By popular demand! One good scenario for property purchases when there is no down payment money is probably the most asked question in my repertoire.

The truth of the matter is that hard money lenders want buyers to have money in the deal when they buy a property. There are precious few exceptions to the rule and the resulting loans are very costly. Here is an option worth considering.

If the seller and buyer are interested in working cooperatively, and the property has a good deal of equity in it, the following scenario may work.

Seller takes on an operating partner and prepares to bow out of the property by becoming a silent financial partner. The seller adds the future buyer to the deed of the property with the agreement that the new person will be the hands on manager of the property. The partners refinance the property. The silent partner takes cash out from the refinance. This serves as the new partner’s equity payment.

The operating partner “works” the property and makes the monthly loan payments. When the operating partner is ready to refinance the property, by prior agreement, the seller’s name is taken from the deed and the operating partner refinances and pays off the balance owed to the seller.

If the buyer / operating partner defaults, the seller / financial partner can, per provisions in their agreement provisions to take over the property again. In that event, the seller will have the option to remove the operating partner from the deed, take over payments for the loan, locate a new buyer and sell the property or let the property default.

When starting any enterprise or business, whether it is full-time or part-time, we all know the value of having plenty of capital (money). But I bet we both know or at least have heard of people who started with no capital who went on to make fortunes. How? You may ask.

Well, I believe there is actually something that is more valuable than capital that can lead to your entrepreneurial success. I’ll get to the point.

1. TIME.

Time is more valuable than capital. The time you set aside must not to be wasted, not to be given away. Time you set aside to be invested in an enterprise that brings value to the marketplace with the hope of making a profit. Most lenders classify that as Capital Time or Sweat Equity.  In some cases this is more valuable than cash or assets in a fledgling company.

How valuable is time? Time properly invested is worth a fortune. Time wasted can be completely devastating. Time invested can perform miracles, so you MUST invest your time wisely.

Obviously there are other very important factors such as Education, Experience and Knowledge.  I will let all of you consider these statements and hope to see your comments and additions.  After all this is a place to communicate and share with others…

Many new businesses find it difficult to obtain a loan from a conventional lender. If the principals of a new business own real estate, they may be able to collateralize the properties to generate the working capital needed for start up. Commercial properties, residential properties and more have been used.

If you are considering collateralizing your residential property for a hard money business loan, put the property into a corporate entity before even requesting the loan. You can establish a new entity or use the business entity. Many people prefer to separate the property from another business by establishing a new corporate entity to hold the real estate. Establish a fair market value for rent and pay it. Keep books. Know that if the sole reason you are establishing an entity and transferring the property is to obtain a loan thus circumventing the residential mortgage loan restrictions, your loan will be declined. It’s not the lender that declines the loan - it’s the law.

So prepare in advance to be able to generate capital for a new business. Consult with a business lawyer or business financial mentor, such as those provided by the SBA and other local business support groups before making any arrangements. The experience of seasoned business owners can be invaluable and you should always have competent legal advice before making decisions about property, real or business.

http://www.sba.gov/

http://www.jmgcap.com