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Hi David,
I'm not certain if this is the sort of question you
normally answer -
so I realize you may not respond.
I have met an individual who seems to be quite successful
setting up
lease to purchase contracts on properties he purchases. He uses a
numbered company for these investments. He has offered to have me
participate by loaning to the number company in exchange for a
portion
of the profit when the deal completes after one year. He gets
half the
profit for finding and putting together the deal.
What sort of due diligence would you suggest I perform
before deciding
to go ahead with the deal?
Regards
WXXXXXX
==============================
david ingram replies
There is nothing new about this kind of deal and some of them are
actually successful.
One person provides the talent and the other provides the money.
However, the only one who can lose on this deal is you. Your
partner has a numbered company with no money in it. You and
others have put up the money.
If there is a slight turndown or shift in the market, "your"
money is at risk, not his.
I have likely seen 600 of these in the last twenty years. I have
rarely seen any of the investors happy with the deal.
Doesn't mean I haven't, just means that it is rare. Usually,
some unforseen expenses, some unforseen bad incident means that
the money gets eaten up and you are left holding the bag.
These arrangements are like gambling. The worst case is where
you make money on the first couple of deals so pour more in "just
as" the thing goes sour and you lose all the original profits
plus the rest.
I am assuming here that your "finder" has other people making the
same deal and that it is all going into the same numbered
company. If some method is being used to isolate each deal and
your money is everything for one deal and you do due diligence,
etc., etc., you might have a deal but I would think that you
could do as well with a good realtor and get the whole profit.
Any competent lawyer can draft an agreement. There is nothing
new in the concept.
One of our old clients from Toronto is doing this very
successfully (as the person who finds the product) in Australia
and last time I talked to him, he was about to open in New
Zealand. Many of the "NOTHING DOWN" seminars from Robert Allen
to Raymond Aaron have promoted the concept to seminar attendees
over the years.
Recently, the subject has come up with some of the attendees of
Ozzie Jurock's REAG (Real Estate Action Groups -
www.jurock.com)and a couple of successful operations seem to have
developed there.
Check out the person backwards and forwards. Get references,
etc., etc., etc. In the long run, the paperwork is not as
important as the character and business acumen of the individual
involved.
I like the question and will put it out to the newsletter to
justify the time answering it and not sending you a bill.
david ingram - [email protected] <mailto:[email protected]>
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 913-9133 - (604) 913-9123 www.centa.com
<http://www.centa.com>
Cell is (604) 657-8451 (10 AM to 10 PM seven days a week)
US/Canada Real Estate Taxation Specialists
US / CANADA / MEXICO
Working Visa and Income Tax Specialists
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