REAL ESTATE FINANCE I MANUAL - download.e-bookshelf.de€¦ · The Real Estate Investor’s Answer...

REAL ESTATE FINANCE & INVESTMENT

MANUALN I N T H E D I T I O N

J A C K C U M M I N G S

John Wiley & Sons, Inc.

ffirs.indd iiiffirs.indd iii 6/16/08 10:51:49 AM6/16/08 10:51:49 AM

File AttachmentC1.jpg

ffirs.indd viffirs.indd vi 6/16/08 10:51:49 AM6/16/08 10:51:49 AM


MANUAL

ffirs.indd iffirs.indd i 6/16/08 10:51:48 AM6/16/08 10:51:48 AM

Works by Jack Cummings

The Complete Handbook of How to Farm Real Estate Listings and Sales, published by Prentice Hall, 1973.

The Venture, a novel published by Charterhouse, 1976.The Ultimate Game, a novel published by Major Books, 1978.The Complete Guide to Real Estate Financing, published by Prentice Hall, 1978.Lauderdale Run, a novel published by Manor Books, 1979.Building Your Wealth through Creative Real Estate Investing, published by Pierce, 1980.Successful Real Estate Investing for the Single Person, published by Playboy Press, 1981.Cashless Investing in Real Estate, published by Playboy Press, 1982.$1,000 Down Can Make You Rich, published by Simon & Schuster, 1985.The Real Estate Financing Manual, published by Simon & Schuster, 1987.The Business Traveler’s Survival Guide, published by John Wiley & Sons, 1991.The Guide to Real Estate Exchanging, published by John Wiley & Sons, 1991.The Real Estate Investing and Financing Manual, published by Simon & Schuster, 1993.The McGraw-Hill 36-Hour Real Estate Investing Course, published by McGraw-Hill, 1993.The Real Estate Investor’s Answer Book, published by McGraw-Hill, 1994, second revised

edition published in 2005.The Real Estate Finance and Investment Manual, published by Simon & Schuster, 1997.Investing in Real Estate with Other People’s Money, published by McGraw-Hill, 2004.Commercial Real Estate Investing 12 Easy Steps, published by John Wiley & Sons, 2004.The Tax-Free Exchange Loophole, published by John Wiley & Sons, 2005.The Real Estate Investor’s Guide to Cash Flow and Equity Management, published by John

Wiley & Sons, 2006.

ffirs.indd iiffirs.indd ii 6/16/08 10:51:48 AM6/16/08 10:51:48 AM


MANUALN I N T H E D I T I O N

J A C K C U M M I N G S

John Wiley & Sons, Inc.

ffirs.indd iiiffirs.indd iii 6/16/08 10:51:49 AM6/16/08 10:51:49 AM

This book is printed on acid-free paper. ∞

Copyright © 2008 by Jack Cummings. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the web at www.copyright.com. Requests to the Publisher for per-mission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifi cally disclaim any implied warranties of merchantability or fi tness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor author shall be liable for any loss of profi t or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002.

Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be available in electronic books. For more information about Wiley products, visit our web site at www.wiley.com.

Library of Congress Cataloging-in-Publication Data:

Cummings, Jack, 1940- Real estate fi nance & investment manual Jack Cummings.—9th ed. p. cm. ISBN 978-0-470-26040-1 (pbk.) 1. Real estate business—Finance—Handbooks, manuals, etc. 2. Real estate investment—Finance—Handbooks, manuals, etc. 3. Mortgage loans—Handbooks, manuals, etc. 4. Mortgages—Handbooks, manuals, etc. I. Title. II. Title: Real estate fi nance and investment manual. HD1375.C854 2008 332.7'20973—dc22

2008002757

Printed in the United States of America.

10 9 8 7 6 5 4 3 2 1

ffirs.indd ivffirs.indd iv 6/16/08 10:51:49 AM6/16/08 10:51:49 AM

www.wiley.com

This book is dedicated to the many thousands of real estate investors

who have already had the opportunity to read earlier editions and who,

by their messages to me, have attested that much of their

success is due to my showing them the elements of successful real estate investing.

In addition, to the many new investors who will become true and successful “insiders”

to this fi eld because of this book.

ffirs.indd vffirs.indd v 6/16/08 10:51:49 AM6/16/08 10:51:49 AM

ffirs.indd viffirs.indd vi 6/16/08 10:51:49 AM6/16/08 10:51:49 AM

vii

TABLE OF CONTENTS

Introduction—xxxv

Chapter 1How Real Estate Investing Goals Help You Formulate

Effective Financing Strategies —1Goal of This Chapter ....................................................................................................... 1

The goal of this chapter is to impress upon you the importance of establishing worthy and measurable goals to which you can direct your investment efforts.

To Be Effective, Focus on Results ..................................................................................... 2Have Clear Goals ..................................................................................................... 2

Essence of Accomplishment ............................................................................................. 3Don’t Stray from the Right Path .......................................................................... 3

Location, Location, Location Is Not the Answer .............................................................. 3Real Estate Is Not Universal ..................................................................................... 4Your Secret Weapon Is the Local Building and Zoning Department ........................ 4

Be at the Right Place at the Right Time ............................................................................ 4Without Action, the Best Time and Place Are Lost .................................................. 5

Get the Other Party to Commit First .................................................................. 5Who Is More Motivated? ......................................................................................... 5

ftoc.indd viiftoc.indd vii 6/16/08 11:06:18 PM6/16/08 11:06:18 PM

viii TABLE OF CONTENTS

Know What Is Important ........................................................................................ 5Carefully Investigate Existing Leases .................................................................... 6Buyers Need a City Code Violation Inspection. .................................................. 6Due Diligence Checklists .................................................................................... 6

Begin with Your Goals ...................................................................................................... 7Enhance the Value of a Property .............................................................................. 8Consolidate Existing Debt into More Manageable Debt .......................................... 9Attract More Buyers to a Property for Sale ............................................................. 12Increase the Market Potential of a Property ............................................................ 13Meet the Tax-Free Exchange .................................................................................. 14Increase the Return on Cash Invested in Income Properties ................................... 15Generate Immediate Cash That Is Tax-Free ........................................................... 17Maximize Equity Build Up of a Long-Term Investment ........................................ 18Help Solve Tax Problems ....................................................................................... 18Create Tax-Deferred Transactions .......................................................................... 19Open New Doors for the Investor to Expand an Investment Portfolio ................... 20Provide the Professional Touch to a Good Marketing Plan ..................................... 21

Know the Limitations of the Tools of Financing ............................................................. 21Six Tips to Solving Real Estate Financing Needs or Problems ................................ 22

Chapter 2How to Set Effective Goals for Successful Real

Estate Investing—23Goal of This Chapter ..................................................................................................... 23This chapter walks you through the goal setting process.

