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REE.com - 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. REE.com 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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 EXCHANGING CREATED PAPER FOR PERSONAL PROPERTY
When -   You have a lot of equity and not much cash and want a new car!
Situation -   Jones had acquired a $50,000 duplex 6 years ago now owing $35,000. Payments are $400 a month – income $950.00/mo. Jones found a sports car at the local garage for $22,500. He offered the dealer a created 2nd on the duplex for $25,00- dealer wouldn’t take it - he offered a $30,00 2nd- $300 a month, 10% and dealer wouldn’t take it. Jones then found a buyer for the note at $22,500 which the dealer would take. He exchanged the note which the dealer promptly sold and drove the car out free and clear!
Results -   Dealer had his money. Jones could have borrowed against the duplex but this way was faster and now he had a 10% loan against the property instead of a 13%. This can be done even if you don’t qualify for a loan.

 BING - BONG
When -   You own a property too long - need paper - wish to change position.
Situation -   Jones owns a F/C 440,000 lot. He wants to generate cash but can’t sell the lot or borrow against it!
How -   Jones finds an owner of another lot, bare land, or similar sized property. An exchange is made and each party carries back a $25,000 1st mortgage or trust deed at identical terms. After exchange the carry back trust deed or mortgage can be sold for cash at a discount, kept for income, or traded.
Benefits -   Cash generated or new position requiring some action.

 THE MISSOURI WALTZ
When -   When cash is offered in a transaction and the acquiring party does not wish to take the cash and be taxable.
Situation -   Jones is offered a million dollars cash on a low basis property which he owns. Jones does not wish to take the cash and be taxable (this is a variation on the “in lieu of” formula).
How -   Jones accepts the cash “in lieu of other real estate” and does not take the cash but uses the cash to acquire other property which would be suitable to him.
Variation -   An installment sale can also be made when cash is offered by having a third party create a secured note with that party taking the cash giving Jones an installment bill.

 EXCHANGE OR SELL THE OPTION
When -   When a person sells or exchanges out of the property if he can retain an option to repurchase the property at a modest inflation rate, he can sometimes do extremely well.
Situation -   Jones is selling a parcel of ground at the edge of town for $100,000. As part of the terms, he negotiates an option to repurchase the ground within 5 years for $150,000. Later the land increases at a much faster value than anticipated and the property becomes worth $200,000.
How -   Rather than exercise the option and acquire the property and then resell the property, Jones merely sells his option for $50,000. It has suddenly become quite valuable. He can also exchange the option for property that he would prefer. Caution: an option is not considered real estate so it would not be "like kind."

 GENERATING CASH ON PAPER WHILE DEFERRING THE TAX
When -   Jones has $100,000 in several mortgage notes he has carried back on real estate sales. All tax on these notes has been deferred. He will not enjoy the benefit of the $100,000 for several years and Jones understands the “time value of money”.
How -   Jones creates a $90,000 note, secured by these $100,000 in notes. The notes are retained by Jones but pledged as security for this $90,000 note. Payment on the $90,000 is $950.00 a month including 10% interest. This $90,000 note plus $5,000 cash is exchanged for a free and clear home or condo. (it can be done). Once acquired, Jones borrows 80% on the home ($79,000). He now retains $74,000 less costs, which is non taxable because his basis on the house is $95,000. He now sells the house for $95,000, $10,000 cash down and carries back a $6,000 2nd. He has now generated $84,000 in cash and a $6,000 2nd from his $90,000 in notes (about 93.3%) .
Variation -   If the house won’t sell for $95,000 and he drops to $89,000 and does not take back a 2nd, he will be able to show a $6,000 tax loss after generating 93.3% on the paper.

