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It's Time to Move to Stage Two Closing a Deal

John Krol

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It's now time to move onto the second stage in closing a deal; deciding on an option for sale that is acceptable to both you and the seller. Before we move on, it is prudent for you to note that there are many options for sale you can suggest, and each one has its own benefits. Therefore, you will need to analyze your particular situation and see which of the options best fits your situation. Remember that there is no one option that will suit all deals. For instance, if you are short on money currently and require some time, you can pick the options contract to facilitate the sale. What an options contract basically does is to allow you to stretch the payment terms so that you are not burdened to come up with a lot of cash fast. This option for sale is particularly useful in cases where you absolutely love a property but the seller is asking a high price.

By using the options contract, the seller knows he's selling for the price he wants, therefore he's happy; meanwhile, you on the other hand get to control of the property during the interim period without having to make a lump sum payment. A similar yet slightly different concept is presented by the split-funding option. While it allows the buyer to meet a seller's demands without meeting them all in one go, split-funding also gives the seller some reassurances. To better understand this concept, consider the following hypothetical situation.

You as the buyer are very interested in purchasing a hotel while the sellers are cordially opened to the sale. All looks good, however when you sit down at the negotiation table, you find out that the sellers are highly keen on using their money tied-up in the business as they want to recover all the money they invested in the hotel very quickly. To make matters worse, although you recognize the potential benefits the hotel has to offer, its asking price is a little steep for you. Thus you find yourself in quite a quandary. Here's where split-funding works its magic. You offer to assume financial responsibility of the hotel's mortgage while simultaneously agreeing to pay half of the amount the sellers want at the time of the deal's close.

You are then expected to make the second half of the payment within eighteen months after the close, with an additional sum as owed interest. This way both the buyer, i. e. you in this case, and the seller come out benefiting, thus all parties are happy with the arrangement. But what if the seller you are dealing with is fairly keen on offloading his property. In such a situation, it is better if you offer a floating seller-held mortgage. What this option for sale does is to allow you, as the buyer, to finance the purchase of the property with the seller's assets. The seller, in turn, would take on a second mortgage for you, while you will be obliged to pay off the mortgage with interest to the seller over a mutually-agreed time frame. In addition to the above mentioned options, if you dealing with development opportunities such as land, you might think of choosing the partial-release agreement. This deal is referred to as such because the seller agrees to release portions of the desired property to the buyer over a fixed payment time frame, while the buyer is allowed to develop the property in the meantime. An initial down payment may however be required by the seller.

That said, let's now move onto our last option for sale known as real-estate exchange. Under Section 1031 of the Internal Revenue Service Legislation, real estate investors may rollover their investments without having to make any capital-gains tax payments on the property in question. What this basically means that you can use the real estate, which you hold as an investment, as equity to finance the purchase of another property. Pretty neat huh? Now that we've gone over all the options, one final word of advice. Always keep in mind that you have different options, so don't get into the habit of sticking to just one option.

Analyze your situation thoroughly and then pick and choose between the various options for sale outlined.

John Krol

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