All Forum Posts by: Eric Andrekopoulos

@Eric Andrekopoulos

When you want anonymity and/or outside liability protection.

If you get a judgement against you personally, it won't attach to your property if it is titled in a trust with a trustee other than yourself.  It's often referred to as a title holding trust or land trust.

@Eric Andrekopoulos

Might depend on the state you live in.

Im in CA and i think the number is $50k, if I have assets more than that then its going to go to probate.

If you have minor kids and have a primary home, you might want to start looking into a RLT.

@Eric Andrekopoulos

What type of trust? I have never done a land trust

We have a living revocable trust that we set up

Honestly I should have done it 15 years ago but did it like 6 years ago.

I do not see the need for a land trust unless you are a politician, actor or athlete (someone who is famous).

I have done business with multiple billionaires (not bragging but trying to make my point) including several that owned professional sports teams - and even they did not use land trusts…

i'd try to get to the bottom of why he DOESN'T want to seller finance. if it would be more optimal tax-wise, if he'd make more money on the sale overall, if he wouldn't have to handle a large lump sum, if he'd be getting true 'mailbox money' that his children would then get... what is he concerned about? what's turning him off? but also, keep in mind that as much as SF would appeal to buyers, there's really been an uptick in trying to force it down sellers' throats. it's not for everyone. whether we agree with his logic or not, if he doesn't want to SF, he doesn't want to SF. it's a good tool to have in your toolkit, but don't waste energy trying to force it.

 what people also do not realize is the "well banks do it", well yeah but if you put $100k in the bank. Here is what the bank does with it:

1. They keep $10k of it due to reserve requirements

2. They can create $ basically out of thin air and take that remaining $90k and turn it into $900k in lending. 

So the bank is paying you 1% (or less) on your $100k but lent out $900k in mortgage debt at 7%. So the bank is making $63,000 from your $100k deposit minus the $1,000 in interest they are paying you...

How is that for a ROI ?

Fractional Banking - Definition, How it Works, History (corporatefinanceinstitute.com)

@Eric Andrekopoulos, Spot on reply by @Chris Seveney!  The banks are dependent on the velocity of their money.  Not a good situation for someone wanted to exit the rat race.  I'd add three more pieces to the "why sell" puzzle.  

1. If he simply sells and moves into the right passive opportunities he can use the 1031 exchange and indefinitely defer all of the tax and depreciation recapture.  When he dies then his children get the properties tax free - the tax is eliminated!  And he gets the income off the deferred tax while he's alive.

2. If he sells real estate and owner finances or just sells and moves into non-real estate equites he will lose the offset of depreciation to his income. He's likely to find that even with lending income greater than his NOI from landlording he'll be making less money net because of no depreciation. 1031 exchanging into a qualifying asset allows him to continue to offset income with depreciation.

3. A portfolio sale would likely require a hair cut on price.  If he sells them as individuals then you can command the highest dollar per sale.  And give him the greatest flexibility on how he times his ultimate exit to his best advantage.

You want to avoid stepping into the role of financial advisor for the seller unless you are an actual financial advisor working for them, but it seems to me that this persons best move would be to actually pass the property on to his heirs using what’s known as a stepped-up basis for cap gains tax. The step-up cost basis resets the cap gains starting point to the value of the property when the heirs inherit it versus its original purchase price. A lot of times people don't want to leave physical property though, if their heirs don't want to deal with it, or have to split it up, etc. so maybe spreading the cap gains out by using seller financing will be attractive.

I find not everyone wants to "be the bank" however, especially if they're older and their goal is leaving an uncomplicated inheritance to their heirs, they don't want their kids having to deal with waiting a few years to get paid that lump sum, or worst case scenario foreclosing on a property to get their inheritance. 

Whenever I've done seller-financed deals, I've offered something a little more to the seller such as a higher down payment, higher interest rate, quick close, reduced contingencies etc. to sweeten the deal beyond a normal sale, and I've shown them proof of funds that I can pay off the property in cash, so that helps give them peace of mind that I'm a credit-worthy borrower. Good luck! 

You really cant dictate what is best for someone else. What you are describing is similar to telling the power ball winner not to take his 50 million lump sum, and spread it out in installments so he can get more. In his situation I dont care what spread sheet you show me. If I want to sell my portfolio for 3 million right now as opposed to some long drawn out process, with dozens of moving parts and dependent variables; id laugh.  I would just drop my millions in a high yield account, live out my days on my boat (traveling), then pass it on.  

It sounds like your investor is primarily focused on passing cash wealth to his children rather than maintaining the rental business. While seller financing offers numerous advantages, including tax benefits and continued income for heirs, it seems he's set on selling for cash.

Perhaps emphasizing the stability and long-term growth potential of seller financing, alongside the flexibility it offers in structuring deals, could help sway his decision. Additionally, highlighting the potential for a higher overall return on investment might appeal to his financial goals for his heirs.