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Sale with Option to Buy Back Instead of Loan

Create a Note

Accept a Note, but Borrow Back

Real Estate Paper for Personal Property

Discounted Sale with Buy-Back

In - Lieu Transaction

Prepay Interest with Equity

Removing the Blanket

Sale with Option to Buy Back Instead of Loan

Situation – As an exchangor, you have been approached to provide a $25,000 loan.  A parcel of land with an appraised value of $35,000 would secure the loan. Even though you would have a mortgage and note, you do not want to put yourself in the position of lending someone that amount of money and have the possibility of going through the problems and expense of foreclosure to recoup your investment.

Possible Solution – Instead of outright declining the situation, you offer to purchase theThe parcel of land for $25,000 with an option for the present owner to Buy Back the property in the future for $30,000.

Benefits to You –You will have title to a parcel of land worth $35,000 that you paid $25,000

Benefits to Seller -The seller will receive the $25,000 he was looking for, will not have to make payments and for a premium will have the ability to repurchase the property any time in the future

Create a Note

What You Have- As an exchangor, you have acreage that you have been trying to sell for some time, you really need cash now and this property has been very difficult to borrow against.

Possible Solutions - You create a note that is secured by your acreage. You offer to exchange the note for anything of value, which you can make free and clear.

      Example: a house, boat, automobile, plane, art work, etc. You then sell or borrow against your new asset.                                   You may also sell the note to an investor at a discount for cash.                                          

Benefits to You – You have taken a very difficult piece of property and without selling or borrowing directly from the property received the cash you were looking for.

Accept a Note, but Borrow Back

What You Have- As an exchangor, you have a 12 - unit apartment building that you have had for sale for some time now.  The property has increased in value the past several years and has $110,000 in equity.  You have received an offer from a buyer that would like to exchange a note he holds which is secured by a very good property the buyer sold several years ago.  The note has an approximate value of $95,000. You are very interested, but you need cash to put into another deal.

Possible Solution – You counter the offer with the condition the buyer gives you the $95,000 note and lends you $40,000 which will be secured by the $95,000 note you receive in the transaction.

Benefits to You –You sell your apartment building and receive cash to move into another piece of property.

Benefits to Buyer – The buyer purchases a 12 - unit apartment building using his note.  He will also be receiving payments on the newly created $40,000 note.

Real Estate Paper for Personal Property

What You Have - As an exchangor you have $180,000 equity in a 16-unit apartment building that you have had for several years. The building produces you a positive cash flow, you keep it in excellent condition and it appreciates at a good rate.

What You're Looking For -You locate a boat that has approximately the same value as your equity in your apartment building.  You offer the boat owner a real estate note using your apartment building as collateral and at the current market interest rate.  The boat owner would like to sell the boat, but needs most of the value in cash now and is not interested in holding paper.

Possible Solution - You create a note for the $180,000 equity in your apartment building, you sell the note to an investor who will purchase the note for a discount.  You now have a substantial amount of cash to offer the boat owner, to balance the equity's you also offer a lot that you own.

Benefits to Boat Owner - He sold his boat and received the cash he needed, plus a free & clear lot.

Benefits to Investor - He lends his money at a good yield, with great collateral.

Discounted Sale With Buy-Back

The Situation –  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.
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 Solution -"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 it.  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 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 cashflow because you 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 ismost 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"  

In-Lieu Transaction

Situation –As an exchangor you have some acreage that you would like to exchange for income producing property. 
You have been offered a building lot zoned commercial, but it's not exactly what you're looking for.

Possible Solution -I have found that looking at all possibilities will lead to putting more deals together.                     The "In-Lieu Of" agreement will work in this situation.  You could accept the offer of the commercial lot "In-lieu of" what  you really want.  In this case what you are saying is I will take your property if I can successfully exchange it for an income producing property.

The "In Lieu Of" agreement reads first (or second party) accepts this agreement   "In lieu of" receiving satisfactory property in lieu of the described (first or second party) party herein, by no later than, Date______________

What we know - The essential ingredient to any real estate transaction is a willing seller and a willing buyer.               In real estate exchanging we need to find a "taker" for our property, regardless of what the "taker" is offering. 

Benefits To You: You are now is position to offer both your property and the "takers" property for whatever you find will meet your needs. 

Benefits To The Taker: The taker will end up with your acreage, as he will help you find a suitable property.

Prepay Interest with Equity

Situation – As an exchangor you are looking to acquire a 20-unit apartment building that presently is in bad shape. 
This property needs to be totally upgraded to bring in the rents that will give this property a positive cash flow.  You know that this upgrade will take a couple of years to complete and during this period of time the units will be producing a negative cash flow.
You write an offer asking the seller to hold a note on the apartment building with a very low interest rate. 
The seller has already lowered the price on the property and is not willing to also give you a low interest rate on the note.         

Possible Solution – You have another piece of property with substantial equity, you offer to give the seller additional equity in return for the low interest rate. 

Benefit to You – You receive the lower interest rate giving you the cash you will need to upgrade the property and now your negative cash flow will be substantially reduced.

Benefit to Seller – The seller has additional equity giving him greater security in the note. 

Removing the Blanket

Situation – As an exchangor, you are interested in acquiring a property that contains a house that needs to be remodeled and includes acreage that can be subdivided.
Your interest is to rebuild the house, subdivide the property allowing you to build four homes. 

You write a contract that spells out to the seller that with a small down payment the seller will take back a note on the remaining balance. 
The contract also says that when each house is either remodeled or built and then sold, the mortgage will be reduced by a specific amount. 

This procedure is referred to as "Removing the Blanket"

Benefit to You – You purchase the property with a small down payment and make monthly payments to the seller.  When you sell each house you are also selling a parcel of the land at a much higher value than what you paid for it, while reducing your monthly payments, this also gives you more money to work with to build the next house.

Benefit to Seller – The seller moves a piece of property that has been difficult to sell.  He collects monthly payments, and along with receiving chunks of money each time a parcel is sold, his risk is being reduced. 

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