by an outside source, and all parties have good credit)

    Property A 

Has a value of $1,200,000 and even though the property is 95% financed it provides a positive cash flow.           (Equity of approx. $60,000)

    Property B 

Has a value of $1,200,000 and is 50% financed and provides a positive cash flow.   
       (Equity of approx. $600,000)

Property A and B

Have been completely upgraded and the rents are in line with the condition of the building and surrounding community, providing a positive cash flow. 

Benefits to Sellers -Sellers of both properties will receive creative offers, but Property A and B will attract different types of investors.

    Seller of Property A

Should find a buyer very quickly as only a small amount of money or property is needed to exchange into this property.

    Seller of Property B

With a large amount of equity has a lot more room for creativity.

Benefits of Property A - Property A, with only a small amount of cash or property, along with their good credit will allow the parties to take over the present dept. 

As this property has a positive cash flow, this is a great deal for everyone.

Benefits of Property B- Property B, buyer will need to borrow $600,000 or have a large amount of equity in another property to exchange into this property, and most likely will have to go through the process of raising the rents to keep a positive cash flow.

 

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