Become a FREE member now and list your properties for FREE!

The Motivated Seller and the NARS Pactrust
by Bill Gatten

For whatever it may be worth, here's what I do, and what I recommend that other Investors do. Although some may not be interested in acquiring "holders (property to be owned for a longer period of time)." I see holding as an opportunity to earn potentially larger profits in the future, versus picking up the quick-flip money now; though this is not by any means, to discourage the latter when doing so is possible.

First of all, agree to have the current owner place the property in a title-holding trust in his/her own names for a few years. The trust will continue then until you can either -- 1) sell the property and pay off the loan, or until 2) you can refinance it in your own name and hang onto the property.

This way, the seller needn't "trust you," or take chances on passing title to you. Neither do they have to take any chances with your personal problems that could result in getting liens, suits, judgements, BKS (or your OWN martial dispute actions) against the property. Essentially the seller gives you, say, a 90%:10% ownership (beneficiary interest in the trust), and agree that when you dispose of the property in 2-3 years, that they will relinquish their ten percent at that time. This agreement to forfeit is made as consideration for your prompt payment record and strict adherence to all contract provisions throughout the term of the agreement. The 10% interest helps in protecting against a due-on-sale violation (the DOS may not be a big deal to most Investors; but it makes a seller much more comfortable. And so long as some beneficiary interest in held, and no more than 50% of the voting rights within the trust are relinquished, neither will there be property tax increases, or compromises of federal or state income tax regulations.

The beneficiary agreement between you and the seller specifies that upon your disposition or refinance of the property, the seller will be paid all of their beginning equity. This way the seller saves a bundle in real estate commission, sells the house for full price, and they earn a lot more than they ever could otherwise

Now... after you've gotten the seller's agreement to proceed, if you'd like to have someone else cover all the costs and expenses, consider this: Get an agreement to be able to assign a portion of your beneficiary interest to another, then run an ad in the newspaper that says something like:

"Why Rent?
No Down, No Bank Qualifying. As Little as 2-3 Pmts and Closing Costs Can Move You In. Call About Incredible Trust Property Opportunity"

Then when the prospects call (and they will... in large numbers), you say this (exactly this):

"Yes, I have this house that is currently in a land trust: and what I'm looking for is someone who can afford the payments and the closing costs, to basically… just 'give it to. [Pause] The only thing I want out of it personally, is your agreement to either sell it, or refinance in your own name in a couple years. And, of course, if there's been any appreciation over that period of time, I'd like to just split it with you."

Now... think about it... if you've done all of this… haven't you, in effect purchased a property with NO (or minimal) Down, NO lender qualifying; and NO payments, NO maintenance, NO repair, NO upkeep and NO landlording headaches, NO constructive notice of the transfer, and NO Due on Sale violation? In fact, haven't you just acquired clear, unobstructed profit potential while someone else pays all the bills?

Note especially in this scenario, that whatever you may give up in "Future Appreciation" to a Resident Co-Beneficiary over the next couple years, will more than likely be more than made-up-for by your having avoided all Negative Cash-Flow, Maintenance Costs, Management Expense, Vacancies, and those myriad other landlord annoyances. And perhaps even more importantly (to some of us), there are no restrictions in how many properties we can own or manage this way. Do you supposed if you owned a hundred income properties this way--with no expenses, management costs or mortgages in your name (or negative cash flows)--that you'd have any trouble getting a loan?

I personally have acquired dozens of properties this way (including my own residence), and have yet to have paid on closing costs or monthly expenses. This doesn't, of course, include the payments on my own home: a $375K house in a nice gated and guarded community, that I acquired recently with No Down, No Bank Loan, and closing costs of less than $2,000, with $75,000 equity...and which now is on the market for $530,000..

In any of my own "income properties," should the resident co-beneficiary default, I need simply remove them (very easy under a co-tenant land trust arrangement), and replace them with somebody else, charging anther few thousand dollars in the process. We have some clients who've had as many as three defaults in the same trust property, and they've each made 5-10K additional bucks, each time they do a "Beneficiary Substitution."

Bio:

Bill Gatten is a one of the few true "in-the-trenches" creative financing teachers who actually practice what they preach. A highly successful real estate investor and much sought-after national speaker, Bill's most recent book (of many on the subject) is the very comprehensive, humorous and irreverent: "Making it BIG in Creative Real Estate and Keeping it...This Time," a 500 page compendium of all aspects of seller-carry, no-down, no-credit-needed, no-payment creative real estate financing, featuring the dynamic "Equity Holding Land Trust(tm) System" -- the PACTrust (tm) and NEHTrust(tm).

Educated at the California Polytechnic State University, San Luis Obispo, Bill's 45 years of work experience are in sales training, real estate investing and institutional banking (former co-owner and founder, Westlake Bancorp; and the former president and CEO of Gatten Financial Services, Inc. and Markay Equipment Leasing, Inc., Thousand Oaks, Ca.).