Using a Trust to Distribute Different Benefits to Each Investor

Mike: Welcome back to flipnerd.com REI Classroom where experts from across the real estate investing industry teaching quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Jack: Hi. My name is Jack Shea, and I’m going to be hosting this session. I’m at jackshearealestate.com where I have various information on trusts, and notes, and options, and 31 exchanges, IRAs in that. But one item, a way that in partnering with people which I often do is that you can take on different partners and you can divide the benefits, the various benefits, of say a real estate investment in a different apportions.
Mike: This show is sponsored by passiverental.com.
Jack: And say you have $100,000 house and you have a doctor has money to invest and he doesn’t want to be involved with management or maintenance but he’s in investments for capital gains, long-term capital gains. So you can, say investor A is going to get the majority of capital gains. Then you have investor B is going to be your property manager, and he’s an investor but he relies on an income to pay his bills. And so investor B is interested in cash flow. So of the, let’s say, you have $400 a month passive cash flow. He’s in the real estate business for income and cash flow. So let’s say he can be divided with 80% of the positive cash flow.
Then you have another investor, partner of yours, he’s interested in all three, so cash, can hold on for some capital gains. And there’s depreciation. If you remember, there’s income, there’s depreciation, there’s equity build up, there’s appreciation, and there’s leverage. So all these have benefits from real estate can be parceled out to different people to make the best use of that benefit. And say partner C will get 10% of the cash flow and 10% of capital gains, and some of the depreciation, whereas, the manager got 80% of the depreciation which he can use to offset his other stuff.
And then, your partner D who is the deal maker and you put this deal together. You are in for some cash flow, some capital gains, the buy down on the mortgage, and leverage. And this is a common practice in partnerships where people get in a partnership and you can divide the benefits, not exactly as according to the dollars invested but you can divide them into who provides what service, who provides what funds. And this is legal and it’s covered in your partnership agreement or if it’s in a trust, then it’s called an agreement among beneficiaries, and you define who gets what, what gets the various benefits.
So the doctor’s laid out whenever the property sells, he’s in for the long term and he gets the majority of the capital gains. So he knows that ahead of time, a tenant wants to buy it or somebody makes an offer, he gets that. The manager is happy. He does the work, keeps the property rented, maybe puts it up for sale. He get his share. And your friend is an investor like you, he gets some cash flow, he’ll get some of the payoff at the end and he’ll get you some of the depreciation.
And you’re the guy that put things together and you can take your share in these various wages. So all the benefits are used up, spread with the knowledge equally or to the benefit that each person likes. At the end of the day, everybody’s taken care of and proceeds. So none of the benefits go to waste because, say, the doctor who is an IRA investor, and, let’s say, the depreciation doesn’t do him any good. He doesn’t need that. So if he had any, he wouldn’t depreciate it. He wouldn’t be able to use it.
So these things can be divided up in various ways and make everybody happy, and the machine runs along, everybody doing their job. So I hope you can do this by sharing the benefits equitably and it’s covered in your agreement among beneficiaries. So I hope you can put this to work profitably in your business and I’ll see you next time.
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