 R.E.O. (REAL ESTATE OWNED BY A LENDING INSTITUTION)
When -   You have large equity or free and clear property you can’t borrow against but need cash!
Situation -   Jones owns a$100,000 F/C 5 acres at edge of town. He would like to keep it but needs immediate cash in the meantime.
How -   Jones approaches a local savings & loan and offers to exchange the land for two $50,000 F/C condos the lender took back through foreclosure. He then offers to buy back the land provided they (or someone else) will lend him 80% on the condos. He agrees to buy back the land for 30% down and “sweetheart” terms.” $30,000 cash down, 8% interest only, payment quarterly for 33 years, then 10% interest only, all due in 5 years.
Results -   Jones generates $50,000 cash, has $20,000 equity in the depreciable asset and $30,000 equity in his own land with a new higher basis.

 OVER TRADE
When -   In almost any type of an exchange.
Situation -   Jones has a $60,000 note which he has held for some time and needs real estate for tax shelter. He finds a situation where Smith owns a $75,000 duplex with a $50,000 equity.
How -   Jones offers Smith a $60,000 note for his $50,000 equity and asks Smith for $10,000 cash to equalize. Jones has over traded Smith by $10,000 asking for cash back.
Results -   Jones has the real estate to depreciate plus $10,000 cash. Smith now owns the $60,000 note.

 GENERATING CASH AGAINST A NON-SALEABLE AND NON-LENDABLE PROPERTY
When -   If you own a property which you are unable to sell and on which you are unable to borrow, yet you need cash .
Situation -   Jones owns a $50,000 lot on which he is unable to borrow money and which he is unable to sell . He has offered to discount the price but to no avail.
How -   Jones creates a $35,000 note against the property ( it’s always a good idea to keep at least a 20% equity for safety) and exchanges his note for an item on which he can borrow. For instance it might be an automobile, a boat, a “cheapy” house, etc. Once that property is acquired, a loan can be obtained on it. Another variation would be to discount the note for cash. (Be extremely careful as this could be construed as usury in some instances.)

 DISCOUNTED SALE-OPTION TO BUY BACK
When -   If you need money badly and are unable to borrow against the property or sell at market value.
Situation -   Jones finds himself in the need of $20,000. He has nice little commercial piece of land at the edge of town with an appraisal of $50,000. He can’t borrow against the property.
How -   Jones offers the property for sale for $25,000 all cash provided that he has the option to buy the property back within one year for $30,000 all cash.
Results -   Jones generates the cash almost immediately. It will cost Jones $5,000 for his interest, however, he will be able to buy the property back within one year for $5,000 more than he received. Smith, the buyer, will receive $5,000 for the use of his money for one year. In the event Jones does not buy back the property, Smith has a tremendous bargain.

 SHARE THE WEALTH
When -   When you need to generate cash through an exchange but other party also wants cash.
Situation -   Jones has $80,000 in F/C land or paper and needs cash.
How -   Jones finds Smith who owns an $80,000 F/C (or close to it) house. Jones offers to exchange equity for equity. Smith counters that they “share the wealth.” Jones is to give Smith 1/2 of the $60,000 generated in a new loan and Smith will give Jones back a $30,000 mortgage on the land at the same terms as Jones is having to pay on the new loan.
Results -   Half a loaf is better than none. Jones doesn’t get as much cash as he would like to have, but he can make the transaction. Both parties share the cash, generated money can be distributed in any proportion approved by parties. Usually costs of loan are prorated in proportion to cash received.

 SELLING PAPER AT A DISCOUNT
When -   If you are going to have a note payoff and you prefer not to receive the payoff but would rather have monthly payments continued.
Situation -   Jones had a $50,000 note which he learned was to be paid off within the next six months. Income tax on the note had been deferred so when Jones received the payoff, he would immediately be taxable to a large extent. Jones prefers to have monthly payments rather than to have the payoff on the note. In the meantime, he finds Smith who has a $50,000 (or series of notes) who is receiving good monthly payments but would like to have his cash. If Jones and Smith exchange their notes, they are immediately taxable.
How -   If Jones sells his note to Smith at a considerable discount) Jones would only be taxed on the amount that he receives for that note. In the mean time, if Smith sells his note to Jones at a discount, he would be taxed on the amount that he received. (Check this out with your accountant. It is conceivable you would still have a taxable situation!)

