We all learned from a young age the importance of sharing. But now I want to talk to you about sharing in a matter than can be profitable to you and me. I’m talking about Equity Sharing for Kansas City real estate investing purposes.
This blog is blessed with readers from around the country. The readers are usually very interested in real estate investing in particular and have a passing curiosity or serious interest in Kansas City. And I’m fully aware that the reason some readers have never pulled the trigger on a Kansas City investment property is because they are wary of the “hassle” owning an investment property a number of miles from their home.
In short, they don’t yet trust their ability to find the right property or the right property manager and they don’t want to have to come into town to clean things up or worse, to have to liquidate the property quickly at a loss because things haven’t worked out. Real or not, those are real fears.
THE PROPOSAL
Here is what I propose. Right now I’m looking for 1-3 real estate investors who have the money but not the time to purchase and own more real estate investments. You will qualify for the mortgage, put in the money for the down payment (10% minimum), pay the closing costs and put 3 months operating expenses in a checking account to cover the income property’s cash needs for the duration of the equity share. Total cash outlay will be expected from $15,000 to $35,000, depending. After closing a quit claim deed granting me a 50% Tenant-in-Common share to the rental home.
My responsibilities will be to carefully select the right investment property to purchase and to sell you on why this rental property won’t cost you any additional funds. In essence from that point I act as landlord. I will screen and select tenants, manage the month-to-month operations of the investment property and report to you as often or as little as you wish for the duration of the equity share.
During the duration of the equity share YOU take all the tax benefits afforded an investment property owner. We keep the monthly cash flow in the operating account and at the end of the year the excess cash flow, if any, goes to me. If there is a buyer’s and/or seller’s commission when we liquidate that is mine.
At the end of the pre-determined equity share duration (5-7 years or when we reach a decided equity threshold) we will liquidate the property. When the sale is complete you will receive your entire investment back first. Then any of my real costs will be reimbursed. Whatever remains, we split 50/50.
THE BENEFITS
Money Man benefits include;
- Safe real estate investment in the stable economic environment of Kansas City.
- Safe real estate investment with an experienced real estate investing real estate agent.
- Passive growth within a reasonable window of time.
- All tax benefits afforded residential investment property owner.
My benefits include;
- No money out of pocket.
- Own shares of properties using just my knowledge and experience.
SUMMARY
Of course we would put all this down on paper with the help of a qualified real estate attorney. But basically, you’ll supply all the money, I’ll supply all the time and we’ll both reap above average returns in a rather failure proof manner.
To read how others utilize the equity share arrangement (to prove I’m not off my rocker?) you are welcome to visit here and here. And do your own research. For a basic cold water in the face approach see here. Hey, I’m just trying to give you the ups and downs so you can make an educated decision.
I look forward to hearing from you.
BBQ Capital | Kansas City Real Estate Investing 
So what type of partnership arrangement are you looking for TIC?
-4MySales
It can be a TIC or just a contractual agreement. Either way, is fine with me, legally speaking.
A traditional equity share is where you reimburse or fund some portion of the purchase price and/or existing equity in exchange for some percentage of the future equity in the property. One of the many reasons why it is done in this manner is in the event that, the property decreases in value over the term of the agreement losses are shared by both parties. In your scenario, what contingencies would address this possibility? Further, you essentially become a property manager, in exchange for a hefty equity stake in the property in addition to taking your operating expenses pre-split. As any investor knows a management company can be hired for the services listed for as little as 10% of the market rent, no operating expenses to pay and no equity stake. Lastly, Fannie Mae and Freddie Mac will not finance non-owner occupied properties with a 10% down payment any more (yes there still are some lender that will, yet at far above market rates thereby severely effecting cash flow.)
So, I can see how this works out great for you, but as an investor I’m not seeing the benefit?
You are correct…and incorrect.
A property manager with no stake in the home doesn’t take the same care. This goes without saying. And I do end up with financial commitments that we could discuss if you want to work on a deal with me. All in all, I don’t mind at all just acting as the realtor for a qualified home and farming it out to a property manager when all is said and done.
And yes, you can still do 10% down on non-owner occ properties. As of 8.14.2008, anyway. Doing one right now at 6.875%.
Where we are having severe problems is for those investors that already have four properties. Jeez. They have 25%-30% to put down, credit scores in the 740’s and above and debt/income that is stellar. And yet, because banks and Fannie and Freddie are not capable of using common sense (after all, it has to be one size fits all) we are still having trouble!!
Thanks for stopping by.
I can not be certain, what specifically you mean by “care”, yet my expectations for a property management company are pretty simple. Find and screen prospective tenants, high rate of occupancy, notification of damages and default. All in all that’s pretty simple. On a per property basis man hours are minimal and what does an ad in the paper cost or a post on rent.com…20 dollars.
Fannie and Freddy (F and F), will absolutely no longer do 90% NOO, if you have a private money source/hard money lender that will do 90% at 6.875 (which is .25 over par for F and F conforming 80% LTV NOO loans…thus I have trouble believing those numbers.) Hence, why would the limitations of the F and F guideline (4 NOO mortgages max) be a concern?
Not sure why you have this bee in your bonnet.
Anyway, when the post was written there were F&F backed loans. So what’s your point? Even today I can get 10% loans with ease and competitive rates…well, as of Friday last when I checked. But don’t take my word for it. I do this every day. 😉 4 units are more are a much different animal right now. Just the way it is.
And as for your comment on property management and expenses…well, I can only assume you do not work with a lot of property managers.
The biggest headache for most real estate investors is their tenants. For those that use property managers their biggest headach is the PM. Overcharging, under performing on maintenance, fraud, moving in bad tenants, etc. Or at least that’s the complaint from the hundreds of investors I speak with every year.
You are free to call me to discuss further or you are free to keep bashing the idea. If you don’t like it I would suggest not doing it. The post was intended as a starting point of negotiation. Even with this market correction my clientel has done very well over the last 5 years.
References are available to anyone that wants them. 🙂
Chris, I’m not really trying to knock your venture… I would, just like to get a better handle on some details, expenses and cash flow.
As you well know the rules for obtaining financing change every other day and if F and F had their way no one would get a loan.
Just FYI, no I don’t work with a lot of property managers…only one and in 8 years I’ve never had a “major” problem. Although, I also carry home warrantees, extensive and expensive insurance, hence, if ever they ultimately place the nightmare tenant in one of my properties, the majority of the damage will be covered. Beyond that, within our agreement (for a fee) they provide payments based on a % age of occupancy stipulated within the contract, regardless of actual occupancy. Further, they also provide a maintenance rider, to cover repairs, acquisition of tenants and evictions if necessary. So headache’s..no not so much…pocket ache’s…yep it all adds up. Yet it does give me the piece of mind and freedom from virtually all contact with tenants.
Per the first thing, why don’t you give me a ring.
You are very right in loans changing from day to day and that is why I did not argue further your F&F statement. But I have been assured by 2 of my more reliable lenders that yes, you can still get those loans for investors. The trouble, I’m told, comes with PMI as only two companies still write for the investor.
And if you’ve had one good PM over the years then count yourself blessed. I hear three common themes in my business:
1. Fraud. So many different forms but very real.
2. Inexperience or “shouldn’t have”…either way people went in uninformed.
3. Bad property managers. And from personal experience I can tell you it’s a very weak link in the whole real estate investing venue.
And I’d be happy to call. In fact, I may do so tomorrow while I’m at an inspection. (Those are so exciting for realtors. 🙂 )