Wealth Enhancement Strategies for Real Estate Investors

[Don Konipol]

Wealth Enhancement Strategies for Real Estate Investors

1. Sell 1/2 interest to a partner at a profit to yourself. Example - negotiated purchase of a 5 year balloon note of $280,000 remaining principal paying 11% interest for $250,000. Sold 1/2 interest to a partner for $140,000. So, I ended up paying $110,000 for a $140,000 equity in the note. Further, I receive 1% of the loan amount annually for servicing the note.

2. Use a wrap around mortgage to capture interest rate differential. Example - sold a retail/ service center for $1,750,000 with a $1,300,000 note I carried back at 10% interest. This note was wrapped around an existing $610,000 note at 4% interest. So I earned the differential of 6% on the principal balance of the wrapped note or about $36,000 per year for as long as the note is in existence.

3. Increase the sale price of a property that doesn’t qualify for financing by offering seller financing. Example - I owned a community center I needed to sell that I had picked up in foreclosure. The offers I received for a cash offer (the property could not be financed) were in the $200,000 range. I offered to owner finance a church buyer at a price of $300,000 with $60,000 down. The church rehabbed the property, and three years later refinanced and took me out. So I increased my wealth by $100,000 by owner financing and received 8% interest per year for the 3 year wait to cash out.

4. Substitution of Collateral. Example - Back 43 years ago when I was still dealing in residential properties (as well as commercial) I purchased a SFR for $55,000 with $5,000 down and the seller carrying back a 25 year note at 7% interest. I explained to the seller that my offer contained a substitution of collateral clauses and I would be exchanging the note they held on the subject home with a note of similar principal and interest secured by a different property of greater appraised value. The sellers were agreeable. Interest rates in the then current economic climate were in the 15 - 17% range for new mortgages, hence I was able to purchase a note on a SFR with a principal balance of $50,000 or so and an interest rate of 7.5% for $22,000. I "substituted" the note I purchased for the $50,000 seller financed note (which was "retire") and hence ending up paying $27,000 for the $55,000 house.

5. Buy a business + real estate, keep the real estate, sell the business. Example - I purchased an automotive shop with all the equipment intact at a bankruptcy auction for $117,000. I then sold the “business” (equipment, name, signs, goodwill, etc) to an operator for $50,000 cash, and the operator signed a five year 3N lease at $3,000 per month. After enjoying a net income of $36,000 per year on a net $67,000 investment, I sold the real estate to the operator for $335,000.