The following is not meant to be a commercial, it’s an article I wrote for Tim andle this morning at his request (re. promoting our products on the site). I thought it might be good to share it in advance with the lookys and lurkers here.
Tim…chomp it if it seems too comercial (the intent is to make your readers aware of a technique that can make CREI a dream for some of us who are tired of looking back over our shoulder with trepidation for years after every deal we do.
bill
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THE EQUITY HOLDING TRUST TRANSFER™ (PACTRUST™ AND NEHTRUST™)
A WHOLE ‘NOTHER ANGLE ON THINGS
By Bill J. Gatten
“The EHT is not an alternative to what your are doing: its just a better way of doing it.”
Contrary to what one might hear from those uninitiated in these concepts, buying real estate with nothing out of pocket, nothing per month, no payments, no management, no maintenance, no repairs or upkeep and no credit risk is entirely possible…and a pretty darned good “gamble (Nothing ventured…nothing lost).”
North American Realty Services, Inc. has handled well over 2,000 such transactions (The Equity Holding Trust Transfer™ - PACTrust™ and NEHTrust™) since 1984. So far we average a 25%-35% slow-pay rate; a 15%-20% default rate; a 5% eviction rate; a dozen favorable Unlawful Detainer Actions to our credit (Virginia, Michigan, California, Texas and Florida). Further, we have never experienced a single legal action of any other type. We were ‘named’ in two suits between the parties and their Realtors®, and were immediately released from the proceedings in both instances).
The PACTrust works this way:
A. An owner places its property into a simple single-beneficiary title-holding land trust (the owner becoming the director beneficiary) for myriad reasons:
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For privacy, estate planning, probate avoidance and assets protection
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To shield the property from legal threat such as: marital dissolution litigation, creditor claims, Probate, bankruptcy…even IRS tax lien.
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To be able, by a subsequent Assignment of Beneficiary Interest, to convey all tax benefits to any party who would become a co-beneficiary in possession…without a title transfer…in order to command, say, 150% higher rents, and/or to eliminate all costs of income property management: vacancies, maintenance, repairs, etc.
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To be able, upon such an assignment, to avoid an open lender’s due-on-sale compromise relative to keeping the underlying financing in place.
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To make loan payment-assumption simple, in that the SELLER is so thoroughly protected: i.e., never worrying about collections and disbursement of payments (handled by a third-party collection service), and never need to put the “buyer’s” name on title… until its time for him/her to refinance in their own names.
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To make selling (or other disposition) easier, in that the acquiring party can be thoroughly protected while assuming the responsibility for the existing financing… without a down payment (necessarily) and without bank financing or standard credit requirements
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To make “sandwiching” easier, since the investor in a three-beneficiary NEHTrust™ needn’t ever be concerned about the potential for untoward or illegal actions by, or personal problems of, the person remaining on the loan: or of the beneficiary who is occupying the property and making the payments
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To make dispossession of a defaulting tenant faster and easier, since a defaulting party can not claim “Equity” (i.e., having an “equitable interest”) in order thwart or forestall Foreclosure, eviction or Unlawful Detainer
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To shield the buyer against illegal or illicit Foreclosure or Unlawful Detainer by the Settlor or Non-Resident Beneficiary without just and appropriate cause
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To allow for the collection of as high a security deposit as one might require without being restricted by landlord legislation…a land trust Contingency Fund can hold a sum equivalent to one payment or twenty payments.
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To shield the investor from unfair and highly biased and restrictive Landlord/Tenant laws and regulations
B. NEXT, a Beneficiary Interest in the trust is assigned to a co-beneficiary (e.g., an investor)
C. THEN that co-beneficiary leases the property from the trust on a “triple-net” lease basis (i.e., contracts to pay all costs of mortgage, maintenance, insurance and taxes).
D. The non-resident (investor) co-beneficiary then advertises for a third party who will, as a third beneficiary in the land trust, live in the property, take care of it and make all payments and handle all costs in exchange for 100% of all the ‘benefits’ of homeownership (including income tax deductions). At that point appreciation, mortgage principal reduction and all other benefits of ownership can be given to, or shared with, the resident beneficiary.
At the investor’s discretion, the transaction can take the form of any seller-assisted financing objective (Option, Wrap, Contract for Deed, Equity Share, etc.) with full tax benefits to the tenant/buyer…without a title transfer; without an open and direct due-on-sale violation; and virtually without jeopardy to the property by any party’s lawsuits, creditor judgments, IRS tax liens, divorce litigation or bankruptcy actions.
The Beneficiary Agreement within the Equity Holding Trust™ documentation stipulates that upon termination of the trust (and the lease agreement), the party who is the resident beneficiary will either sell or refinance the property, and pay the investor any monies he/she may have been carrying (out of the proceeds of such disposition). In an attempt to avoid characterization as a security agreement the acquisition price for the property upon termination is not agreed to in advance: it becomes whatever the Fair Market Value of the property is determined to be at the time of termination and disposition…MINUS any monies owed to the acquiring party by the trust (e.g., from profits, credits, contributions, refunds due, etc.).
By use of the Equity Holding Trust transfer arrangement, an investor can finally relax and receive profit through some or all of the following: 1) “sale” or use of the income tax write-off, 2) a share in equity build-up from mortgage principal reduction, 3) a share in appreciation, 4) receipt of a return of any equity held at inception, 5) receipt of a positive cash flow throughout the term, 6) use of the passive tax write-off (depreciation) throughout the term of the agreement, 7) a subsequent sale of his/her interest in an established Equity Holding Trust to another investor (the ad says” “Look! Cash-flowing income property with no management, maintenance or payments…”).
At North American Realty Service, Inc., for those who wish u to, we provide all documentation, legal review and client consultation. We’ll even sell the deal for you by teleconferencing with your clients and prospects. We guide you through every phase of the transaction; prepare all documentation; provide the trustee, the collection and disbursement service; provide all client consultation, Escrow settlement, legal review and endorsement; and we remain involved in all post-settlement follow-up.
Bill Gatten
1.Fast
2.Cheap
3.Good
Pick any two from the list above