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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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 Splitting Up A Partnership

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 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.

 USING “NO PAYMENT” NOTES
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.

 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.

 PERFORMANCE MORTGAGE
When -   When you’re acquiring a property that is supposed to have a certain income which the seller has told you the property will make.
Situation -   Jones is interested in acquiring a commercial rental that Smith owns. Smith tells him that he has a lease on the property for $1,000 per month. He has never had a vacancy and the property can be depended upon to bring in that amount of cash.
How -   Jones makes an offer on the property for $20,000 cash down with Smith to carry back an $80,000 mortgage which pays at $850 per month including interest at 10%. Jones writes into the mortgage that in the event the income on the commercial property falls below $1,000 per month, the payment will drop to $500 per month. Should the building become completely vacant, there is to be no payment and no interest to accrue. Smith takes the offer!
Results -   As long as the building performs, Smith will receive his payments. Should the building not perform as Smith indicates, Jones will not have to make the payments.

 SHARED APPRECIATION
When     
and     
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!

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