Credit Partner Wanted!

I am looking for an equity partner on a Vashon waterfront cottage, walking distance from the Vashon ferry, in King County. Here is the way a credit partner works:

 

 --You will pay no out-of-pocket expenses; I will cover all closing costs, monthly payments, taxes, insurance and repairs.

 

--We will both be listed on title, and as additional insured on insurance policy.

 

--You will receive 100% of the depreciation on the property.

 

--We will split 50% of the net proceeds upon sale of the property (do we want to set a cash-out time in the future? 10 years? if there is no sale, we can figure buy-out at current tax-assessed value).

 

--We will both have access to the property, subject to any existing leases. (I anticipate keeping the guest suite available for owenrs' use, until the property has been re-sold).

 

--I will handle all marketing, rental and sales transactions at no cost to you

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This kind of deal works particularly well for a high-income earner looking for more tax deductions. I could also purchase this property with a private lender, assuming I was successful in getting seller financing. If you are interested in exploring partnership opportunities on King County real estate, please contact me at HomeLandInvestment@gmail.com

Equity Partner Wanted!

I am looking for an equity partner to replace my hard money loan on my waterfront property on 120' of saltwater frontage on a tidal bay of west Puget Sound.

I can work with two types of equity partners. One type is the person who can qualify for a $250,000 mortgage, but prefers to invest with NO money out-of-pocket. I pay the out-of-pocket expenses and do the work necessary to prepare an investment property for sale or rental. This works well for people that have good incomes from a job, are looking for additional tax deductions, but have limited time or funds to invest.

Another type of equity partner has funds to invest, but limited time or interest in being actively involved in real estate investment decisions. They prefer to loan out excess cash in exchange for a great rate of return, secured by a property with low Loan-To-Value ratios. In either case, I would be looking to secure either a $250,000 mortgage partner, or a $250,000 cash partner.

My mortgage partner would need to qualify as a 75% tenant-in-common owner. As the current tax-assessed value of the property is $378,000, a 75% share (LTV) would be equivalent to $283,500. In effect, I am selling a 75% interest for a discount of $33,500.

Exit Strategy:
I would pay all out of pocket costs for the loan, and cover all mortgage payments, ideally for a five-year interest-only $250,000 non-owner-occupied mortgage at less than 7%. Interest payments would be $1458 per month, plus $450 for taxes and insurance, for a total of approximately $1900 per month.

Option One - Straight Rental:
Rentometer estimates that the house will rent by the room for $1900 per month ($1300 upstairs with three bedrooms), and $600 downstairs (one bedroom), with shared kitchen. If the rooms were rented furnished, or if a small kitchen were constructed downstairs, it would be possible to achieve greater rental income. But this income, along with tax depreciation, should cover monthly payments. Owners would have 24/7 access to all common areas and any vacant rooms.

Option Two – Lease Option:
A tenant buyer would rent the house for $2400 per month, with $400 per month being credited towards the purchase price, which would be set at the current tax-assessed value of $378,000. They would have two years in which to exercise their option to purchase the house at this price. They would put down a non-refundable option fee of $5000 towards the purchase price (if they do not exercise their option, I like to offer $500 as a refundable security deposit as incentive to leave the house in good condition). I would split option fee, monthly income and tax depreciation with my mortgage partner on the same basis as our ownership interest: 75%/25%. If they paid monthly rent on time, rent credits would total $9600 over two years ($400 X 24 months). Hence, their effective purchase price would be $363,400 ($378,000 - $5000 option fee - $9600 rent credits).

I will split any profits over my original purchase price of $325,000 with my equity partner. Hence, my partner would receive an additional $39,750 at closing (in the example above), when the buyer exercises their option to purchase, assuming there were no other deductions for expenses or vacancies during that time.

In the event the tenant-buyer decides not to exercise their option, we keep all the funds they have paid to date (except for any security deposit refund) and we sell it again, using the same technique (only with a potentially higher sales price).

Because we are working with a BUYER as opposed to a traditional TENANT, we can expect them to cover most all maintenance and repair costs, and to take better care of the house than a tenant would, often making improvements that remain with the house.

This is the option I would prefer to pursue, but use the straight rental as a fall-back until we find a qualified lease-option buyer.

Option Three:
Sell the property today for the current list price, and pay my equity partner 2 points ($5000) for the use of their funds. The house would continue to be offered for conventional sale as we enter the busy summer season, and the equity partner would have the option to cash out if a conventional offer was received prior to a lease-purchase offer.

OPEN HOUSE ON EASTER SUNDAY FROM 2-4 PM: 2525 Rocky Point Road NW, Bremerton 98312. Live music, refreshments, and FREE lists of waterfront property priced under $400K! For more info on the house, see: www.2525RockyPointRoadNW.com

Risks of Being a Credit Partner

What if I partner with an investor who fails to fulfill their promises?

Whenever I lend or borrow money, I try to secure my financial pledge with a promissory note and some collateral, in this case a lien on the subject property. If my partner defaults on their payments, then I have a legal right to foreclose on the property. When I work with a credit partner, they have paid nothing out of pocket, but have the right to foreclose on a property should I fail to make payments as promised.

If your partner is promising to cover payments through rental income, then it would be important to ensure that there is a legitimate long-term lease on the property, or that your partner has a good track record of property management. If not, you may want to hire a property manager, or seek their opinion on the potential rental income on the property. I find that rentometer.com does a pretty good job of estimating median rents for property.

But what if I have to foreclose?

If you have to foreclose, hire a good real estate attorney and have them handle the details. Expect to spend $2000-4000 in Washington state (a non-judicial state) to handle the foreclosure. This may not be a bad price to acquire a property for which you originally paid nothing. Make sure you have access to funds should this become necessary.

In working with a partner, be sure to always do your own due diligence. Hire an attorney to draft and/or review any legal documents; and be sure to get references on your partner, especially if you have not worked with them before. Most investors are small business owners and entrepreneurs who are looking for venture capital to expand their business. And ideally, your deal is structured in such a way that makes lending money or credit a win-win for both of you!

"I work full-time, but want to invest in real estate"

Think you don't have enough time, knowledge or resources to invest in real estate? Get started as a credit partner with a seasoned investor, using your good credit and documented income to co-borrow on a mortgage. Partnering with a full-time investor allows you to learn while you earn a stable income, until (or if!) you decide to become a full-time investor. Credit partners often pay NO MONEY out-of-pocket; their investor partner pays all fees and closing costs. The partners then split monthly income and proceeds from the sale of the property at some point in the future.

How does this work? How can I afford another mortgage?
Many people think that if they already have a mortgage, they could not possibly afford to take out another one. This may be true--if they are buying a second home or vacation property that generates no income. However, if they are buying an income property, lenders will consider the rental income in qualifying the borrower for a new loan.

If you already own property, you may be able to free up some cash for investment by taking out a second mortgage or a home equity line of credit (HELOC). A second mortgage at a fixed rate may allow you to invest in a long-term loan as a credit partner; while a HELOC may allow you to do some short-term private lending. Either option gives you experience working on real estate investments with a more seasoned professional.

How can I learn more?
Send for my free report on "Equity Partnerships in Real Estate Investing for the Full-Time Employee" by emailing HomeLandInvestment@gmail.com