Word of Caution about Goal Setting ..................................................................... 23The Chicken or the Egg? ................................................................................................ 24

Before You Can Get to Your Destination, You Must Decide Where You Want to Go ..................................................................................... 25

Develop a Vision of the Future .............................................................................. 25Learning to Visualize Your Goals ....................................................................... 25

Visualizing the Future Is Essential to Sound Goals ................................................. 26Are Your Goals Realistic? ................................................................................................ 27

Is What You See What You Want? ......................................................................... 27Your Goals Will Help You Properly Finance Your Real Estate Investments ............. 29Take Stock of the Assets at Your Disposal .............................................................. 29

Examine All of Your Abilities and Liabilities. ..................................................... 29Examine All of Your Wants................................................................................ 30

ftoc.indd viiiftoc.indd viii 6/16/08 11:06:19 PM6/16/08 11:06:19 PM

Table of Contents ix

Set Intermediate Goals........................................................................................... 31Who Do You Share Your Goals With? ................................................................... 31

Develop an Advancement Team ........................................................................ 31Get Your Goals, Team Members, and Your Abilities and Put

Them to Work .................................................................................................. 32Profi t in Real Estate through Your Comfort Zone .......................................................... 32

Why Is a Comfort Zone Important? ...................................................................... 32The Comfort Zone Will Make You Successful ....................................................... 33Building Your Comfort Zone................................................................................. 35How to Get Started with Your Comfort Zone ....................................................... 35This Concept Works Well for Investors and Real Estate Salespeople ...................... 36We Live in a World of Nameless, Faceless Neighbors ............................................. 36Make Your Comfort Zone Work with Creative Tools ............................................. 36

Chapter 3The Power and Art of Effective Negotiating —40

Goal of This Chapter ..................................................................................................... 40

This chapter shows you how a win/win strategy begins with your goals fi rmly in focus and ends with helping the other party to the transaction move closer to their goals.

Decision Time—Yours or Theirs? ................................................................................... 40Darts-on-a-Map Time Is Over ........................................................................................ 41Steps to Successful Negotiating ....................................................................................... 43

Basis of the Transaction ......................................................................................... 43Review the Alternatives .......................................................................................... 44Doing Effective Homework ................................................................................... 45

Blind ................................................................................................................. 45Open ................................................................................................................. 46

Factors That Make Deals Come Together ....................................................................... 47Why Does the Other Party Want to Buy or Sell? ................................................... 47Who Is He or She Trying to Impress? .................................................................... 49Know the Timing of the Transaction Better Than the Other Party Does ................ 49Verify the Facts ...................................................................................................... 50

Tips for the Buyer .......................................................................................................... 50Price ...................................................................................................................... 50Legal Description .................................................................................................. 51Mortgages .............................................................................................................. 52

ftoc.indd ixftoc.indd ix 6/16/08 11:06:19 PM6/16/08 11:06:19 PM

x TABLE OF CONTENTS

What Is Included with the Property? ..................................................................... 53Are There Environmental Problems? ...................................................................... 53Are There Code Violations? ................................................................................... 53

Tips for the Seller ........................................................................................................... 54When Will the Closing of the Transaction Occur? ................................................. 54How Is the Price Determined, and Exactly How Much Is It? ................................. 54How Are the Mortgages to Be Paid? ....................................................................... 54Get Started on the Right Foot ............................................................................... 55

Getting Started ............................................................................................................... 55Understand the Essence of Negotiation ................................................................. 56Confrontation Before Negotiation ......................................................................... 57

Carpet Merchant Style Negotiation ................................................................... 57Win by Knowing the Other Player’s Weaknesses and Goals ................................... 58

Building Trust Is Building a Network for Success ........................................................... 59How Sweet It Is .............................................................................................................. 59

Chapter 4How Leverage Affects Risk and the Value of Real Estate—61

Goal of This Chapter ..................................................................................................... 61

This chapter illustrates the mechanics of leverage and shows you how its magic can gen-erate enormous increases of investment yield and property value when used wisely and correctly.

Defi nition ...................................................................................................................... 61Positive Leverage .................................................................................................... 61Negative Leverage .................................................................................................. 62

Role of Risk in Leverage ................................................................................................. 63Relativity of Risk ................................................................................................... 64

Example 1 ......................................................................................................... 64Example 2 ......................................................................................................... 64Example 1: Review ............................................................................................ 64Example 2: Review. ........................................................................................... 65

Introduce Leverage into the Equation .................................................................... 65Example 3 ......................................................................................................... 66

Effect of Constant Rate on Cash Flow ............................................................................ 68Learn the Effect of Constant Rate Financing ......................................................... 68

ftoc.indd xftoc.indd x 6/16/08 11:06:20 PM6/16/08 11:06:20 PM

Table of Contents xi

Value and Risk in Leverage: The Bottom Line Can Be the Most Important Criteria to Determine Both Value and Risk ....................................................... 69

Key Factors in Real Estate Leverage ................................................................................ 69Structure of Financing Affects the Amount of Leverage You Receive ...................... 69Leverage Calculations Are Merely a Comparison of the Yield Changes .................. 70Maximum Leverage May Not Be Possible in All Situations .................................... 70

Appreciation...................................................................................................... 70Equity Buildup .................................................................................................. 70Cash Flow ......................................................................................................... 71Tax Credits ........................................................................................................ 71Use of Funds Available ...................................................................................... 71

Amount of Leverage Generated Is Not the Final Criteria ....................................... 71Investment Leverage Available to Real Estate Investors Is Maximum ..................... 72Leverage Is a Function of Financing and Can Be Seen as a Gauge of How One

Investment Strategy Compares with Another .................................................... 72Pitfall of Leverage: Overextension .......................................................................... 73Final Element: How Leverage Affects the Increase of Value in Real Estate.............. 74

Infl ation ............................................................................................................ 74Example 4: How Infl ation and Leverage Create Value. ...................................... 75Improved Infrastructure .................................................................................... 76Government Control and Regulation Changes .................................................. 77Neighborhood Sizzle ......................................................................................... 77Economic Conversion ....................................................................................... 78Increased Bottom Line ...................................................................................... 78Steps Necessary to Increase Cash Flow .............................................................. 78Capital Improvements ....................................................................................... 80Supply and Demand ......................................................................................... 80

Chapter 5Conventional Financing:

Where to Find It and How to Negotiate the Best Terms—83Goal of This Chapter ..................................................................................................... 83

This chapter introduces you to conventional forms of real estate fi nancing.

