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Partnering With The Seller
There are two major occasions of partnering with sellers . The first is when builder / developers or sophisticated investors enter into a joint venture with the owner of developable land . Typically , the owner contributes the land while the investor obtains the necessary financing , performs the construction , and does the marketing . Then the parties split the profit according to their jointventure agreement . This is a sophisticated partnering method .
The more accessible partnering method with an owner / seller of a property is to use a leaseoption . Here , the buyer /” lessee ” leases the property on agreed terms and simultaneously negotiates an option to purchase the property in the future at an agreed price and terms . Usually , the buyer /” optionee ” pays some “ option consideration ” for the right to purchase during the term of the lease . This is paid either upfront or on top of the lease payment . It is important to keep the lease and the option separate but attached because judges in disputes
have been known to interpret the documentation unfavorably to the investor . Advice from local real estate counsel is important initially when employing your first leaseoption . Online and Realtor ® forms can be used , but an attorney should review the first one .
Another accessible partnering method is to negotiate a “ sharedappreciation mortgage " to be carried back by the seller as “ owner financing ”. The idea here is to structure the note such that positive cashflow to the investor is the result . The seller is usually given some cash flow , but not a lot . Then the seller participates in the profit when the property is eventually sold . This works well with motivated sellers in highpriced areas . Again , legal advice is recommended for the first time .
Partnering With The Tenant
The first method where the tenant is essentially a partner is to use a leaseoption , to sell this time , rather than to buy . The idea here is to use the lessee / optionee ’ s “ option consideration ” to help pay for the purchase of the property . It can be used as part of the monthly loan payment , or as part of the downpayment . Either way , since it is not a rental security deposit , it will never need to be refunded .
A second method of partnering with a “ tenant ” is known as “ EquitySharing ”. Here , the parties purchase the property together on the market . One party , the “ resident coowner ”, resides in the property , maintains it , usually makes the entire loan payment , pays taxes and insurance , and might get the income tax benefits . Those are negotiable , as are the percentage of ownership . The IRS allows taxes to be allocated as the parties decide , as long as they are deducted only once . The “ investor coowner ” typically makes the downpayment and pays the purchase closing costs . This is all done with extensive documentation , but it is particularly useful for helping firsttime buyers get started while allowing investors a highyield , relativelypassive investment . The author represented one unmarried engineer who set up seven of these to help his relatives get started in homeownership while he grew his retirement plan .
Getting Started
This article presents nine different methods for investing with partners in highpriced markets . It is not necessary to wire funds outofstate in order to make a profit ! Find an expert in the application of these , and get started . Good luck !
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