“FLIPPING” (Re. BUYING WHOLESALE, FIXING AND SELLING RETAIL)
The EHTrust Transfer™ (an EHTrust™ with two or more beneficiaries) is designed as a private and silent transfer of real property ownership benefits from one party to another. With the EHTrust Transfer™, when used in conjunction with am Assignment of Beneficiary interest and a Triple-Net Occupancy Agreement, home ownership benefits derived by an acquiring party are directly analogous to title ownership…but with effective asset protection in-rem (‘re. legal action against the real estate vs. against the person…i.e., “in personam”).
A BRIEF SYNOPSIS
- ‘The beneficiary-directed Equity Holding Trust Transfer™ has, for the past thirty-years, functioned flawlessly as a wholly legitimate and practical means for transferring the benefits of Fee-Simple real estate ownership, and is centered upon the 100-plus year-old Illinois-Type (“beneficiary-directed, 3rd-party trustee”) Title-Holding Trust. This trust structure serves very effectively to shield one’s real estate ownership from public view for short or long-trm holds. (i.e., ‘in that only the deed to the 3rd-party nominee (the trustee) is recorded in the public record: while only the unrecorded, privately held trust document contains the identities of the trust’s beneficiaries, and which document, remains unavailable to any inquiring party, absent a full court order and official deposition).
- Within the Equity Holding Trust Transfer™ (“EHTransfer™”), title to the corpus (the real estate) is temporarily vested in the third-party, ‘bonded and licensed, non-profit corporate trustee.
- “Land Trusts” per sé (‘including the EHTrust™) are legal and acceptable in all US states: ‘although in Louisiana and Tennessee, beneficiary-interest in any real estate holding device is perceived as Use in, and Ownership of, Real Estate vs. Personal Property (i.e., thereby necessitating Foreclosure, versus Eviction, for the removal of a defaulting tenant-beneficiary). In other states, one’s “Land Use” is, as per common legislation, Use in Trust versus Use in Land. (Note, however, that even in La. and Tn. a qualified land trust beneficiary is, under IRC 163(h)4(D), entitled to full income-tax deduction for the expense of mortgage-interest and property tax (see also Rev. Rul. 92-105).
- The temporary transfer of a property’s ownership to an inter-vivos trust does not violate any lender’s alienation (“due-on-sale”) admonitions (i.e., see 12USC1701j-3).
- The Equity Holding Trust Transfer™ does not compromise any provision of the recently established Wall Street Consumer Financial Protection Act re. Seller-Financing (i.e., the “Dodd-Frank Act”): this is despite the fact that virtually 100% of all benefits of fee-simple ownership are being conferred upon the acquiring party (i.e., ‘without a title transfer to, or formal loan-assumption by, that party).
READ MORE (‘If doing so is deemed necessary)
Application of Flipping with the Equity Holding Transfer™
“Flipping,” is a common term among real estate investors in reference to the process of acquiring a property at a reduced (wholesale) price for the purpose of reselling it at a higher (retail) price following any needed refurbishment.
Unfortunately the term “flipping” has, in the past, carried the connotation of being something illegal. This is wholly due to nefarious dealings by certain criminal elements having no regard for honesty or fair dealing. Illegal “flipping” schemes were (‘and perhaps still are, in some circumstances) concerning distressed properties in poorer neighborhoods, wherein the “investor’s” sole intent was to perform cheap cosmetic repairs, inflate the price (‘usually in collusion with equally devious appraisers contractors and mortgage brokers): ‘then quickly sell to an unsophisticated buyer, having been enticed by a low down payment and a short-term “teaser” loan-rate. These nefarious dealings easily allowed properties to be acquired for pennies on the dollar, and sold for prices many times Fair Market Value.
In these cases, the buyer’s credit would be “enhanced” by a the underhanded mortgage broker, the full knowledge that deceived buyer would far more than likely end up in foreclosure within a year or two as the lender’s rate-adjustment took place.
Obviously, Fraud is illegal, whether “flipping” is at issue or not; however, the fact is that— there is nothing about wholesale flipping per se that is illegal in any matter . As a matter-of-fact, it’s a very convenient and reasonably quick way to make a good (honest) living.
EXAMPLE: The generally recommended safe acquisition-price for any “fixer-upper” flip candidate is from 65% to 75% (‘at most) of the property’s “ARV” (i.e., its ‘After Repair Value’): LESS all anticipated costs of repairs and re-marketing expenses.