The Neighborhood Lender Is as Close as Your Computer .............................................. 83Unveiling the Mortgage .................................................................................................. 84Conventional Financing ................................................................................................. 84Institutional Lenders ...................................................................................................... 84

ftoc.indd xiftoc.indd xi 6/16/08 11:06:20 PM6/16/08 11:06:20 PM

xii TABLE OF CONTENTS

Different Types of Institutional Financing ............................................................. 85When Is a First Mortgage a First Mortgage? ........................................................... 85

Steps to Obtaining a Mortgage ....................................................................................... 86Loan Origination Costs and Fees ........................................................................... 86Construction and Development Loan .................................................................... 87Take-Out or Permanent Loan ................................................................................ 87Mortgage and Mortgage Notes .............................................................................. 87Title Retained by the Borrower .............................................................................. 88Contract for Deed ................................................................................................. 88Mortgage Satisfaction ............................................................................................ 89Grace Period .......................................................................................................... 89Loan Position—Right to Lien ................................................................................ 90

Secondary Position ............................................................................................ 90Recording Mortgage Documents ........................................................................... 91Review of Lien Position Is Essential ....................................................................... 91

Who Is the Mortgagor and Who Is the Mortgagee? ........................................................ 91Standards That Make a Loan Conventional .................................................................... 92

Policy, Risk, and Credit History......................................................................... 93Example: 100 Percent Financing Using Regulations against Policy. ................... 94

Make Contacts with Loan Offi cers and Mortgage Brokers .............................................. 95Interest, Points, and Cost ............................................................................................... 97

Negotiate Interest and Term of Repayment ............................................................ 99Interest and Principal Payments Combined ........................................................... 99Points and Closing Costs ..................................................................................... 101Out-of-Pocket Expenses....................................................................................... 102

Where Do Conventional Loans Come From? ............................................................... 103How to Determine Which Source to Approach ................................................... 104

The Best Source Will Be the One That Likes You Most ................................... 104The Person You Talk to Is Not Loaning You His or Her Money ...................... 104

Dealing with the Local Lenders—Savings and Commercial Banks ....................... 105Dealing with the Mortgage Broker ...................................................................... 116

Prime Sources for Conventional Loans ......................................................................... 116Insurance Companies .......................................................................................... 116Real Estate Investment Trusts .............................................................................. 117Pension Funds and Credit Unions ....................................................................... 118Wall Street and International Security Markets .................................................... 118General Comments about Institutional Lenders .................................................. 118If You Are a Big Borrower, the Pension Fund May Be the Only Way to Go ......... 119

The Seller Is Often the Best (and Most Motivated) Source ........................................... 120Private Money: Where It Is and How to Find It ................................................... 120

Put Together a Loan Information Package .................................................................... 121

ftoc.indd xiiftoc.indd xii 6/16/08 11:06:21 PM6/16/08 11:06:21 PM

Table of Contents xiii

Chapter 6Use Creative Financing to Maximize Benefi ts—125

Goal of This Chapter ................................................................................................... 125

This chapter opens doors and your eyes to opportunities available to you by increasing your investment techniques and strategies, enabling you to maximize your benefi ts and help you to attain your investment goals.

Maximize Closed Transactions ...................................................................................... 125Move Closer to Your Investment Goals ................................................................ 125Creative Strategy Means Examining All Opportunities ........................................ 126Too Narrow a View ............................................................................................. 126Do Not Get Locked into a Single Strategy ........................................................... 127

Financing Is a Shift of Equity ....................................................................................... 127Ranking of Mortgages .................................................................................................. 128

A First Mortgage Comes First, but It Isn’t Always ................................................ 129Avoid Subordination to a Later Recorded Mortgage ........................................ 129Review Subordination ..................................................................................... 129

Second Mortgage Financing Is a Deal Maker ................................................................ 131I Will Pay Your Price If You Accept My Terms .............................................................. 131

All Transactions Should Have a Proper and Satisfactory Close ............................. 133Advantages and Disadvantages of Second Mortgages .................................................... 133

When Secondary Loans Are Needed .................................................................... 134When to Use Different Types of Secondary Mortgages ........................................ 135

Example 1 ....................................................................................................... 135Example 2 ....................................................................................................... 135Example 3 ....................................................................................................... 136

Finding Secondary Financing ....................................................................................... 137Dealing with Secondary Loan Makers ................................................................. 137

Dealing with the Seller on Secondary Financing .............................................. 137Dealing with Commercial Banks for Secondary Financing .............................. 139Dealing with Mortgage Companies ................................................................. 139Finding Private Lenders and Dealing with Them ............................................ 140

When and How the Broker Can Hold Some of the Paper ............................................ 141

Chapter 7How to Use Government-Insured Loans to Finance

Real Estate Purchases and Sales—142Goal of This Chapter ................................................................................................... 142

This chapter gives you a solid working knowledge of several different types of loans that are a function of one or more departments of the U.S. government.

ftoc.indd xiiiftoc.indd xiii 6/16/08 11:06:21 PM6/16/08 11:06:21 PM

xiv TABLE OF CONTENTS

Department of Housing and Urban Development Programs ........................................ 143One- to Four-Family Home Mortgage Insurance (Section 203(b)) ...................... 143Mortgage Insurance for Disaster Victims (Section 203(h)) ................................... 144Rehabilitation Loan Insurance (Section 203( k)) .................................................. 144Single-Family Property Disposition Program (Section 204(g )) ............................ 145Mortgage Insurance for Older, Declining Areas (Section 223(e)) ......................... 145Mortgage Insurance for Condominium Units (Section 234(c)) ............................ 145Graduated Payment Mortgage (Section 245(a)) ................................................... 146Adjustable Rate Mortgages (Section 251) ............................................................ 146Home Equity Conversion Mortgage Program (Section 255) ................................ 147Manufactured Homes Loan Insurance (Title I) .................................................... 147Property Improvement Loan Insurance (Title I) .................................................. 148Counseling for Homebuyers, Homeowners, and Tenants (Section 106) ............... 148Good Neighbor Next Door ................................................................................. 148Legal Authority: Section 204(g ) of the National Housing Act

