I plan to buy several Florida oceanfront and waterfront homes and villas for investment and rental. I am looking for an investor lender who will receive the 1st mortgage and 50+ percent of the appreciation in 5 years when the property is sold. Since the income is deferred for 5 years, the investor will only pay capital gains tax, not income at the regular tax rate each year. I would like some advice about finding companies or individual investors who may be interested.
I’m in the process of doing my first 2 deals. (2 SFH, already rented and rehabbed). All I need is 85% and the seller will carry back a 2nd. All closing costs are paid by seller (a real no money down deal). I also get 2K in cash when I close on both properties.
SFH 82K 4BR, 1 bath, Rented for 840 mo.
SFH 68K 3BR, 1bath, Rented for 720 mo.
Now, it all sounds very cool, but here comes the FINANCING part. My credit is…well, lets just say I got some work to do. I know because this is investment property and my FICO score is slightly low lenders are going to try and stick it right to me with high interest rates…
I realize that with a Shared Appreciation mortgage I will lose a portion of my profit when I sell my properties in the future, but I’m willing to take a small hit in profits on the back end, if I can increase my cashflow on the front end with a lower interest rate… I realize that at some point you gotta pay to play, and I’m willing to pay the price… not for every deal, just for my first couple of deals…
Is my thinking ludicrous? Has anyone done one of these before? Is this even an viable option anymore?
Given the choice of sharing equity or not, take NOT. But given the choice of sharing equity or not doing the deal, take sharing equity. This is not a bad arrangement and your thinking is right on target.
“50% of something is better than 100% of nothing”. It is amazing how long that it takes some investors (people) to learn this simple lesson.
As a seller, I have a couple of these, and I’m quite happy with them. Put them together that way to discourage the buyer from refiancing or flipping. And there was a lot of room for a flip.
As a buyer, make sure that there is no early payoff penalty. That way, if you finiah paying off the mortgage, the mortgage holder need not be present at the close when you finally do sell.