After Repair Value ……………………………….……………..…………….. $100,000
Repairs needed…………………………………………………………………. $ 20,000
Re-marketing Costs……………………………………………………………. $ 5,000
“Flooring” (I.e., ‘pmts made during construction)…………………………. $ 2,400 (i.e., 3 pmts of $800)
Today’s fair wholesale acquisition price………………………. ………….. $ 45,000
(I.e., Offer: 75% of ARV: $ 75,000 less $27,400 = $45,000)
The primary key to successful flipping is in knowing (‘or working with someone who knows):
- How to identify the properties
- How to spot bargains
- How to avoid mistakes
- How to best RE-furbish, RE-market and RE-sell… ‘at the right price
The Dangers of Flipping Lie Primarily in One’s:
- Carelessness in buying: i.e., ‘paying too much,
- Underestimating the costs of construction and repairs
- Not knowing the all the costs beforehand• Miscalculating “Time-to-Completion”
- Failing to account for “flooring time”
- Using inferior contractors (i.e., inadequate screening)
- Paying contractors for more than materials in advance
- Failing to obtain an agreement to review and approve any subcontractors
- Filing to assure that the general contractor is paying his “subs” on time
For additional information, contact ODWM at 800 409 3444
Flip Strategy #1
Buy, Refinance then Place the Property in an Equity Holding Trust (EHTrust™), and appoint a Resident Co-Beneficiary to Cover all Costs of Ownership: in Exchange for Relaxed Down Payment and Credit Qualifying Parameters, along with Virtually 100% of ALL Fee-Simple Home Ownership Benefits
- Instead of selling the fixed-up property after repairs are done, ‘consider — 1) re-financing it, 2) placing it in an EHTrust™ and 3) providing relaxed acquisition terms for a Resident Co-Beneficiary
- I.e., when the property’s rehab is done, refinance at, say, 80% of the property’s new value; ‘then put the property’s title into an EHTrust™
- Next, install (‘appoint) a trusted party as a Resident Co-Beneficiary who will live in the property while covering all on-going costs of ownership (i.e., principal, interest, prop. tax, insurance, HOA, all maintenance and repairs… and a positive cash-flow to you every month)
- Once you’ve done the Math, you should end-up with all the current equity in the property, all of (‘or a stipulated percentage of) future appreciation potential, principal pay-down on the loan and plenty of positive cash-flow and freedom from land lording: ‘i.e., due to your ability to offer full tax deduction benefits, all or a portion of future appreciation, and all the benefits of fee-simple ownership...’without further bank involvement–‘i.e., no more down than you need, and no more credit that you might require (i.e., ‘in view of the relative ease of dispossession in the event of a default, a larger Contingency Fund can compensate for any credit weakness).
Flip Strategy #2
Buy & Flip “As Is”
‘Don’t like fix-up work? ‘Then sell the property “As Is” as a “light fixer.” You should be able to sell the property just a little below market, even if in less than great condition…and still make a profit. (Quick Ad: “Fixer-Need Quick Cash”)
Flip Strategy #3
‘Don’t Buy: Just Flip!
Instead of dealing with complexities, simply get a contract that you can assign to another (cash) investor for a fee. I.e., locate a fixer; ‘get it under contract and assign the entire transaction to someone (another investor) who is willing pay you a couple thousand ($$) for the opportunity. In such an assignment scenario, the more you know about the property, its condition, the approximate refurbishment costs and the resale-market potential following the work to be done, the more valuable you and your services are and the more money you are entitled to earn.
For additional information, contact ODWM at 800 409 3444
Flip Strategy #4
Leave the Loan in Your Seller’s Name (For Now)
A fixer-property’s existing mortgage can remain in the name of the owner-of-record (the “seller”) until the fix-up is completed and a third-party buyer is located (via a review of classified newspaper ads, Craig’s List, Myhousedeals.com, etc.), which “buyer” can move into the property today, covering all payments and other expenses of ownership, until his/her loan is approved and funded, ‘at which point the property’s title can be granted directly to them by the trustee, or be retained by the trustee in its name for a long-term hold .
Flip Strategy #5
Same as Above (Kind’a), ‘but with a New Mortgage
OR… (‘re. the above) in a similar manner, ’a new mortgage can be taken out by the investor, with the full intention of re-sale to a new buyer with a new loan, within a reasonably brief period of time (i.e., 3 or 4 months perhaps).