(12 U.S.C. 1710(g )) ....................................................................................... 149Energy Effi cient Mortgage Insurance ................................................................... 149Insured Mortgages on Hawaiian Home Lands (Section 247) ............................... 150Insured Mortgages on Indian Land (Section 248) ................................................ 150

HUD Multifamily Housing Programs .......................................................................... 151Supportive Housing for the Elderly (Section 202) ............................................... 151Assisted-Living Conversion Program ................................................................... 151Emergency Capital Repairs Program .................................................................... 151Manufactured Home Parks (Section 207) ............................................................ 152Mortgage and Major Home Improvement Loan Insurance for

Urban Renewal Areas (Section 220) ................................................................ 152Multifamily Rental Housing for Moderate-Income Families

(Section 221(d)(3) and (4)) ............................................................................. 152Existing Multifamily Rental Housing (Section 207/223(f )) ................................. 153Mortgage Insurance for Housing for the Elderly (Section 231) ............................ 153New Construction or Substantial Rehabilitation of Nursing Homes,

Intermediate Care Facilities, Board and Care Homes, and Assisted Living Facilities (Section 232); Purchase or Refi nancing of Existing Facilities (Section 232/223(f )) ......................................................................... 153

Supplemental Loans for Multifamily Projects (Section 241)................................. 154Hospitals (Section 242) ....................................................................................... 154Multifamily Mortgage Risk-Sharing Programs (Sections 542(b) and 542(c)) ....... 154Mark-to-Market Program .................................................................................... 155Self-Help Housing Property Disposition.............................................................. 155Renewal of Section 8 Project-Based Rental Assistance .......................................... 156

HUD Programs for Public and Indian Housing ........................................................... 156

ftoc.indd xivftoc.indd xiv 6/16/08 11:06:22 PM6/16/08 11:06:22 PM

Table of Contents xv

Housing Choice Voucher Program ...................................................................... 156Revitalization of Severely Distressed Public Housing ........................................... 157Indian Community Development Block Grant (ICDBG) Program ..................... 157Federal Guarantees for Financing for Tribal Housing Activities ( Title VI) ........... 158Loan Guarantees for Indian Housing (Section 184) ............................................. 158

HUD Programs for Fair Housing and Equal Opportunity ........................................... 159Fair Housing Act ( Title VIII) .............................................................................. 159Equal Opportunity in HUD-Assisted Programs (Title VI,

Section 504, Americans with Disabilities Act, Section 109, Age Discrimination Act, and Title IX) ............................................................. 160

Government National Mortgage Association (Ginnie Mae) .......................................... 161Ginnie Mae I Mortgage-Backed Securities ........................................................... 161Ginnie Mae II Mortgage-Backed Securities .......................................................... 162Ginnie Mae Multiclass Securities Program ........................................................... 163

HUD’s Federal Housing Administration (FHA) Single Family Housing Programs ................................................................................................... 164

Housing in Military Impacted Areas (Section 238) .............................................. 164Growing Equity Mortgage Insurance (Section 245(a)) ......................................... 164

Federal Housing Administration’s Multifamily Housing Programs................................ 165Multifamily Rental Housing (Section 207) .......................................................... 165Mortgage Insurance for Single-Room Occupancy Projects

(Section 221(d)) pursuant to Section 223(g) ................................................... 165Congregate Housing Services ............................................................................... 165Flexible Subsidy (Section 201) ............................................................................. 165

Federal Housing Administration’s Public and Indian Housing ...................................... 165Section 8 Moderate Rehabilitation Program ........................................................ 165Section 8 Moving to Work Demonstration .......................................................... 166

FHA/HUD Policy Development and Research ............................................................ 166Doctoral Dissertation Research Grant Program ................................................... 166Early Doctoral Student Research Grant Program ................................................. 166HUD Urban Scholars Fellowship Program .......................................................... 166HUD Regional and Field Offi ces ......................................................................... 166

Federal Department of Veterans Affairs ........................................................................ 166What the Veterans Administration Cannot Do .................................................... 167Requirements for VA Loan Approval ................................................................... 168The Guaranty ...................................................................................................... 168Service Eligibility ................................................................................................. 169Obtaining a Certifi cate of Eligibility .................................................................... 171

ACE (Automated Certifi cate of Eligibility) ...................................................... 171Eligible Loan Purposes ......................................................................................... 174

Veterans Administration Down-Payment Requirements ............................................... 175

ftoc.indd xvftoc.indd xv 6/16/08 11:06:22 PM6/16/08 11:06:22 PM

xvi TABLE OF CONTENTS

Traditional Fixed-Payment Mortgage, Buy-down Loans, and Growing Equity Mortgage ......................................................................................................... 175

Graduated Payment Mortgage ............................................................................. 175Interest Rates ....................................................................................................... 175Closing Costs ...................................................................................................... 175Funding Fee ........................................................................................................ 176State Benefi ts ....................................................................................................... 176

How Investors Use These Government Services and Benefi ts ........................................ 180To Get Effective Benefi ts Use a Qualifi ed Mortgage Broker

Dealing with These Types of Loans ................................................................. 180Remember: Government Programs Provide Insurance, Not Loans ....................... 181How Do the Investors Make Out? ....................................................................... 182Income Requirements to Obtain a Loan .............................................................. 183The Procedure with a VA or GI Loan .................................................................. 183How to Use the FHA Programs to Maximize Sales of Your Inventory .................. 184

Chapter 8How to Get Land Development and Construction Loans—186

Goal of This Chapter ................................................................................................... 186This chapter introduces you to the initial world of development, land acquisition, and development loans.

Development Is the Wave of the Future ............................................................... 186Land Development Loan ..................................................................................... 187

Example: Land Development Project from Start to Finish ............................... 188Construction Loan .............................................................................................. 192Combined Loan .................................................................................................. 192The Development or Construction Loan Usually Relies on the

Permanent End Loan ...................................................................................... 193Moving Forward .................................................................................................. 199Getting a Development or Construction Loan without an End Loan .................. 199Project Size Doesn’t Matter .................................................................................. 200Using the Development or Construction Loan to Make Sales .............................. 200

Example: A $4 Million Deal ............................................................................ 201How to Increase the Amount of Money You Can Borrow on a

Development Loan .......................................................................................... 202Putting Together a Presentation for a Development Loan ............................................. 203

How to Approach a Feasibility Study ................................................................... 204Where to Get a Development or Construction Loan .................................................... 206

ftoc.indd xviftoc.indd xvi 6/16/08 11:06:23 PM6/16/08 11:06:23 PM

Table of Contents xvii

Fine-Tune Your Finesse in the Use of Construction and Development Loans ................................................................................................. 208

Key Factors to Watch for in Existing Financing ................................................... 209The Borrower’s Credit ......................................................................................... 211

Chapter 9How to Get the Most Benefi t from Blanket Mortgages—214


This chapter enables you to adjust fi nancing and shift equities by spreading the lender’s risk over more than one property.

