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(your email address) - where the real estate investor market is always hot. With real estate credit virtually non-existent, facilitating a direct 1031 exchange between property owners is a great alternative. is the oldest, most trusted, and fastest-growing online exchange website for the trading or property swap of commercial real estate properties.

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 Eliminating Negative Cash Flow

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When -   Again this can be used when there is a disagreement as to the price and perhaps the income on the property is not sufficient to warrant the asking “price.”
Situation -   Jones has a four-plex that he has not kept the income up to what it should be. His rents are only $200 per month when they should be at $250 per month to warrant a price of $120,000.
How -   Jones again offers to exchange the property and lease it back at a rental of $250 per month for a period of 1, 2, or 3 years. This will establish in the mind of the taker that the price is worth what he is asking. Jones can then go ahead and increase the rents and if he can do better than the $250 per month, he can actually pocket some money.
Results -   Jones has established a value of the property and the taker of the property doesn’t have to worry about vacancy for the length of the lease.

(Very similar to the R.E.O. except done with individuals)
When -   When a person wants to establish a value on the property that they are exchanging in to another individual or when they want the option to repurchase that property.
Situation -   Jones has a four-plex that he feels is well worth the money. The rents, however, are not at their peak and therefore most people look at the property with the idea that it is not worth what he is asking.
How -   Jones exchanges the four-plex at a value of $120,000. He then agrees to buy back the property at that figure within 1 year’s time. That time may be extended to as long as 5 years where he would have the option to repurchase the property at a price of $130.1000.
Results -   If Jones buys the property back he then has established that the property value would be correct. Also he is establishing a new basis when he does buy the property back. If he just has an option to buy the property back within 5 years, Jones might find that the property values increase considerably and he could buy the property at a “bargain” price.

When -   You can’t afford the negative cash flow on a good property.
Situation -   Jones owned a residential lot that he thought would go commercial in about 3 years. He owed $20,000 on the property with $200 a month payments. Smith could easily afford the $200 a month due in 10 years and wanted a good return on his investment. Jones offered Smith 50% of his equity (in this case $10,000) if he would make the payments. Smith accepted. In 3 years the property went commercial and the value jumped to $80,000.
Results -   Jones ended up with $30,000 and didn’t have to make a payment. Smith put out $7,200, most of which he could deduct on interest and end up with $30,000.

When -   A professional man or perhaps a person who has fixer-upper qualities does not have the cash to use to acquire property but still wished to acquire some real estate.
Situation -   Jones is a young attorney just getting started. Jones does not have any cash., However, his business is in the process of building and the future looks bright. Jones would like to acquire some real estate for investment purposes, but does not have the cash at the present time.
How -   Jones offers to exchange $5,000 in professional services to a party who wishes to move out of a duplex. The party owning the duplex can use the professional services or perhaps exchange them to someone else at a later time. They also may be able to sell the services at a discount.
Results -   Jones was able to obtain a duplex with no down payment and has the added benefit of securing new clients.

When -   When a party owns land with no income and is unable to exchange it for income property.
Situation -   Jones owns a $50, 000 lot free and clear on which there is no income Jones would like to have some income from his equity. Jones finds Smith who carries a $60,000 equity in a tri-plex.
How -   Jones offers the lot plus $10,000 to Smith for his equity. Smith did not want a lot but the cash gives him the added incentive to make the transaction.
Results -   Jones ends up with a cash flow tri-plex and Smith ends up with the cash plus the lot which he will build on later.

When -   When a person has a high interest, low equity, negative cash flow property.
Situation -   Jones had been forced to take another property in an exchange situation. He didn’t really want the property as it consisted of a small house worth approximately $40,000. The loans against the house totaled $36,000. With the interest rate at 14.5%. The property payments were $447.00 per month and the property was rented at $325.00 per month. Accordingly, this “$4,000.00 in equity” was costing him almost $200.00 monthly negative cash flow including the taxes, insurance, and upkeep.
How -   Jones approached the lender, indicating there was really no equity in this property and he was interested in “deeding back” the property rather than allowing it to go delinquent, bringing about a foreclosure. The lender appreciated his contacting them and working out arrangements to allow the “deed back” .
Results -   The lender did not have to foreclose on the property and Jones got out from under a big negative on a small property.

