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Creating and Dissolving a Partnership

Purchase Property using the Investors Deposit Money

Vacant Homes

What is Equity

What are you going to do with the Cash

Real Estate Taxes

 

Creating and Dissolving a Partnership

Present Condition - Robert and Jose have formed an LLC to purchase investment property. 
They buy a 12 unit apartment building, they rehab the property, allowing them to raise the rents and quickly     increase the value.  They decided to sell the property and list it with a realtor, who shortly presents them with the prospect of buying a waterfront condominium.  

Problem – Robert is very interested in the waterfront condominium, but Jose is looking in another direction.  Robert needs to do a 1031 exchange to avoid the capital gains tax, which would allow him to have enough cash to close the deal.  He cannot do a 1031 exchange of a partnership interest.

Resolution – Robert and Jose decided to dissolve the partnership and deed the property to each other, which allowed each of them to qualify for doing a 1031 exchange. 

Benefit to Partners – Forming the partnership allowed Robert and Jose to purchase the apartment and rehab the property.  Dissolving the partnership allowed each of them to take advantage of the 1031 exchange rules.
                     

Purchase Property using the Investors Deposit Money

Present Condition - As an investor speculated on a pre-construction property, the sales price of the property was to be $560,000 and the investor could purchase the property for $240,000 with 15% down ($63,000) the investor was going to flip this property to an end user or another speculator. This was a great investment with what was going on at the time, but when the real estate market changed there was no one to flip the property to, and the properties are now selling for $480,000 and the investor has a very short time to close on the property or lose the deposit money.

Possible Resolution - As an investor yourself you approach the very motivated original investor and offer to purchase their position. You create a second mortgage with the investor for a discount of the initial deposit money, and you close on the unit.  

Benefits to You –With your good credit, you have closed on a property worth $480,000     for $357,000 with very little money out of your pocket and even though you will be making first and second mortgage payments you will have $60,000 worth of equity.

Benefits to Investor – The investor was able to move out of the original position with out losing all of the deposit money and will be receiving most of the deposit money in installments.
                     

Vacant Homes

Present Condition - Even in great times there will be vacant homes for sale, but because of the sub-prime mortgage situation and overbuilding vacant homes for sale could rise to 3 to 4 million. 
Home builders report that the pace of new home sales have fallen to an 11 year low, and orders for new homes fell 39 % while the value of those orders fell 48%. 
The speculators that purchased one or more homes or condos during the boom are now having a difficult time finding buyers, as they now have to compete with all of the vacant properties. 
The sub-prime mortgage situation has caused many home owners to be foreclosed on, and have been forced out of their home.  Lenders have been forced to own property instead of the mortgages.

Owners are finding that carrying the cost of these properties is becoming prohibitive, along with the fact that buyers are unable to qualify for a mortgage and home values are falling. 
The owners of these vacant properties are very motivated.

     Now this may sound like bad news, but it doesn't have to be.

 Possible Resolutions – Lease Options, Lease Purchases, Real Estate Notes, Exchanging, etc.

    Example: A 2 bedroom condo unit ocean front  $1,900.00 rent to own. 

Resolution – Learn how to use these tools – Learn from successful investors – Seminars

    Example: "The Greater Miami Real Estate Exchangors"  Go to the meetings and meet local investors.

Benefit to You – You will have control of a property using a very creative method, you will be able to use forever.

Benefit to Sellers – The seller will have moved their vacant property to a user or a possible buyer, who will help defray their costs.   
                     

What is Equity

If you want to increase your transactions in 2010, think in terms other than strictly cash

Equity is the market value of a property, minus the amount of liens or encumbrances.
The most common encumbrance is a loan secured by the property, which is usually a mortgage.
There can be more than one loan secured by the property. 
Other liens or encumbrances might be unpaid taxes, a mechanics lien, or judgments of some kind, etc.

    Example: $100,000 property with a $65,000 mortgage, subtract the $ 65,000 from the
    $100,000 and what remains is $35,000, which is the Equity.

Equity in real estate and cash are not the same thing.
(Cash is liquid and Equity is not) While cash goes into the Equity market at full value, Equity comes out into the cash market at a discount. 
The more cash you put into a property the less liquid you become.

Example: You take a property with a market value of $100,000 and pay cash; it is now yours free and clear. The problem is you have now converted your cash into Equity. 

If you would need that cash now, you have to convert your Equity back into cash.

You have a couple of options; you can get a loan, which will not convert, into the same amount of cash. 
You could also find a buyer for the property, although finding a buyer willing to pay full cash value for Equity, and to close the transaction may take a considerable amount of time.

One way that you can receive your Equity is in the form of a lump sum. 
The seller could receive all cash, or the buyer could obtain a new mortgage and make cash down payment for the balance of the purchase price. 
This is called a cash to loan transaction .