Defi nition of a Blanket Mortgage ................................................................................. 214Using Blanket Mortgages.............................................................................................. 215

Who Can Utilize This Mortgage? ........................................................................ 215Where to Get Blanket Mortgages ................................................................................. 217When to Use a Blanket Mortgage ................................................................................. 218Determining the Acceptability of a Blanket Mortgage .................................................. 218

Blanket Mortgages as Seen from the Buyer’s Point of View .................................. 218Blanket Mortgages as Seen from the Seller’s Point of View ................................... 220

Overextended Debt ......................................................................................... 220Little or No Cash at Closing ........................................................................... 221

Criteria for Mortgagees Holding Blanket Mortgages ............................................ 221Using a Blanket Mortgage to Help Sell Your Property .................................................. 222

This Transaction Appealed to Buyers ................................................................... 223Security Is the Key Motivation for the Lender ..................................................... 223

Summary of Blanket Mortgages.................................................................................... 223

Chapter 10Gain Leverage on Existing Financing with a

Wraparound Mortgage—225Goal of This Chapter ................................................................................................... 225This chapter acquaints you with the wraparound mortgage.

Defi nition of a Wraparound ......................................................................................... 225Example: Sam and Bruce ................................................................................. 225

Basics of the Wraparound ............................................................................................. 227Example: Bobby and Jeff ................................................................................. 228

Most Important Factor about Wraparounds ......................................................... 231

ftoc.indd xviiftoc.indd xvii 6/16/08 11:06:23 PM6/16/08 11:06:23 PM

xviii TABLE OF CONTENTS

What the Wraparound Is Not .............................................................................. 231Example: Al and Robert .................................................................................. 231Example: The Paulsen Study ........................................................................... 232

What All This Means Thus Far ............................................................................ 234Example: The Mortgage Is Paid Off Early ....................................................... 234

Most Common Uses of a Wraparound Mortgage ......................................................... 236The Function of the Amortization and Its Effect on the Difference

in Wraparound Mortgages ............................................................................... 239Example: The Hodges Case ............................................................................. 239

Finding the Overall Effective Yield of a Wraparound Mortgage ........................... 244Using the Wraparound Mortgage Analysis Sheet .................................................. 245

Column A ....................................................................................................... 245Columns B, C, and D ..................................................................................... 245Column E ....................................................................................................... 245Column F ....................................................................................................... 245Column G ...................................................................................................... 245Columns H and I ............................................................................................ 246Column J ........................................................................................................ 246Payments Should Always Be Made to an Escrow Account ............................... 251How to Protect the Mortgagor and the Mortgagee in the

Escrow Agreement ...................................................................................... 251Unique Problems for the Third-Party Lender ....................................................... 253Usury on Wraparound Loans by Third Parties ..................................................... 254Calculating Interest Earned for Annual Income Accounting ................................ 254Identifying an Ideal Wraparound Mortgage Situation .......................................... 255Using the Wraparound to Close More Transactions ............................................. 255

Example: Closing a Transaction with a Wraparound ........................................ 256

Chapter 11The Sale-Leaseback: An Investment Tool That Works for

Both Buyer and Seller—259Goal of This Chapter ................................................................................................... 259

This chapter is designed to expand your knowledge of mixed-use strategies that can be effective in reaching certain goals.

Defi nition of a Sale-Leaseback ...................................................................................... 259Consider Trade-Offs between Lease Terms and Purchase

Price and Terms ............................................................................................... 260Expand on Frank’s Options ............................................................................. 261

ftoc.indd xviiiftoc.indd xviii 6/16/08 11:06:24 PM6/16/08 11:06:24 PM

Table of Contents xix

Structure of the Land Leaseback ................................................................................... 262The Subordination Factor in a Land Lease ........................................................... 264Leasehold versus Fee Simple Values ...................................................................... 266Establishing the Leasehold Value ......................................................................... 267When the Value of the Use Exceeds the Value of Owning .................................... 268Kaiser’s Transaction .............................................................................................. 269Substantiate the Value of the Fee by Creating a Fixed Return............................... 270Use the Sale-Leaseback When Other Forms of Financing

Are More Costly .............................................................................................. 270Lloyd’s Used Car Lot ........................................................................................... 271There Is a Risk in the Leaseback .......................................................................... 271The Need for Capital ........................................................................................... 272Advantages and Disadvantages of the Sale-Leaseback ........................................... 273A Special Warning about Franchisers ................................................................... 273Lenders May Initiate Lease backs to Get a Piece of the Action ............................. 273Public Corporations May Want to Take Real Estate off Their Books .................... 274

Setting Up the Sale-Leaseback ...................................................................................... 275Negotiating a Lower Price .................................................................................... 275

Sale-Leaseback Highlights ............................................................................................ 277

Chapter 12The Last Loophole: IRS Section 1031

Real Estate Exchanges—278Goal of This Chapter ................................................................................................... 278

This chapter raises the curtain on the most important benefi t that real estate investors have at their disposal.

An Ageless Strategy—Exchange One Thing for Another .............................................. 279Fred’s Tax-Free Exchange ..................................................................................... 279

There Are Different Real Estate Exchanges: Some Are Tax-Free, Some Are Not .......................................................................................................... 280

IRS Tax Code Section 1031 ................................................................................. 280Not All Exchanges Are Benefi cial.................................................................................. 285The Best Benefi t of All Is the Tax-Free Benefi t of Section 1031 .................................... 286

Motives and Goals Differ between the Parties of the Exchange ............................ 287Benefi ts of the 1031 Exchange ...................................................................................... 287Calculating the Taxable Gain in Exchanges .................................................................. 292

ftoc.indd xixftoc.indd xix 6/16/08 11:06:24 PM6/16/08 11:06:24 PM

xx TABLE OF CONTENTS

Move to the Advanced Stage and Look at the Starker Exchange ................................... 294Defi nition ............................................................................................................ 294Advantages .......................................................................................................... 294Rules and Regulations of the Starker Exchange .................................................... 295Time table of Events ............................................................................................ 295

Do You Really Want to Use a Starker? .......................................................................... 296Delay the Closing So That the Time Clock Does Not Start ................................. 297Elect Not to Use the Starker Rules ....................................................................... 297

