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REAL ESTATE FORMULA OF WEEK #12
"Real Estate Paper for Personal Property"
Situation - Our exchangor Able, has $75,000 equity
in a triplex he has owned for several years. The
property produces a positive cash flow. Able has
his eye on a nice ski boat he'd like to have for
this coming summer. However, Able is a little
short on cash at this time. The boat dealer, Bob,
is asking $18,000 cash for the boat. Able offered
Bob a note against the triplex in the amount of
$20,000 at 7 percent interest for the boat, but
Bob was unwilling.
Solution - Able creates a note against the triplex
for $22,000 at 8 percent which Baker would be
willing to buy at the discount price of $18,000
cash. Able then goes to the dealer and
simultaneously closes a three-way transaction.
Able gives the note to the Bob who then
simultaneously sells the note to Baker for the
$18,000 he needs.
Advantages for Able - He now owns the boat free
and clear. The paper he created is at lower
interest rate than a new boat loan would have
required. There were no boat loan hassles. He was
able to do this deal even if he could not
otherwise have qualified for the boat loan.
Advantages to Bob and Baker - Bob got the cash he
wanted, Baker got the yield he wanted on the paper
he bought which was secured by the triplex |
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