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We are in the process of closing on a few commercial RE sales. There will be a seven figure profit.
We earn our income from properties, so what to do with the cash. While it is our longterm goal to go back into similar properties, we will go ahead and set up the proceeds for a 1031 exchange. However, with the current BOOM in the RE market, we seriously doubt if we will find anything that we can buy and increase the value with our skills. So we have resigned ourselves to the fact, we will probably just pay the tax, since the CG tax laws have been relaxed.
We will keep the "net" available for future property acquisition when things get "real" again. (May take a year or more.)
Now the question: What to do with the tax money owed, but not payable until April 2006. We want a return, but cd's suck right now. Obviously, with the tax money, we can't take much risk. We will take a little bit more risk with the net proceeds. Any ideas?
Ever look into Hard Money Financing? Basically when a homeowner with a large amount of equity in the property is going through a foreclosure or a bankruptcy, you would refinance their house and pay off their creditors to clean up their credit. This new mortgage has an interest rate of 12-18% and typically requires 3-6 points to be paid up front to the lender.
Basically the owner of the house has a fair amount of equity in the house, so they will do what they have to do to keep the house.
Typically one of 2 things will happen in the first 6 months. They will miss their payments and you'll end up foreclosing the property and selling it to recoup your losses and earn a nice profit. The other thing that will happen, since you've got rid of their other debts that were probably dragging their credit score down, their score will be high enough in 3-6 months that they will want to refinance again with a traditional institution at better terms. Since these are typically interest only loans, they gained no equity through there payments, again, making it a profitable loan.
Just made a tidy profit (only $60K - I'm jealous! ;f ) on a real estate sale myself a couple months ago - not bad considering it was unimproved land.
I also own commercial real estate though (very nice four story office building) and looking forward to learning how to do better at this business!
4 stories, nice. I've got a goal to build a 15-20 story office/condo building downtown. Right now there are only a couple 5 and 6 story buildings. The top floor I would have to keep and make my private residence/penthouse. I would love to be able to sit on top of this town, and this is how I plan to do it. I get goosebumps every time I think about this.
Being that I already deal with Commercial Mortgages, I've got an idea what is needed for financing and it seems attainable (not right now, but in the future of course). I'm confident I could pre-sell a few of the floors prior to construction, this would help me with the necessary startup capital, upon completion I'd lease 5-10, my own penthouse, and probably the first or second floor for the company. What's the worst that could happen, go Bankrupt like Donald Trump?
I was fortunate to know what I wanted to do with my life in my early 20's, so I just stuck to it and now we have 15 properties. residential never really was attractive to me, so I went commercial.
I don't want to grow much bigger, we like staying hands on with everything. It was our goal to pay these mortgages off and live off the income, but with the prices people are paying, we just decided to cash in a few chips and sit on the sidelines with it, waiting for the next cycle.
Be a loan shark? Just make sure you hire a goon first.
Something I just thought of - if you're that "flush with cash", then set aside about $20K and mosey on down to the "Survival/Preparedness Forum" and chat with a guy named "LongGun1".
He might give you the best advice you ever got! ;f
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