A Quick Review of What Exchanges Do ...................................................................... 297Tax-Free Benefi t Increased ................................................................................... 298Increase Depreciation .......................................................................................... 299

Example: Exchange versus Sale and Purchase for Effect on Depreciation .......................................................................................... 301

Expansion of the Market ..................................................................................... 303Cash-Out ............................................................................................................ 304

How to Finesse Your Way into Great Exchanges ........................................................... 308Pitfalls of the Borrowed-Property Exchange .................................................................. 309

Real Estate Exchanges Are Prime Options for Buyers and Sellers ......................... 309People Who Are Likely to Want to Exchange ............................................................... 309

Using an Exchange as a Buying Tool .................................................................... 310Using an Exchange as a Selling Tool..................................................................... 310

The Mechanics of Making Exchanges ........................................................................... 311Balancing Equities in Exchanges .......................................................................... 312

Presentation: All the Marbles ........................................................................................ 313Getting into Exchanges ........................................................................................ 315

The Pitfalls of Exchanges .............................................................................................. 315Establishing Existing Tax Basis and Calculating New Tax Basis ..................................... 316Improving Your Ability to Make More Benefi cial Exchanges ........................................ 319The Bottom Line: Remember Your Goals..................................................................... 320

Chapter 13How to Maximize Your Use of Pyramid Financing —321


This chapter shows you an exciting technique that allows you to shift equities in such a way that it becomes possible to purchase a property and to obtain new fi nancing that may exceed the actual cost of the property.

ftoc.indd xxftoc.indd xx 6/16/08 11:06:24 PM6/16/08 11:06:24 PM

Table of Contents xxi

Defi nition of a Pyramid Mortgage ................................................................................ 321Primary Reasons for Using a Pyramid .................................................................. 322

Example 1 ....................................................................................................... 322Example 2 ....................................................................................................... 323

Not for the Timid Investor ........................................................................................... 324Works Best in a Rising Economy ......................................................................... 324

Mechanics of Pyramid Financing .................................................................................. 325Example 3 ....................................................................................................... 325

A Pyramid Resembles a Blanket Mortgage ........................................................... 325Example 4 ....................................................................................................... 325

The Pyramid Can Be Used in Conjunction with a Blanket Mortgage ............................................................................................ 326

Sellers Prefer Pyramid Financing over Second Mortgages ..................................... 326Example 5 ....................................................................................................... 326

The Grass Always Looks Greener on the Other Side ..................................................... 327Can Avoid Existing Mortgage Limitations to

Secondary Financing ....................................................................................... 330Reduces Debt Service .......................................................................................... 330

Example 6 ....................................................................................................... 330Increases Yield on Cash Invested .......................................................................... 331Gets a Yes from the Seller ..................................................................................... 331Can Put Cash in Your Pocket ............................................................................... 332

Example 7 ....................................................................................................... 332Is a Great Cashless Investing Technique ............................................................... 332You Can Purchase Two Properties at the Same Time ............................................ 332

Example 8 ....................................................................................................... 333Have Your Cake and Eat It Too: The Real Benefi t of the Pyramid ................................ 334

Pyramiding Is a Risk That Can Be Worthwhile .................................................... 334How to Build a Fortune in a Hurry by Pyramiding Equity ........................................... 334

Example 9: How One Investor Started His Pyramid with $30,000 and Ended Up with $510,000 ......................................................................... 335

How to Set Up the Most Profi table Pyramid ................................................................ 339Six Key Steps in Building a Strong Pyramid ......................................................... 339Getting Ready to Present the Pyramid Offer to the Seller .................................... 340

Using Pyramiding as a Sales Tool .................................................................................. 341Example 10 ..................................................................................................... 342

Fine Points in Finalizing the Pyramid .................................................................. 344Example 11: The Distant Pyramid .................................................................. 344

ftoc.indd xxiftoc.indd xxi 6/16/08 11:06:24 PM6/16/08 11:06:24 PM

xxii TABLE OF CONTENTS

Example 12: What Works Well Twice Might Be Better Thrice ............................................................................................... 345

Pyramid Transactions Offering Land Leases.................................................................. 346Under Everything Is Land.................................................................................... 347

Example 13: Brad Creates a Land Lease .......................................................... 347Sliding Land Leases and Mortgages ..................................................................... 348Pitfalls with Land Leases ...................................................................................... 350

General Summary ........................................................................................................ 350How to Make the Transaction Work .................................................................... 352

The Installment Sale: Another IRS Benefi t ................................................................... 352Defi nition of an Installment Sale ......................................................................... 353

Example 14 ..................................................................................................... 353

Chapter 14The Discount Sale and Leaseback and Buyback—355


This chapter continues to give you investment alternatives.

Defi nition of a Discount Sale and Leaseback ................................................................ 355Advantage of Using This Technique ..................................................................... 356

Example 1: Discount Sale ................................................................................ 356Be Careful of the Internal Revenue Service ................................................................... 357

Checklist to Determine Whether a Discount Sale Can Be Used ........................... 357A Discount Sale Generally Means Cash ............................................................... 358

Example 2: A Discount Sale Can Generate Immediate Cash ........................... 359Leaseback, Buyback, Recapture, or Option Become a Necessary

Part of the Discount Sale .......................................................................................... 359Recapture Allows the Seller to Recoup Value ....................................................... 360

Example 3: Recapture to Recoup ..................................................................... 361Advantages of a Discount Sale ...................................................................................... 362Disadvantages of a Discount Sale ................................................................................. 363Review the Discount Sale from the Seller’s Point of View ............................................. 364

Fine Points in the Discount Sale .......................................................................... 364Example 4 ....................................................................................................... 364Escalating Option or Lease Price ..................................................................... 366

Review of the Discount Sale ......................................................................................... 366Are There Alternatives Swimming around in Your Mind? .................................... 367

ftoc.indd xxiiftoc.indd xxii 6/16/08 11:06:25 PM6/16/08 11:06:25 PM

Table of Contents xxiii

Chapter 15How to Profi t with Discounted Mortgages—368


This chapter brings a new dimension to the structure of mortgages.