    If you want to increase your transactions, think in terms other than strictly cash! 

Think of the Equity as owned in pieces or in payments. 
If you would receive your Equity in pieces, and the lender continues to receive its Equity in payments, everyone with an equitable interest in the property is satisfied.
Pieces go to you the seller for your Equity, and pieces go to the lender, until the equitable interest is fully complied with.

As an Exchangor you know the best way to receive your Equity is by exchanging
 
The Equity
can be paid with anything that has what you consider to have equal value for your Equity.
In lieu of cash, the Exchangor will receive their Equity for property anywhere, a boat, motor home, a strip mall, stocks, etc.

As an Investor or Agent you will increase your transactions by using any combination of all these ideas, lump sum, pieces or in payments, and exchanging.

To do that, you should help the seller identify their needs, you must uncover the sellers perception of the value of their equity (Remember equity is the owners ego) you need to show the seller that what you have to offer is a fair value in exchange for their equity. 
 
The possibilities are unlimited when you become more flexible in the way you do business, and by increasing your knowledge of exchanging, along with you negotiating skills. 
 

What are you going to do with the Cash

Present Problem - Sellers want to sell and buyers want to buy, BUT buyers know that the sellers are asking for inflated prices and are waiting for the prices to fall. 

Possible Resolution - As agents or investors we need to write a contract at a price that is realistic. This is the starting point where we negotiate with the seller until we come to a reasonable selling price. Financing is the next and very important part of putting a deal together. 
What we need to know is what is the present mortgage on the property and will the present lender work with us or our buyer, it will be much easier to work with the present lender than a new lender. 
Now how do we work with the equity. 

     Example:  The sale price has been agreed to be $280,000 and the present mortgage is $190,000, the equity is $90,000  This is what the seller is going to end up with no matter how the property is financed.  Everyone thinks they need to receive cash, and this is when we need to ask the seller " What are you going to do with the Cash" .
The equity is what we need to discuss with the seller, and show them the advantages of doing owner financing will give them the best possible price with the least amount of problems in the shortest period of time.
We create a note for the equity.
The down payment of $15,000 leaves  $75,000  Interest of 7%   30 year term    $500.00 payment

Benefit to Seller – The seller will receive the best possible price, will receive cash, and will be receiving a monthly cash flow.

 Benefit to Buyer – The buyer will purchase a property in a shorter period of time at a reasonable price, and will have to come up with a much smaller amount of money.

Benefit to Investor or Agent – By being more creative and using your sales skills you will begin putting more deal together.
 

Real Estate Taxes

Slow sales raise assessment questions

The turmoil of last year's housing market doesn't make life easy for municipal tax assessors.  Slow and erratic residential real estate sales complicate their job, which is to ensure that each property is assigned a value as close as possible to what it would receive if it were sold. That is supposed to translate to an equitably shared property tax burden.

Prices have gone down and now the appraisers have to deal with reality, not inflation, everyone's going into the year over assessed for the current market.  The asking prices for both properties, new to the market and those that had been available for months are $10,000 to $50,000 below assessed value.

An appraiser I talked to said It was kind of shocking, we used to say that you wanted to avoid being in the neighborhoods where assessments are going down, but that's reality now.

Checking your numbers

That reality could translate to lower tax bills for homeowners who can persuade municipal officials that their houses aren't worth what they once were, and therefore deserve a lower bill.

Assembling the evidence is time consuming, although most counties and municipalities have their property records available online.

It is recommended starting with the county register of deeds to determine the pattern of ownership and sale prices for the houses comparable to yours - comparable not only in size and location, but also in style, condition and amenities.   Houses in a particular subdivision are almost all based on a builder using about three models.

That list can then be used to look in municipal records for the current assessed value and taxes of the similar houses, every municipality is required by state law to have an open book period when the latest assessments are open to review by the public. That's the moment, say local officials, to get the current value of your house and others like it.

If you believe there's a discrepancy, you have to get the core facts to build a case for challenging the assessed value with the municipal assessor's office or board of review.

Resolving the challenges

Assessment commissioners agree that challenging the value of your property is the point, not complaining about taxes.

Most municipalities have several thousand-assessment appeals each year. Most of them are resolved by the city's board of assessors, the ones that aren't proceed to a review board made up of citizens. They go over the evidence, too, looking for facts for or against the assessed value.

"A recent appraisal is evidence. Sale of the property is the best evidence. Sales of comparable properties are next and then anything else that sheds light on the value, such as recent improvements, is evidence,

Remember talk to them about value and not taxes, because, if you go in and start to talk about taxes, they'll move you back to talking about the value."

                           Every taxing municipality has their own system of appeals and forms.
 

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