Real Estate Corner The Best Deals Include Paper
Often the best and most creative real estate deals will include “paper” or some kind of seller financing. Exchangors, in an elite category of the real estate industry, are very familiar with this strategy and are highly skilled at complex deal structuring. Unlike traditional real estate brokers, Exchangors are "free birds", unconstrained by the rigid orthodoxy of the retail real estate profession. Most Exchangors have achieved the status of a Certified Commercial Investment Member, which is the National Association of Realtors’ most prestigious designation.
Further, most have also completed the rigorous Society of Exchange Counselors’ program, another prestigious qualification. Adept at counseling their clients in a shifting marketplace - closing sound transactions in economies moving from tight money to easy money and back to tight money conditions - Exchangors are economic survivors well-schooled in taxation, economics, investment analysis, and alternative financing. Most are experts at creating and maneuvering private paper, a necessity often presented by the complexities and mechanics of successful exchanges.
Exchangors rely heavily on other brokers - providing opportunities for motivated retail agents to participate in these exhilarating and rewarding deal-making experiences. To illustrate, I will share this example with you: A semi-retired gentleman walked into Renee Realtor's office, desiring to unload thirteen older rental units on 1.5 acres. A thorough interview revealed that the Seller was worn out managing the dog-eared property and his wife wanted to live in a shiny new home. However, they still needed investment income and they preferred low-maintenance rental real estate.
Renee's analysis determined that: rents could be doubled within twelve months’ time; deferred maintenance could be caught up from monthly cash flows; and the underlying 1.5 acres alone would be worth three times the purchase price in ten years or less. Renee knew that professional Exchangor, George, was seeking investment property for a client who was the business manager of a private pension fund. George had also recently listed a $180,000 small commercial property, owned by a successful paint and body shop. Renee got excited about the possibility of making three deals out of one.
Renee contacted a note broker (such as myself) to arrange for the purchase of the newly created note that would be coming out of the transaction. She then quickly found her Seller a new $95,000 home; the listing agent was more than willing to cooperate with the exchange (even in the existing sellers' market); and the agent happily gave up the full selling side split. At closing, George's Seller sold the commercial building to the pension fund for $180,000, financed by a seller carryback mortgage.
The pension fund paid all closing costs for that side of the deal. At the same time, the pension fund paid $95,000 cash for the new home - then gave Renee's Seller the home and the commercial building in exchange for the thirteen rental units. To reconcile each party's needs, George's Seller signed a ten-year leaseback for the commercial building, to provide the investment income that Renee's Seller wanted.
The $180,000 note created by the pension fund was "walked-over" (moved) to the thirteen rental units to balance the equities - giving Renee's Seller his free and clear commercial building, while providing the financing needed by the pension fund to complete the purchase of the thirteen rental units. And at the closing, the $180,000 note was sold to a note broker such as myself, providing George's Seller with the cash he required.
Visionary thinking allowed Renee, George, and the retail agent to achieve their clients' objectives - at the same time enabling Renee and George to move difficult properties. Everybody wins!
© 2007 Hard Cash Note Buyers