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Which option would you choose, and why?
Option 1:
You have an asset under business contract (You will pay the montly fees or the asset will be taken away). That asset is currently worth $325,000 and you paid $444,000 for it 5 years ago. You do not get to amortize any of the depreciation or write off any of the loss.. This asset also needs an additional estimated $30,000 in repairs.
Assuming you ignore the repairs, and sink every extra penny you make besides basic living expenses into this asset, you will owe $325,000 on it in 3 years. You may or may not have to spend the estimated $30k in repairs. But you do need to find a buyer for this asset and will spend some money in the transaction (commission, usually 3%).
You exit the transaction with absolutely nothing. (Or, you can continue to pay the asset down from $325,000, and in 27 years, you will own a 60-year old asset that needs a complete renovation). -and if that piece of the option is exercised, you WILL need to put in that additional $30k.
Option 2:
You have an asset under business contract (You will pay the montly fees or the asset will be taken away). That asset is currently worth $325,000 and you paid $444,000 for it 5 years ago.
The asset is 'underwater' with no hope of regaining said value in the next 10years. It needs $30k in repairs.
You exercise your right in the contract to discontinue payments (but you still keep insurance on the asset and pay applicable taxes).
There is a caveat, though, that you need to pay off $46k before the new contract is finalized. So you continue paying a single interested party the full sum of your usual montly payments for approximately one year.
At the end of one year, the single interested party is satisfied. The other interested party finalizes the contract in one year, and regains ownership of the asset.
Meanwhile, you are out of the business of owning assets. Instead, for approximately a 2 year period after 1 year of contract finalization for your old asset, you decide to rent assets instead. Because of the differential in cost for renting versus owning assets, you are able to pocket almost $75,000 in a 3 year period along with your extra spending cash, assuming no changes in income or bonus. (It could potentially be 30% more).
At the end of those 3 years, you approach another interested party with cash in hand, all of your other interested parties have nothing but good to say about you, and you ask to purchase another asset. (This asset is substantially nicer, does not need repairs, and will have better value in 30 years). They say yes, because you have cash in hand and they want the interest revenue.
Additional considerations:
The main interested party is only interested in taking their asset back, in this option. They have no reason to sue you or do anything otherwise, but they do make it known to other interested parties that you are a shrewd businessman and that you are willing to stand up for your right to walk away from bad investments.
The asset cannot be rented. This would allow the interested party to sue you if the property was used for any kind of income, rental or otherwise. Nor can the asset be rented for even break-even. It would be a losing proposition.
Questions:
1. Is there anything about this business deal I am not considering?
Option 1:
You have an asset under business contract (You will pay the montly fees or the asset will be taken away). That asset is currently worth $325,000 and you paid $444,000 for it 5 years ago. You do not get to amortize any of the depreciation or write off any of the loss.. This asset also needs an additional estimated $30,000 in repairs.
Assuming you ignore the repairs, and sink every extra penny you make besides basic living expenses into this asset, you will owe $325,000 on it in 3 years. You may or may not have to spend the estimated $30k in repairs. But you do need to find a buyer for this asset and will spend some money in the transaction (commission, usually 3%).
You exit the transaction with absolutely nothing. (Or, you can continue to pay the asset down from $325,000, and in 27 years, you will own a 60-year old asset that needs a complete renovation). -and if that piece of the option is exercised, you WILL need to put in that additional $30k.
Option 2:
You have an asset under business contract (You will pay the montly fees or the asset will be taken away). That asset is currently worth $325,000 and you paid $444,000 for it 5 years ago.
The asset is 'underwater' with no hope of regaining said value in the next 10years. It needs $30k in repairs.
You exercise your right in the contract to discontinue payments (but you still keep insurance on the asset and pay applicable taxes).
There is a caveat, though, that you need to pay off $46k before the new contract is finalized. So you continue paying a single interested party the full sum of your usual montly payments for approximately one year.
At the end of one year, the single interested party is satisfied. The other interested party finalizes the contract in one year, and regains ownership of the asset.
Meanwhile, you are out of the business of owning assets. Instead, for approximately a 2 year period after 1 year of contract finalization for your old asset, you decide to rent assets instead. Because of the differential in cost for renting versus owning assets, you are able to pocket almost $75,000 in a 3 year period along with your extra spending cash, assuming no changes in income or bonus. (It could potentially be 30% more).
At the end of those 3 years, you approach another interested party with cash in hand, all of your other interested parties have nothing but good to say about you, and you ask to purchase another asset. (This asset is substantially nicer, does not need repairs, and will have better value in 30 years). They say yes, because you have cash in hand and they want the interest revenue.
Additional considerations:
The main interested party is only interested in taking their asset back, in this option. They have no reason to sue you or do anything otherwise, but they do make it known to other interested parties that you are a shrewd businessman and that you are willing to stand up for your right to walk away from bad investments.
The asset cannot be rented. This would allow the interested party to sue you if the property was used for any kind of income, rental or otherwise. Nor can the asset be rented for even break-even. It would be a losing proposition.
Questions:
1. Is there anything about this business deal I am not considering?