Cashless Wealth Creation

You are a Real Estate Broker/Agent. He has a client named Mr. Carlson who he helped obtain a mini storage facility about 3 years ago. The property was in poor condition when Mr. Carlson purchased it; however, he has completely renovated it and greatly increased the rents and value. Mr. Carlson wants to acquire more tax havens; however, even though his cash flow is excellent, he has used most of his cash reserves on upgrading the mini-storage units. Also, because he now has a lot of cash flow and a property in excellent condition, he wants to keep the Storage Units for 3 years or more before considering a trade for a larger property.

Mr. Carlson has now come to you with this situation. He wants your advice and help to achieve his goal. After an exhaustive meeting with Mr. Carlson, he begins looking for a property that will provide the benefits he needs. He checks MLS, he searches the newspaper classifieds, and he contacts other agents he knows who specialize in income and commercial properties. He locates, through one of the agents he knows, a 24-unit apartment complex that has a 30% vacancy problem and needs physical improvements to the property. The owner, Mr. Mendoza, has had the property on the market for some time with no acceptable offers. Although he wants out of this property, he is unwilling to accept what he considers to be a huge discount.

So show Mr. Carlson the apartments. He likes the units and feels that he can do an upgrade and fully reoccupy the units. Still, the problem is that he has little cash to buy and the units are in such poor condition that it would be very difficult to get a loan to buy them.

ANALYSIS OF THE SITUATION:

1. Mr. Carlson’s Mini Storage Units: Owner Value is $260,000, Loans = $0, Equity = $260,000

2. Department of Mr. Mendoza. Complex: Owner Value is $400,000, Assumable Loan = $180,000, Equity = $320,000

One possible solution would be for Mr. Carlson to offer to purchase Mr. Mendoza’s apartments with a $320,000 general note secured by both properties. The terms of the Note would state that after 3 years the Storage Units would be released as Security for the Note provided that Mr. Carlson has improved the Apartments.

BENEFITS FOR THE PARTIES:

1. Mr. Mendoza receives full price and has excellent security for his Note.

2. Mr. Carlson receives the Tax Shelter he is looking for and can exchange the Storage Units after 3 years.

3. Each Broker/Agent has earned a commission.

These publications are the opinion of the author who is not engaged in providing legal, accounting or investment advice. If such advice is required or desired, the services of competent professionals should be sought.