STRATEGY
PURCHASING
Buying Real Estate Using Real Property HOW CASH ALTERNATIVES CAN GET YOU PROPERTIES
by Bruce Kellogg
eal estate is commonly pur- chased using cash for a down
Four aspects of the transaction need to be dealt with: NO. 1 VALUES NEED TO BE ESTABLISHED This can be done by both parties simply agreeing on values of the trades as part of the negotiations, or appraisals can be obtained. If the buyer is getting a new loan on the apartments, that lender will require an appraisal. They will probably want an independent valuation of the lake- front lot as well. NO. 2 FINANCING The new loan on the apartments will need to be negotiated with prospective lenders. Additionally, there might be a loan on the land, usually private, that would need to be assumed, taken “subject to,” or paid off. NO. 3 CONDITIONS Each property’s condition needs to be examined. Residential-type inspections can be done on the apartments. Land-type investiga - tions such as easements, buildabili- ty, utilities access, etc., can be done for the lot. Any necessary repairs or other adjustments can be made once the reports are in. NO. 4 EQUITIES These need to add up and balance. One or another party might need to do some owner-carryback financing,
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payment or for the full purchase price. People rarely think of trying something else. But there are alter- natives to cash that work just as well to buy properties. REALAND PERSONAL PROPERTY According to Investopedia™, “Real property is the land, everything permanently attached to it, and all of the interests, benefits, and rights inherent in its ownership.” You can think of mineral rights, for exam- ple. Investopedia™ says, “Personal property is a class of property that can include any asset other than real estate.” Examples are stocks, vehicles, jewelry, a stamp collection, and so on.
or adjustments in equities can be made using cash. Much of the purchase agreement will be standardized. However, the down payment term will be custom- ized. Here is an example: “Buyer to trade in a vacant lakefront lot at Clearlake, California, described more particularly in Addendum #1, and valued at $60,000.00, as the down payment.” BUYINGWITH PERSONAL PROPERTY Submitting personal property as a down payment, or even as partial consideration along with cash, on a piece of real estate is similar to the process described above. The steps are the same. The parties can agree on a value for the personal proper- ty, accumulate supporting evidence, or hire a specialized appraiser. For example, Kelly Blue Book™ can be used for a motor vehicle.
BUYINGWITH REAL PROPERTY
This approach involves trading in a piece of real property as a down payment on other real estate. An example would be if a seller would accept your vacant lakefront lot as a down payment on their 8-unit apart- ment building. This is called “trading.” It is not “exchanging” as an Internal Revenue Code (IRC) Section 1031 Tax-Deferred Exchange. There is no relationship.
62 | think realty magazine :: december 2021
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