8 Reasons to Buy OverFinanced Properties
1. Existing Equity:
(if there is some SWEET!!!; If NOT, then go to steps 2 -8)
2. Bumped (created)Equity:
(when the buyer has bad credit and minimal cash, or has no trouble
with a higher price)
3. Up-Front Cash:
(upside down/or not the up front $ from your R/B* is spendable/really
nice to have) 4. Cash Flow:
(a free house with monthly income created after calculating PITI!**)
5. Principal Reduction:
(Paid over time, each month, by the R/B and it eats away your over
encumbrance!)
6. Appreciation/future value:
(it's saleable, even if there is to be none today)
7. Tax Deductions:
(use it or sell it to your tenant)
8. Leverage
(Use the last No Eq home to give owner of the next 1 Comfort
: Performance Deed on the 1st)
*-Resident Beneficiary is a "Tenant-Buyer" who buys a % Interest a Land Trust
Agreement.
**-PITI: (P- Principle borrowed, I-Interest on the loan, T-Taxes and I-Insurance)
This is a very good breakdown but i am curious to know how one would sell tax deductions to their tenant?
How is that done?
Tax Benefits Come from the Tenant (who is not only a tenant but more a 10% OWNER of the Trust Property.)
They obtain at least 10% interest in the Land Trust Property when they BUY-IN with up-Front Cash they put down to ENJOY ALL IMMEDIATE RIGHTS THAT A HOMEBUYER WOULD.
The 10% ownership in the property does not require Title-Invovlement.
Your 'tenant' (the proper term is Resident Beneficiary -R/B of the Trust) has a much more certain likelihood of:
Successfully acquiring refinancing to purchase the home,
Can (as I've stated) take the TAX BENEFITS of Mortgage-Interest Deductaion and/or Depreciation.
Can earn credits toward EQUITY BUILD and APPRECIATION without the THREAT of 'EQUITABLE INTEREST' in theTitle B/C they only own TRUST PERSONALTY vs. ENTITLED REALTY.
(This insures worry over wheter the 'tenant' eviction has to turn into FORECLOSURE proceedings)
IRS Rules on ALLOWABILITY:
The 10% portion is defined by IRS Alloability Tax rules: IRC 163 Sect B
I hope this helps.
Thanks for the reply, it does clear it up a bit.