Hello
Can some please tell me how to purchase equity in a preforeclosure? What math do I use for my offering price? Also, after I purchase the equity what happens to the original loan?
Thanks
Anne
Hi,
Are you litterally buying equity? Or are you doing an equity share agreement?
Buying equity you have to protect your own interests, for example:
Smart Feller Investments LLC (SFI) owns a large commercial property in Profit Port USA, they owe $700k on a property worth $1m dollars. The markets tough and they know they need a new “Lift a Roo” (Escalator) and don’t have the ability to refinance when you include the points and escrow cost’s.
So SFI approaches investor “Anne Warbucks” and says we would like to sell you a chunk of our equity. We need $75k in cash and are willing to create a 2nd note and deed of trust for a 20 year term due in 5 years at 8% interest and we are willing to give you a $150k equity position for the cash.
This would be an example of a equity purchase.
An equity share looks something like this:
Big Jim and happy Nancy have a home, they are only able to afford 80% of there monthly mortgage because “Big Jim’s Beef Jerky’s” sales are way down because of the economy. Big Jim and Happy Nancy only owe 75% LTV but are having problems making the $2k a month payment on there $400k home.
They approach “Miss Anne Warbucks” and ask Miss Anne if she would consider becoming partners and making up the $400 per month shortfall as we all Know that Miss Anne owns “Miss Anne Warbucks Cookies” and the company is doing very well, in fact Nancy has stuffed her matress with $100 dollar bills.
So Big Jim and Happy Nancy ask Miss Anne if she would take half there equity and half of there yearly tax write off’s to make the $400 dollar payment of there short fall for them. Miss Anne gets say $1400 a year in tax write off’s and Big Jim and Happy Nancy have agreed to sell there home and down size in 10 years, so although Miss Anne will make a $4800 a month investment she will recieve $50k as half the current equity and will pay out $48k over the lifetime of the agreement she will recieve her 50% upfront, she will get a $1400 a year write off and as the mortgage is paid down and the equity is projected she stands to make roughly $200k in 10 years at a estimated appreciation rate of 5% with a mortgage paydown of approximetly 1/3 it’s current $300k balance.
In either scenerio the existing financing stay’s in place and the partner is paying the note at a sale or refinance.
Good luck,
GR
That’s $4800 a year!!!