Gain Going In - 1031 Going Out Later
Hunter Quistgard, S.E.C.
Incline Village, Nevada
I counseled with another broker's client recently about
an interesting opportunity. Here are some facts about
the deal to consider:
- The broker has the clients' property listed at $975,000.
- The property is a 20 acre ridge top with fabulous
views, a 3,000 sq. ft. older home and some farming
- The property is one mile outside the current urban
development boundaries and is surrounded by 10-20
acres fancy estates (this one has the best view!).
- The client has apparently turned down $750k stating
as his reason: "I think the future value is so
high, I just didn't want to give it all away."
Hunter Quistgard, S.E.C., is a semi-retired investment Realtor/exchange
counselor. Licensed in 1960, and formed Hunter Associates in 1962, which
managed, brokered, syndicated, and exchanged investment real estate. Hunter
won the Counselor of the Year Award in 1984, and was President of S.E.C. in
1988. Motto: "A
motivated owner with a knowledgeable and connected exchange
counselor can manufacture a solution out of whole cloth."
After listening to the owner, I proposed several "share
the future" proposals. The one I focused in on was like
- We provide a buyer for the property at $650K and take
over, replace or pay off your $400k existing loan at 6%
(We may have to leave him in partial title for that purpose).
- The seller will lease/option back the property at $1,500
per month NNN (so management, maintenance, etc. are built
in therefore no ownership expenses to the new owner. The
NNN rent will increase $300./mo. each year for 10 years
(figures plucked from air for example to seller of concept
= not negotiated)
- The buyback option cannot be exercised for 2 years.
- The option price will be on an increasing scale such
that total net return to the owner will be 14% + 20% of
any upside value over the option price remains with the
- The option to buyback will expire after 10 years.
My approach above is kind of a forced savings program for
the investor that allows most of the yield to be long-term
capital gains (the portion that is not in rent, but in increased
Anyone investing in this deal would need to be convinced that
the discounted purchase price from it's current value and
future prospects is where the security is, so that if the
lessee does not perform, there would be no problem getting
a sale or whatever that keeps the investor's capital whole.
(Lease terms can be modified to leave the investor exposed
to some of the variations in taxes, insurance or? if a NNN
is a tax problem.)
After talking about the benefits of this formula for a while,
we discussed whether owner might take trade for most of his
equity over the existing $400K loan. I discovered that he
is geographically fixed and will not take property out of
his area, but open to equity in lieu of cash.
There are many variations of this approach to "sharing
the future" while giving security to the investor and
solving the diminishing negative cash flow motivating the
seller. Your job is to pass to us the 821 other alternatives
you see here so that you and the rest of us will have all
those tools in our bag when a similar situation comes up for
This is just one more way to cause a "win-win"
transaction when there is not a user/buyer in the market for
a motivated seller.