Greatest generational transfer of wealth is well underway...

[AJ Wong]

Howdy BP,

I'm just beginning to contribute to community forums, but I have previously written about recent successes with the utilization of seller carried financing. In my previous post I highlighted that the properties and transactions that typically include seller carried elements are generally owned with no mortgage or existing debt and were purchased well over a decade ago. The seller(s) typically have a low base due to appreciation and have yielded substantial returns during the tenure of ownership. 

Expanding on this market niche, the most recent real estate transactions I've participated in, have all involved sellers in their advanced age whom have accumulated considerable portfolios and are in the process of liquidating or recapturing some of their very hard earned investment and equity. 

I have a current client owner that is over 70 years old (and with permission) allowed me to share an anonymous profile. She is widowed, seemingly lives a very moderate lifestyle and yet has accumulated over $1M in property based assets and equity. Her plan is to sell an investment property so that she can eventually sell her primary residence and secure a ranch to raise her farm animals. 

She has no family and no heirs, the intention is to leave everything to the sheep and a trusted animal care organization :) 

The question is, at this stage in life, what is the best use of her assets and when is the best time to enjoy the reward of her financial, energetic and personal investment?

As a real estate broker, my duty is to perform in the best interest of my client(s). Often this responsibility begins with education. At 70+ she's seen more change in life and real estate markets than I can imagine. What she might not be aware of, is just how much real estate options have also evolved, particularly in the past few years, with regards to the technological explosion of innovative resources, tools and companies that can help qualified investors and owners maximize assets and improve the buying/selling/marketing process. The same tools we all use to assess and utilize the properties 'they' are often selling. 

With "The Great Wealth Transfer" According to Forbes, some experts are estimating that somewhere between $30 trillion to $68 trillion dollars will be shifted from baby boomers, people born between 1946 and 1964, to Generation X (1965-1980) and millennials (1981-1996).

My client's $1M+ portfolio is a portion of that current transfer. Her's is going to sheep, but nonetheless the non-metaverse translation is a single, elderly woman (that spent her day cleaning her building) and is asset rich, but cash poor and might have to deal with tenants, maintenance and BS for another twelve months until her properties sell..

Her discipline of low debt, no debt and frugality helped her reach and exceed very lofty personal goals, but when will she enjoy the fruits of her labor and how much do the sheep or the next in line deserve or require? Even if she does live until 104 like her uncle, a 30 year still wouldn't be paid off! 

She is still operating under the pretense that she needs to liquidate the asset completely to utilize the investment realized. Although I'm paid to facilitate the purchase and sale of property, the best course of action to accomplish her goals could be by simply re-leveraging or leveraging the current asset. I suggested and introduced her to a fantastic commercial lender at my local credit union (more on Michael later!) and given the quality of the property, even with limited documentable income she can likely qualify for $2-300k 50% LTV with a payment that would easily be covered by less than 30% of her retail rental income.

This would likely enable her to secure the property she's always worked towards, enjoy it and develop it NOW and rapidly proceed to sell her primary residence (valued at $500k++) instead of liquidating her more difficult income producing commercial property, then shopping, then selling her primary residence..

I recognize there are MANY alternatives, including contingent offers on a new potential primary and/or leasing back her current residence as a contingency of a sale. I'm not encouraging the utilization of debt, simply highlighting that this particular client didn't explore or was never aware that she even qualified for financing. She still prefers to sell the property, and we will help her to do so, but it is vital that real estate portfolios be adequately assessed and ALL potentialities explored for full due diligence of related professionals to ensure that are planning and performing as efficiently as possible in the client's best interest. 

In other words, the oldest generation has the most to lose and are apparently often the least aware of what they stand to gain. 

One thing that has stayed consistent is the 10% return rule of thumb. If $1M in assets isn't providing $100k annual return or value, it's time to reassess the utility and leverage-ability of those assets. We spend an eternity evaluating the acquisition of an assets, but I'd assume much less on the when, how's and too's than maybe we clearly should. 

For example from a seller(s) perspective of seller carry's..Let's say Mr. Jones tells me...he wants to sell his older manufactured home that's produced rental income for 12 years. It's paid off or has a small balance but isn't quite financeable. His base is $125k and the value is more or less $350k. He could consider an owner carry for a well qualified buyer. $125k down. $215k LA at 6% interest only on a 3 year ballon and an option to extend for 2 years with on time payment. Both parties agree to a third party administrator. The Buyer(s) (that likely cannot qualify for a conventional mortgage) due to income or credit restrictions or property condition secures financing. Seller maintains income. Defers capital gains. Avoids third party appraiser and recaptures base and a higher net rate of return when factoring in the $36k+ interest income. 

Although each investor's time in the spotlight ends, literally opening the door for the next generation to shine, maybe the near term solution is not always to liquidate the asset? I would've certainly loved to inherit the Ft Lauderdale Condo my family used to visit before we moved there in the 80's...if not for me..for the sheep. 

This is just ONE example of a handful of recent transactions involving seller(s) and buyer(s) that are planning or in the process of liquidating assets that were not aware of alternatives or lending strategies available to them, including but not limited to seller carry transactions, and the resale of those private notes. One buyer proposed hard money at 10% with hundreds of thousands in assets, investments and an 800 credit score..

DM me for deets!