Legal Real Estate Instruments
How do I invest in a percentage of a property. What is the best "paper" to use if I want to invest in a percentage of a property. Can a lien be used as a negotiable instrument? Can I put a lien on a property with payment terms based on a percentage of the selling price? Is there another way?
I have a friend who want to give me $5K to invest in a property and wants to be able to get money reasonably fast if he needs to pull out. He wants paper he can negotiate with.[ Edited by kralenmagic on Date 11/03/2004 ]
How about you give us more information about what you are trying to do? Otherwise your question is so broad that my advice would be to go to an attny.
What percentage is the 5k getting him? Will you base the future value of his 5k on actual investment (the 5K), or as perentage of value - eg 10%, how will you assess the value of the property later - appreciation on FMV or what?
You can give your friend a note for a specific value. He can then record that note and if necessary sell it later. Make sure to get some legal advice to draw up the note as you do not want to inadvertently create situation that is unfavurable to yourself
In ref. to the above question/answers. It is intended as an example not specific. The 5K is intended to be a good, low risk, investment for my friend and a way for either of us to easily get in on each others property deals. I know about notes, etc. Typically, loans secured with property the amount is set, plus interest. What I'm talking about is unconventional, in that the future value of the 5K follows the appreciation + profit/loss of a piece of rental property. How to calculate that value can be spelled out. When the payoff comes, is when the property is sold or transfered and the calculation is to be done at closing. However, at any time in the future, he needs to get the money back, he wants some for of paper that can force an evaluation to be made, and so he can then sell the paper to someone else.
Then create a contract and have those terms you mentioned in it
You can make a contract for just about anything, of course, but how do I secure the amount based on appreciation to the real estate? What legal instrument can be used?
This question truley interest me. I have always thought of this as a way for real estate clubs to buy and flip, at low risk moderate returns. But what if one investor wants out ect.
My solution is to collect all the monies in escrow and have a POA on the property by a neutral trusted party.
Is it possible to have POA on 20 investors?
What is the likely hood of these investors agreeing to POA.
Now you are getting it! One can always create a partnership in order to share the wealth but that costs $800/yr in Ca. not to mention all the other responsibilities and liabilities of mutual partners. From time to time I may want to share the monetary risk on a deal by letting somebody "in on it", with little or no risk to them at a more than reasonable return. Likewise, I may want to be on the other side from time to time.
If I have a deal I can make that has a possible $50K profit in 5 years, but will at least break even. If somebody would put in $25K now, I might be willing to give them 2/3 of the profit in 5 years. How do I do that?
You and your partner would decide the terms as I stated before. That means between the 2 of you you decide how you would calculate the value - appreciation?, flat percentage?, etc.
You and the partner should also discuss the value of sweat equity because if I put in half the cash and another guy puts half and then I do all the repairs I expect to own more than half
You would also decide how he could get his money ouy - he could sell the note as the assessed value (based on the terms you agree to), or maybe you give yourself first crack at buying out his interest, or whatever.
That is usually something you decide on together. For myself what I use is a fair market value assessment as the method to be used to calculate later value whenever I invest in a property. I also tend to go for shares so If a property costs 15k and the guy puts 5k he gets 33%.
I think I'm understanding you now. Are you saying that I can make a contract with my investor that gives all the details of how to evaluate and calculate the value of the contract. For example he gives me 5K, I give him 10% of the appraised value of a property after a set period of time or upon the sale of the property. The contract will have all the details. But what can he sell or use to get his money if he doesn't want to wait the specified time or for the sale? What kind of paper?
You can make the contract transferable - so say you and he do the contract andyou say he can get his funds out after 5 years. He decides after 2 years that he wants out, he could then transfer the contract to whomever he wishes for the current value at the time. Make sure the contract states that the terms also transfer to the new owners so they cannot then demand to cash out before the 5 years.
thanks, now I think I'm getting it: In consideraton of money, I can write a contract outlining all the terms and conditions. I can make the contract transferable to anyone. The repayment value can be spelled out in the contract as a formula based on an independent appraisal of a specified property. Can I secure the contract, (make it very secure) with a lien or other form of legal means such that the property cannot be sold or transfered without the contract being fulfilled? How/what?
You could make the contract so you can file it similar to a mortgage
Can be a little more specific? How would you write something that is similar, yet not a mortgage? Who would know how to do that. My attorney is bewildered..is it a condition an amendment to something, a "subject to", "in the event", a clause, what?