Posted by Michael Morrongiello on October 22, 2008 at 13:02:18:
In Reply to: Re: Equity partner or OPTION posted by Mag on October 22, 2008 at 08:04:11:
You did not address my specific questions asked? go review them again and see if you can address them...
Here is an example of one variation of how an OPTION might work;
Developer owes $300K on this $1MK home... So there is $700K equity right now.
The Developer does not wisht to discount the sale price anymore but does see potential upside for this property to increase in value down the road IF and WHEN the market settles and turns around in the "Golden State". However developer could use some cash and also to get off the construction debt of $300K still owed against the property.
Your agree to purchase the home by getting a new $500K 1st lien mortgage against it. This give the developer $200K cash now and also gets him off the hook on the $300K construction loan. The developer lets the other $500K of equity ride while you live in the home, make payments on the loan you obtained for ONLY $500K etc.
In essence you are controlling and living in a $1M home but only paying debt service on $500K. The other $500K is sort of like an "interest free, no payments" loan.
You give the developer an OPTION to purchase an undivided 1/2 one half interest in the home (that you now own 100% of) for a purchase price of 1/2 or 50% of anything above and beyond $1M. Lets say the option is given for a time period over the next 10 years.
Eg.
10 years from now Home rises in value to $2,000,000.00
Developer can buy 50% interest for $500,000.00 (remember 50% of anything above and beyond $1M)Developer gets back his $1M
You get to live in a more expensive home but did not pay for half its cost in debt service and you get $1M (minus the THEN loan balance payoff off) if property is sold for $2M- you both win.Continued best to your success;
Michael Morrongiello
Paper Practioner
www.sunvestinc.com
Author of the following home study courses;Paper Into Cash - The Convertible Currency - How to Effectively Create Marketable Real Estate Notes
&
The Unity of Real Estate & "Paper" - Advanced techniques for both the acquisition and disposition of properties using Real Estate "paper"