Learn How to Use Discounted Mortgages .................................................................... 368Defi nition of a Discounted Mortgage ........................................................................... 369

Example 1 ....................................................................................................... 369Mathematical Aspects of a Discounted Mortgage ......................................................... 369

Finding the Yield Rate in a Discounted Mortgage ............................................... 370The Effect of an Early Pay-Off When the Bonus Is Fixed .................................... 373Review Mortgage Situations ................................................................................ 374Results of Different Payment Schedules ............................................................... 374

All Interest and Principal Repaid in One Period .............................................. 374Equal Principal Payments per Period plus Interest ........................................... 374No Payments until the End of the Term .......................................................... 374Introducing Periods of Time to the Equation .................................................. 375Discounting the Value of Money Paid Later .................................................... 375Return Rate Is Tied to When the Return Is Received ...................................... 375Modern Mortgages Use Constant Payment Mortgages .................................... 376Constant Rate of Debt Service Is a Combination

of Principal and Interest .............................................................................. 376Creativity May Stimulate a Transaction’s Success ............................................. 377Looking at the Mathematical Calculation of Mortgage Loans ......................... 377What If Your Calculators Do Not Agree .......................................................... 379

When Should a Mortgage Be Discounted for Cash? ............................................ 379Use Creativity to Move a Diffi cult-to-Sell Mortgage ............................................ 380

Example 2 ....................................................................................................... 380When Should a Mortgage Be Discounted in Exchange? ....................................... 382

Example 3: Redding’s Transaction ................................................................... 382Analyzing the Market for a Discounted Mortgage ............................................... 384Finding the Discount Amount ............................................................................. 384

Example 4: Discounting a Fully Self-Amortizing Mortgage ............................. 384Finding the Interest Yield on a Mortgage That Is Discounted .............................. 386

Example 5 ....................................................................................................... 386How Sellers Can Use Discounted Mortgages to Help Them

Sell Their Property .......................................................................................... 387Example 6 ....................................................................................................... 387

ftoc.indd xxiiiftoc.indd xxiii 6/16/08 11:06:25 PM6/16/08 11:06:25 PM

xxiv TABLE OF CONTENTS

Finding Investors Who Will Buy Discounted Mortgages .............................................. 388Don’t Forget the Mortgagor ................................................................................. 389When to Offer a Partial Discount to the Mortgagor ............................................ 390

Example 7 ....................................................................................................... 390

Chapter 16Two Prime Insider Techniques:

Preferred Income Sweetners and Options—393Goal of This Chapter ................................................................................................... 393

This chapter introduces two highly effective negotiation strategies that can help you close transactions whether you are the buyer or seller.

Seller’s Statements Sound Too Good to Be True ............................................................ 393Buyers Who Doubt How Good It Really Is .................................................................. 394More Time Is Needed ................................................................................................... 394Guide to Maximum Benefi ts When Using Sweeteners and Options ............................. 395Preferred Income Sweeteners ........................................................................................ 395

Defi nition of a Preferred Sweetener...................................................................... 395Example 1: Preferred Income Used in a Joint Venture ..................................... 396Example 2: Preferred Income as a Sweetener to Entice the

Seller to Hold a Mortgage ........................................................................... 397Use a Sweetener as a Way to Reduce Risk ............................................................ 397

Example 3: Tradeoffs: Reduce the Risk by Reducing the Yield ......................... 398Example 4: Preferred Purchase: A Sweetener to the Seller ................................ 398Example 5: Preferred Income to Reduce Buyer’s Risk ...................................... 399Example 6: Creative Build-Up of Investment. ................................................. 400

Using the Preferred Income Technique as a Sweetener to Debt ............................ 401Example 7: Bonus Payments on a Second Mortgage to Seller. ......................... 402

How to Maximize Your Return While Reducing Your Risk as the Money Man ............ 402Set the Stage ........................................................................................................ 402Before You Go for the Money, Review These Six Key Factors .............................. 404Five Pitfalls in Preferred-Income Transactions ...................................................... 405Options ............................................................................................................... 406

Defi nition of an Option .................................................................................. 407Example 8: An Option to Buy ......................................................................... 407Example 9: An Option to Lease....................................................................... 407Example 10: Due-Diligence Approval ............................................................. 407

Options Put Time on Your Side ........................................................................... 408

ftoc.indd xxivftoc.indd xxiv 6/16/08 11:06:25 PM6/16/08 11:06:25 PM

Table of Contents xxv

Two Basic Kinds of Options ......................................................................................... 408The Straight Option ............................................................................................ 408

Example 11: Using the Option to Renegotiate the Deal .................................. 409When to Go Back to the Negotiation Table..................................................... 409Example 12: Losing Control of the Option ..................................................... 410The Option Is No Guarantee of a Successful Conclusion to

the Contract ............................................................................................... 410Negotiating the Best Option Terms When You Are the Seller .......................... 410

Conditioned Option............................................................................................ 411Using Option Agreements ............................................................................................ 413

When You Know You Are Going to Buy, Use the Option .................................... 413Use the Option to Finance Your Way to a Fortune .............................................. 414

The Primary Option: A Study in the Effect of Greed ................................................... 414Option to Buy in a Lease Transaction .................................................................. 415

Writing the Purchase Option ........................................................................................ 415Review the Concept of Greed ....................................................................................... 418

Chapter 17Five Powerful Secondary Financing Techniques That

Effectively Close Deals—420Goal of This Chapter ................................................................................................... 420

This chapter introduces fi ve powerful closing techniques that are effective.

Leasehold Financing ..................................................................................................... 421Seven Elements That Establish the Value of a Leasehold Interest ......................... 423

Type of Property Leased .................................................................................. 423Annual Rent of the Lease ................................................................................ 424Period of Time Remaining on the Lease .......................................................... 425Terms, Obligations, Restrictions, and Provisions of the Lease .......................... 425Use of the Property ......................................................................................... 425The Tenant ...................................................................................................... 426Options Available to the Lessee ....................................................................... 426

How Lenders Deal with Security from Leasehold Equities ................................... 426Leasehold Financing Can Be a Deal Maker ..................................................... 427

Land Leases .................................................................................................................. 428Using a Lease as a Financing Tool to Close Deals ................................................. 429Advantages and Disadvantages of Selling a Property ............................................ 429

ftoc.indd xxvftoc.indd xxv 6/16/08 11:06:26 PM6/16/08 11:06:26 PM

xxvi TABLE OF CONTENTS

You May Create a Taxable Gain ....................................................................... 429You Establish a Capital Loss ............................................................................ 430You Have a Taxable Gain but No Proceeds to Cover It .................................... 430

Advantages and Disadvantages of Leasing Land and Purchasing the Improvements ........................................................................................... 431

How the Buyer/ Tenant Benefi ts .......................................................................... 432Using Land Leases to Buy Property Otherwise Not for Sale ................................. 434