Prior to the new buyer’s closing on his/her own mortgage financing, where delays or seasoning issues are involved, one can use the EHTrust™ for what is tantamount to “bridge-financing” (i’.e., wherein all fee-simple home ownership benefits are afforded the new buyer, long before his/her loan is approved and funded. In such an arrangement, the investor is well-advised to qualify the buyer in advance; however, the EHTrust’s term can be adjusted so as to require a mandatory move-out by a certain date, if the loan is not approved (‘or if an extension of the contract is not in the best interest of the non-resident party/ies).
Flip Strategy #6
No Money for the Rehab? No Problem!
- Find a willing seller who will agree to leave his/her existing mortgage in place for a few months or several…
- Find a willing Resident Co-Beneficiary (RB) prospect who will pay an amount (“down”) sufficient to cover the needed repair costs (i.e., which, within the trusts documentation, will be counted as that party’s wholly Refundable “Co-beneficiary Contribution”)
- Offer that Resident Co-Beneficiary, a 50:50 share in the net proceeds of sale at the end of the trust’s term in, say, five-years: ‘along with a full return of the Co-Beneficiary Contribution” (i.e., the monies paid-in at inception)
- In order to “sweeten the deal” for the relinquishing party (the settlor-beneficiary; i.e., the owner-of record), consider offering him/her, say, 75% of the ARV at inception…’minus repairs, closing costs and re-marketing expenses…PLUS, perhaps, say, ten-percent (10%) of your own net-profit anticipated to be received at the trust’s scheduled termination date: i.e., wherein the Resident Co-Beneficiary has the first-right to acquire by obtaining his/her own mortgage.
- In the interim, the Resident Beneficiary will have been afforded 100% of (ALL) benefits of home ownership including income tax deductions for property tax on the property, and for all home mortgage-interest (on the settlor’s existing mortgage), plus the agreed-upon share of mortgage-principal reduction and appreciation over the term of the Agreement.
- In this arrangement, note that the Investor Co-Beneficiary and Resident Beneficiary remain 100% in mutual control of the property, the trust and any/all actions of the trustee. I.e., ‘that is…’as the trust’s sole-directors in charge of all payment and property management issues, each with mutual Power-of-Direction (‘i.e., neither party can act against, or without concurrence of, the other) with regard to any aspect of the property, the trust or the trustee’s duties and responsibilities.
Flip Strategy #7
Do the Rehab FOR the Seller (‘in a way)
Tell the seller… “We’ll do rehab for you.” I.e., “We’ll put the property in the trust for you and bring in a Resident Beneficiary, whom for say, a 50:50 equity share (‘with us: i.e., You, Mr. Seller and Me), which resident beneficiary will, for the term of our agreement, make all payments to our 3rd-party collections and disbursement service, which service will handle all disbursements on a monthly basis. Then, at termination, you’ll receive all of today’s value, ‘plus a return to you of any equity that may be in the property today.”
In this case, if the property were to be free-and-clear, the payment to the owner-of-record can be at a 7-8% (or higher percent) interest-only payment, ‘which quite obviously is financially superior to one’s leasing (letting), or receiving interest on a money-market account somewhere. In our program, in addition to all other benefits, all expenses can be additionally minimized by county, state and federal government grants (‘which paperwork we handle for our clients). So, in this scenario, unless agreed-to otherwise, the seller can continue making the mortgage payments until all repairs are completed, at which time all such responsibilities revert to the co-beneficiaries.
Flip Strategy #8
The noble “Bird Dog” is a commissioned opportunity-finder with a nose for a bargain. He/she is one who sniffs out deals and sells them to other investors who are typically more cash-robust than themselves. Many successful real estate investors began their investing careers as Bird Dogs, while saving enough over time in the process to eventually do their own buying…’from their own Bird-Dogs.
The Bird Dog Fee (“Finder’s Fee”) varies with each transaction, and is dependent upon the value of the property, the amount of work to be done on it, and its profit potential. One can generally expect to make anywhere from a thousand to four or five thousand dollars, depending upon the quality of the bargain each time an investor can be provided with a good lead resulting in a profitable transaction.
And…’once again…’don’t be just a Deal-Sniffer: Be an Analyzer and Calculator of Stuff, as well. When presenting an opportunity to an investor, which doesn’t require a bunch of guess-work and additional research, your value to that person doubles or triples.
Many truly knowledgeable Finders end-up partnering with their investors after a while, agreeing to do the research, negotiations and all the grunt-work for half the profit (or more).