In the previous post I described how I set up a co-venture arrangement on short notice using a long term Option. Now let’s see why this worked out for both of us:
First of all, the other party was able to get a significant amount of money advanced in a matter of hours without all the expense and delays of new appraisals, inspections, title work, etc. Moreover, he was thus able to use the funds provided to buy the second property free and clear. Then he could use it as collateral to raise such money as might be needed for the re-hab and marketing without the need to make any payments at all. This took a great deal of the risk out of his rehab project, since he’d be able to wait out any market slow down without being forced to sell. What about me?
My Option was protected three ways. First, my invested cash was protected both by having the title to the individual’s residence held in Trust so the property couldn’t be liened further. without due diligence secured my recorded Option with a wrap-around Note and Mortgage on the residence so no later lien would have any priority over it. With the house held in Trust, and with me holding all of the power of direction over that Trust, in the event that the owner tried to renege on the proposition later on, he would have little power to prevent my directing that his residence be transferred to me.
Second, in the event of the foregoing, or in the event that the other party failed to go to work to fix up and sell the property, my money was compounding at 11% per year. In lieu of taking any action at all, I could simply sit back and wait until the original loan was paid down, then exercise my Option at that time.
Third, because me Option was secured by a Wrap-Around Mortgage signed by the Trustee, if the Trustee refused to accept my direction, I could foreclose the mortgage and take the residence to public sale.
Fourth, the true bottom line was that I could make a good investment a long way from the property with someone whom I had had no prior investment experience and still be protected against any untoward events. From the other side of the equation, the entrepreneur was able to get the money he needed very quickly at a reasonable cost. All the security precautions that I built into the deal didn’t impair his ability to raise the money needed for the rehab and to complete it expeditiously.