 BREAKING UP THE NOTE
When -   In the sale of the large rental property, or a property where the initial payments would ordinarily be too large, taking the benefits out to a perspective purchaser.
Situation -   Jones owns a 5 million dollar cattle ranch. Jones would like to sell the cattle ranch, however, taking a down payment of $500,000 and payments of interest only at 10% would result in a $450,000 interest payment the first year. Jones carries back 20 separate notes with one note due each year, plus 10% interest. The 1st note due at the end of the first year would be $225,000 plus $22,500 in interest for a substantial reduction in the payment. The payment would be the least the first year getting larger every year. Hopefully the ranch would be better able to make the payments.
Results -   A transaction could be made that would not otherwise have been made on the sale of the ranch.

 SUBSTITUTING COLLATERAL
When -   When Jones acquires a property and gives back a “purchase money” note on the property he is acquiring.
Situation -   Jones is acquiring a $60,000 single family rental paying $10,000 cash down and giving back the seller a $50,000 “purchase money” note secured by mortgage. Jones retains the right to substitute collateral of equal or greater value for this note at sometime in the future.
How -   Three years from the time of purchase, Jones has a chance to use this house in a transaction, however, the acquiring party must have the house free and clear. Ordinarily Jones would have to pay off the $50,000 but with the agreement to substitute collateral, Jones secures the note with a $70,000 equity on a duplex which he owns. Jones walks the note to this property giving him the house free and clear so he can use it without paying off the existing note.
Results -   Jones saves $50,000 in cash that he would have had to generate in order to pay off the note. (Jones can also ask for a “first right of refusal” if the note sold at a discount.)

 SPLIT, CREATE, AND ACQUIRE
When -   When you wish to acquire a piece of property that can be split into smaller parcels and don’t have the cash to make the transaction. You know that the property will be worth a great deal more smaller sections.
Situation -   Jones finds a 5 acre parcel owned by Smith which can be divided into 4-1¼ acre parcels. Smith wants $20,000 cash for the property. Jones doesn’t have the $20,000 cash but know that each parcel will sell for approximately $15,000 as 1¼ acre parcels under good terms.
How -   Jones offers Smith the $20,000 on the 5 acre parcel providing Smith gives him the opportunity to divide the parcel into four smaller parcels. Jones arranges to sell or deed the parcels to a partnership he controls carrying back four $14,000 notes written at favorable terms. The partnership gets the property at no down payment, however, will have to make payments on the notes which will be against the property when they close. Jones then finds a buyer who will pay 60% to 70% of face for the individual notes. (At 70% this would indicate $9,800 on each note.) Total cash generated would amount to $39,200 from which will be paid the $20,000 purchase price and costs of the transaction. Profit should be substantial. The partnership now either puts the property on the market for sale at a existing loan or perhaps holds the property for development.
Results -   Seller received the exact terms he wanted on the property, Jones made a substantial profit, the partnership stands to make a profit, however, does have some risk. (Jones needs to be very sure of what those properties are selling for and under what terms and conditions the property will sell.)

 BREAKING UP YOUR EQUITY
When -   There are times when you may have too large an equity to be used in an exchange situation. This equity can be broken up.
Situation -   Jones has a $200,000 four-plex he owns free and clear. He wishes to diversity into different types of real estate for added safety.
How -   Jones can exchange his improvement only at a value of $160,000 keeping the land under the property which he could then lease to the acquiring party. The lease could be a long term lease running for 50 to 100 years with the stipulation that the improvements would revert to the landholders at the end of the lease. Jones could then exchange or sell the land lease valued at $40,000 for another property. In the event Jones wished to retain his improvements, he could exchange the income from those units for a period of 5 years for another property which he wishes to obtain. Jones might even exchange an option to acquire his property at $200,000 within any time during the next 5 years for a considerable amount. Jones must determine what it is that he wishes to acquire and then determine which part of the property he owns he is willing to trade for it.
Results -   Can be a considerable diversification of properties obtained from one larger entity. Also, the owner may value the land lease at a greater figure or the improvements depending upon his tax situation.

 CASH SALE
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!

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