Epic Real Estate Investing - Equity Sharing | Creative Real Estate Investing for Beginners | 1007

Episode Date: May 3, 2020

It’s never a money problem that holds you back but rather an idea problem! Creative real estate investing is the practice of inserting an idea in a place of money! In today’s, episode, Matt explains how to use EQUITY SHARING in your creative real estate investing! Tune in and find out more! Learn more about your ad choices. Visit megaphone.fm/adchoices

Creative real estate investing is the practice of inserting an idea in place of money. As a real estate investor, it's never a money problem that's going to hold you back, but rather an idea problem. And we refer to these creative ideas as terms, terms like equity sharing, options, lease options, agreement for deed, seller carryback, subject to wraps, all inclusive trustees, and there's so much more. Right now, though, I'm going to show you how to use equity sharing in your creative real estate investing. Let's do it.

This is Terrio Media. Success in real estate has nothing to do with shiny objects. It has everything to do with mastering the basics. The three pillars of real estate investing. Attract, convert, exit. Matt Terrio has been helping real estate investors do just that for more than a decade now. If you want to make money in real estate, keep listening. If you want it faster, visit it.

R-E-I-A-Ase.com. Here's Matt. Equity sharing. It's the sharing of ownership, value, and appreciation of a piece of property. It's not commonly known in what we do here with single-family residences as much as, you know, terms like lease options and subject to and seller carryback are known. As equity sharing, it's most commonly used in commercial real estate ventures. But it can be a very valuable creative idea to invest in residential as well.

First thing. What is equity? What is this thing that we're going to be sharing? Well, equity is the value of a property, less the debt and liabilities that are attached to the property. For example, if we purchase this $100,000 property with a conventional loan that required 20% down, this portion here is our equity, the amount that we put down. Or if we purchased the same property and used our negotiating skills, which makes up a significant portion of creative real estate investing to purchase at $90,000, then this would now be our equity. And once we finalize the purchase, that equity can increase in multiple ways, like through appreciation, through principal paydown,

and increase in income, or adding square footage, or a change in the property's use, and or negotiating the price or terms up front with the seller. That's what equity is, the value of a property less the debt and liabilities attached to the property. Now, a creative real estate investing strategy could involve sharing this equity, of which a partner would share in the upside and the downside, if there were any, and a common arrangement for equity sharing is where one person would play the role as a money partner, and the other person would play the role as the time and knowledge partner. But in other words, for this specific scenario, one person puts up the funds and the other person oversees the rehab, the management, and or the resale of the property. One or

many equity partners could be the silent partners, while the other would be more active in dealing with the property. That's a common example, but there are no hard and fast participation rules except as defined in your equity sharing agreement. And let's look at what that agreement might look like. The equity sharing process for you would typically work like this. One, identify an investment property. Two, identify a partner. And that could be another investor or a home buyer that will live in the property or even the existing resident owner when you make the purchase. Although another investor that does not live in the property is preferred. And I'll touch more on that in just a second. Number three, seek professional advice, like the advice of your attorney or an accountant, as there are many

variables at play with each individual and each individual's situation. For example, you may want to consider different levels of asset protection and different levels of tax strategy. Don't underestimate this part as it can be difficult to make changes after the fact and very beneficial and lucrative before the fact. Number four, create the plan. Agree in advance with your equity sharing partner in writing on a plan of buying the property and how and when to liquidate and just in case, include a buyout option along with what if clauses. Use a local real estate attorney to help you with this. I don't recommend you doing this part on your own. And a good rule of thumb is to plan your agreement for the worst case scenario.

Enter that agreement as you're going to be married forever, but plan for a divorce on day one. And then once that's out of the way, you can now then comfortably focus on the investment and its performance and profit happily ever after. Number five, take title. In other words, buy the property, close on it. Close on the property and take ownership.

Now, you could take title as tenants in common. That's a simple way to do it, but your partnership planned and drafted in a detailed entity agreement as venture partners, that's best. See step four. Now, about sharing equity with someone that's going to be living in the property. It's my strong recommendation that you don't do that. If you choose to do an

equity-sharing deal with the resident of the property, you must first consult a good local real estate attorney to discuss the local laws that are at play, because it's just too easy in our litigious society for the investor to be seen by the courts to be taking advantage of the homeowner residing at the property. Remember the old adage, possession is nine-tenths of the law. This may not be literally true, but it can certainly make enforcing your claim on the equity much more difficult. Now, an alternative could be sharing with the resident owner as long as they move out to another residence. And it might look something like this. Mr. Seller, the current value of your property is $100,000. I can give you $50,000 for it today. And then when I resell or refinance the

property at any price above $110,000, I'll split the equity or the profit 50-50. So if I sell this property a year from now for $120,000, I'll split the $10,000 with you and then I'll send you a check for $5,000. That is a very valid and possible scenario to help you buy property at a bigger than normal discount by promising the seller a little bit more on the back end of the property. Note, it does not have to be a 50-50 split. This was just a simple example of how else an equity sharing deal can be structured to help you buy property at a deeper discount. So, is equity sharing the best structure to create for your deals?

Or is there another idea to where you can keep more, if not all of the equity, for yourself? follow me to the next creative real estate investing term, options of which is another rarely discussed creative idea that can secure all of the equity for yourself and make you a boatload of money in the process. When done the right way, of course. If you like to read up on it and get an idea of what's to come with all of the different terms

you have at your disposal and how they work together to invest in real estate with very little to none of your own money, you can download the same cheat sheets that I give to my private students at epicbreakthrough.com. I'll see you next time. flow. Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow. You didn't know,

home boy, we got the cash flow. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.