Percent of Income ........................................................................................................ 435Example 1: You Are the Buyer ......................................................................... 435Example 2: You Are the Seller .......................................................................... 435Example 3: You Are the Lender ....................................................................... 436Example 4: Institutional Lenders ..................................................................... 436Example 5: Shopping Center Purchase ............................................................ 437

Joint Ventures and Syndications ................................................................................... 438What Joint Ventures and Syndications Can Do for You ....................................... 439Where Do You Find Partners for Joint Ventures? ................................................. 439What You Can Do to Make the Transaction More Appealing to the Possible

Joint Venture Partner ....................................................................................... 439Five Important Features in Joint Ventures ............................................................ 439

Preferred Return .............................................................................................. 439Guaranteed Return .......................................................................................... 440Accrual of Unpaid but Earned Return ............................................................. 440Subordinate Interest ........................................................................................ 440Land Bank ...................................................................................................... 440

What You Can Do to Become Involved with Syndications and Joint Venture Deals .................................................................................. 441

Chapter 18Eleven Creative Financing Techniques That Make

Your Transactions Fly—442Goal of This Chapter ................................................................................................... 442

This chapter continues to expand your “out of the box” thinking when it comes to real estate investing.

Creative Thinking Expands Your Opportunities to Close Deals .................................... 442Use Techniques That Close the Gap to Create Win/Win Situations ............................. 443Creative Financing Gives You Flexibility ....................................................................... 443

ftoc.indd xxviftoc.indd xxvi 6/16/08 11:06:26 PM6/16/08 11:06:26 PM

Table of Contents xxvii

Your Goal Comes First ................................................................................................. 443The Sliding Mortgage .......................................................................................... 445

Example 1: Paving the Way for the Future....................................................... 445Example 2: A Cashless Transaction .................................................................. 446Example 3: A Future Substitution of Collateral ............................................... 447Pitfalls in Sliding Mortgages ............................................................................ 449

Double Finance ................................................................................................... 449Example 4: Two or More Techniques Combined ............................................. 449Pitfalls in Double Financing ............................................................................ 450

The Glue Transaction .......................................................................................... 451Example 5: Glue Makes the Money Stick ........................................................ 451Example 6: Even Local Investors Benefi t ......................................................... 451The Glue Contract .......................................................................................... 452Pitfalls in Glue Transactions ............................................................................ 454

Discounted Paper ................................................................................................ 454Example 7: Buyers Use Discounted Paper to Close Transactions ...................... 454Example 8: Good Financing on What You Buy and What You

Want to Sell ................................................................................................ 455Pitfalls in Discounted Mortgages ..................................................................... 456

Other People’s Property ....................................................................................... 457Example 9: Part Cash, Part Exchange .............................................................. 458Example 10: Part Cash, Part Mortgage ............................................................ 458Example 11: Part Cash, Part Barter ................................................................. 458Pitfalls in Using Other People’s Property Transactions ..................................... 459

Shared Equity ...................................................................................................... 459Example 12: Lock in a Tenant ......................................................................... 459Example 13: Lock Up the Landlord ................................................................ 460Example 14: Buy, Fix Up, and Sell Transactions .............................................. 460Example 15: Pull Out Equity, Lock in Tenant ................................................. 462Pitfalls in Shared Equity Transactions .............................................................. 462

Zero-Coupon Financing ...................................................................................... 463Example 16: Basic Zero-Coupon Bond ........................................................... 463Zero-Coupon Financing in Real Estate ........................................................... 463Example 17: Two Zero Coupons Put Cash in Buyer’s Pocket ........................... 464Fine Points in Using Zero-Coupon Financing ................................................. 464Pitfalls in Dealing with Zero-Coupon Debt .................................................... 465

Split Funding....................................................................................................... 465Example 18: Basic Split Funding ..................................................................... 465Example 19: Give the Seller What He Wants .................................................. 466

ftoc.indd xxviiftoc.indd xxvii 6/16/08 11:06:26 PM6/16/08 11:06:26 PM

xxviii TABLE OF CONTENTS

Advantages in Split Funding on Closings at the End of theSeller’s Tax Year ........................................................................................... 467

Mixing the Split Fund with Other Creative Techniques ................................... 467Example 20: Split-Fund Split-Deal .................................................................. 468Introduce Mortgage Releases to Allow Partial Sale of the Collateral ................. 468Fine-Tuning Partial Release from Mortgage Statement .................................... 469

Future Rent ......................................................................................................... 471Example 21: Part of Cash Down ..................................................................... 471Example 22: As Prepaid Rent in Another Location .......................................... 471Example 23: Prepaid in the Same Property ...................................................... 471Example 24: As a Seller, You Agree to Take Part Rent ...................................... 471Example 25: You Exchange Rent ..................................................................... 472Example 26: The Brownie Deal ....................................................................... 472Example 27: Another Future Rent ................................................................... 472Pitfalls in Future Rent Deals ............................................................................ 473

Management Interest ........................................................................................... 473Example 28: Management for an Interest in Ownership .................................. 474Pitfalls in Management Interest Transactions ................................................... 475

Three-Party Blankets ........................................................................................... 475Example 29: Part of the Blanket Is Borrowed .................................................. 475Bring in a Partner ............................................................................................ 476Pitfalls in Three-Party Blankets........................................................................ 476

Chapter 19Four Techniques:

Where You Keep Part and Dispose of Part—478Goal of This Chapter ................................................................................................... 478

This chapter illustrates that it is not essential to sell, lease, or otherwise dispose of 100 percent of your real estate to reach your desired goals.

The Landscape Transaction .................................................................................. 478Example 1: Finding a Landscape Deal ............................................................. 479Example 2: Finding the Right Buyer ............................................................... 479Be Creative: Split Fund-Plant Transaction ....................................................... 480

Keep the Positive and Sell the Negative or Vice Versa .......................................... 482Example 3: Finding the Positive and the Negative Benefi ts .............................. 482Generate Income from a Lost Benefi t .............................................................. 484Example 4: Lease the Lost Benefi t ................................................................... 484

ftoc.indd xxviiiftoc.indd xxviii 6/16/08 11:06:27 PM6/16/08 11:06:27 PM

REAL ESTATE FINANCE I MANUAL - download.e-bookshelf.de€¦ · The Real Estate Investor’s Answer...

Documents

Transcript of REAL ESTATE FINANCE I MANUAL - download.e-bookshelf.de€¦ · The Real Estate Investor’s Answer...