Knowledge is the Map to Greater Wealth,
Real Estate is the Easiest Path.
Equity Share
Sample Transaction - Investor/Investor
Often people call me and state that they are now ready to purchase investment real estate and want to know how much it will take to get involved. Many times, the needed amount is quite a bit more than they were able or interested in spending. One solution is to buy in a neighborhood that offers bottom of the market prices, but I have found that this is usually not a good move for anyone other than a very seasoned and experienced investor. I do not encourage this method.
Let's say that Investor A wants to purchase an investment property and is ready for the $200,000 price range. Let's say the better neighborhoods with good prospects for rentals are now closer to $300,000 and our investor does not want a Class C or D rental to begin with but desires to invest in a Class A or B rental.
We suggest teaming with another investor, (Our specialty is pairing interested investors with each other) in order to accomplish this goal. We bring in Investor B who also would like an investment in the $200,000 range. We're able to find a great property in a really good neighborhood in excellent condition for $400,000. Investor A and Investor B each pay 15% or $60,000 down payment for a total of 30% down and they co-apply for a 70% mortgage on the property. After paying principle, interest, taxes and insurance there probably will still be a negative cash flow in this market so Investor A and Investor B split that monthly cash out 50/50. Each Investor is on the deed as well as on the mortgage and split the tax benefits and depreciation 50/50. The term for this Agreement could be anything that is mutually agreed upon, though 3-5 years seems adequate to make a nice return on their investment.
In our current market, it's better to buy better properties in good neighborhoods and to take a partner rather than try to do it alone and shoulder all of the costs and requirements yourself. Again, this is a very win/win situation which allows more people to invest in profitable residential real estate.
Of course there are as many different potential scenarios as there are individual investors. For example, one investor could be prepared to put down a 30% down payment and have no negative cash flow while his partner may have no cash to put down but has plenty of monthly cash to pay all of the negative cash flow. These two would fit well together. The available splits are also adjustable with 60/40 or 70/30 or any other agreeable terms available. This is an innovative way to move into investment real estate without having to go it alone.
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This information is supplied by Great Condos, Inc. for educational purposes to introduce you to how this form of ownership may be used. All Deed and agreement documents will need to be written by an Attorney. It is also best to have your Tax Professional go over your specific Tax liabilities.