When -   When you wish to acquire a proper on which the payments are already too large.
Situation -   Jones wishes to acquire a four-plex which is bringing in approximately $1,000 per month. This would leave approximately $600 per month for making payments. The existing payments on the property are already $700 per month. Jones would lack $15,000 on his down payment so would be asking Smith, the owner, to carry back another $15,000 note. In the event Jones had to make payments on this note, the negative cash flow would be too much to make the transaction beneficial.
How -   Jones offers the $15,000 note to equalize equities, however, there would be no payments on the note for two years at interest only at 10% then the note would be amortized over 20 years.
Results -   Jones could afford property with the $100 a month negative but would not be able to acquire the property with a $250 per month negative.
Variation -   In the event that Jones would offer a contract or a wrap around note instead of the $15,000 2nd the wrap could be made where there would be no payment to the other party on his portion of the wrap at least for a period of time.

When -   The same situation as walking the loan where you have a loan against the property which makes it difficult to move the property on exchange or sale.
Situation -   Jones owns the same 5 acre parcel with $200,000 with a $100,000 loan against it. The loan is payable at $1,200 per month including 12% interest all due in 5 years.
How -   Jones finds a property which he would like to have with a $200,000 equity and agrees to give the owner of the property, Smith, a $100,000 note back against that property he is acquiring payable at $1,200 per month with 12% interest all due in 5 years. In other words, Jones is giving back a note of the same exact terms as the one on his property. One note offsets the other. This makes it much easier to make a transaction.

Situation -  
Jones and his wife are a young couple just getting started. They don’t have a and down payment and don’t qualify for the loan on a house they would like to Situation - own. Smith is an investor who likes the benefit of real estate ownership and shelter but doesn’t want management.
How -   Smith and Jones agree to purchase the home Jones wants. Smith puts up the down payment and qualifies for the loan. Jones then “rents” the house for the payment and pays all taxes, insurance, utilities, and any and all repairs. The lease period is for 5 years with the contract between Smith and Jones stating that at that time the house would be appraised and Jones would pay Smith all of his down payment, plus ½ of the appreciation.
Results -   Smith has a 50% equity getting all the shelter and 50% of the growth. He has no management. Jones gets the house he wants and 50% of the “growth,” at the end of the 5 years Jones can qualify for a new loan.
Danger -   In some cases, such as divorce, the occupants of the property have sued the investor for “their share” of the growth even though they haven’t lived up to their part of the bargain and gotten it. The author believes a “lease” with “option to buy” may be a better vehicle for all. Consult your attorney!

When -   When you are extremely lucky and there is a lot of cash available.
Situation -   Jones wants to sell his duplex.
How -   List it for all cash.
Results -  
  1. Jones has to wait and wait to find a buyer with all cash.
  2. Jones’ price is discounted completely because everyone knows he will take less for cash.
  3. Jones will be taxed on the transaction as there is no deferral of tax in a cash sale.
  4. If Jones gets the cash, all income from the sale (interest) is taxable.
  5. Jones immediately starts losing value on the cash as inflation has a tendency to use it up.
Keep this in mind. . .A cash sale is something to keep in reserve only when creative transactions won’t work!

When -   When you are unable to handle a transaction due to the fact you do not have sufficient cash.
Situation -   Jones finds a property which is in a distressed sale going for approximately 50% of its value due to the fact the owners need cash. Jones does not have the cash but realized what an excellent buy this particular piece of property is.
How -   In this case Jones has a “sugar daddy” available who has indicated to Jones that when he finds a situation where he will be able to make a “real good deal” he should be contacted. Jones calls the “sugar daddy” indicating what he has available. Between the two of them, by using Jones’ experience and perception and the “sugar daddy’s” cash they are able to acquire the property and later sell it for a tremendous profit.
Results -   Jones will make money on a transaction he would not have been able to handle before. Both parties need each other. (It is always a good idea to have two or three “sugar daddy’s” available for transactions. As a rule, this type of client likes to keep their money working and they may not always have sufficient funds available.)

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