Group Q & A
Lou Brown:
Hello everyone and welcome back to another installment of our Q&A session where I am going to give you the Street Smart answers to all of your questions that you have been sending in over the last couple of weeks. I am going to update you on some of the things that we have been talking about, as a theme this year, on cutting your expenses and creating more cash flow for your business. One of the things that I have been talking about particularly with the Platinum Group is protesting property taxes and looking for other avenues to be able to save money in your real estate business. Right now, I find that property taxes are very high in our area compared to the comps of sales right now and properties on the market. Another thing that is true also is the cost of the taxes is quite high. Now, I am looking at actual dollars per square foot. I am looking at special assessments. I am looking at assessments of other properties in the same neighborhood, in fact on the same street. The tool I use to do this is our CompWiz that is on the backside of your websites.
If you have not turned on your CompWiz, you definitely need to do that because what I am doing is printing out a separate property report on each property. It is giving me all of the details about the comps in the area related to my property, what the county says it the square footage, what the county is charging for taxes, and what they are saying it is worth in terms of value. I am able to compare my square footage divided into what they say it is worth and get the dollars per square foot that they say that property is worth. In looking at the comps, I am finding comps that are dollars per square foot significantly lower in the same neighborhood as ones that we are charged taxes on. Secondly, I am looking at the other information on the last page of the CompWiz report, which is all of the other properties on that same street, and what they have been valued at.
What I wanted to share with you at the beginning of our talk today is what is going on in terms of the property taxes in our area. According to the newspaper, they say owners of more than 60,000 parcels have filed property tax returns in Atlanta’s five major urban counties seeking lower assessments. Assessors who have calculated the returns say that they seek an average discount of 25-30% from 2008 assessments regardless of what county is involved. The choices assessors make in setting values are critical for local governments as they set budgets for 2009. What I want you to know is that the county assessors are aware of the property drops. In fact, they are reassessing many properties. We have already gotten notices on a number of properties where they just went ahead and dropped the value before they even had a chance to review the assessments that we sent in. That is very valuable to all of you because if it has not come up yet in your area on the property tax dispute, then you can definitely still do it. I was looking at a number of other counties that we pay taxes in, and they are not coming up until May, June, July August, September, and October. There is still time perhaps in your area if the deadline has not passed for submitting your valuations this year at a lower rate. Keep that in mind as you are going forward. Our theme for the year is lowering costs on your properties that you are holding including your own personal residence. That should increase your cash flow.
The other benefit we get here in Georgia is that if you protest your taxes and win your protest, then your property tax assessment is set for three years. That means that the county cannot touch it for another three years as kind of a “spank you very much” from the state to the county assessor saying, “You did not do your job right. Therefore, this tax payer is getting the benefit of having their property taxes set now for the next three years so that they will not have any pain and suffering because they had to go through the process of getting the property taxes reassessed.”
Okay, let’s jump into our questions. Before I jump into your questions, let me encourage you to join me every day on the radio from 12:15 to 12:30. I am on a 50,000-watt station here in the Atlanta area called WGUN. You can go to WGUN.com on the web and listen to me. They are audio streaming every day from 12:15 to 12:30, and you can hear what I am talking about. On Saturdays from 2:30 to 3:30, I have got an open-mike show as well as some prerecorded shows that we do there. You are welcome to go to WGUN.com. It is 1010 here in Atlanta on the AM dial or on the web at any time you want to listen. More info is a good thing.
Q: Now, let’s jump into the questions today. From Eric Howard: Eric says, “When using the appreciation calculator, what is the percent value that one should use 1%, 2%, or should I go high? Eric says one should not go too high for you might get in trouble.
A: Eric, I absolutely agree with you. In our market, we can expect properties to go up an average of about 5-6% per year. Even in those markets where the values have dropped dramatically, you can expect the market over the next six to nine months to firm up and then appreciation to begin to kick in again. Keep this in mind as well that certain neighborhoods appreciate much better than other neighborhoods. As a general rule on my option price calculator, when I am setting up an option deal for one of our clients, then I set it at a 0.5% per calender month. I fix the price for a year, then on the thirteenth month, the price begins to appreciate 0.5%, and it goes up compounded until they exercise their option to buy. As a reminder, we give them a 36-month option to purchase the property in most cases. It really depends on the property and the location. Generally, I am looking for an incentive to keep my client for a long time if I possibly can. Great question, Eric.
Q: We have a purchasing property question from Ryan Gillespie who says, “Hi Lou. I hope you are enjoying this spring. It has been beautiful out here in Southern California. I have a question about a possible deal to buy some free and clear homes. I have an interested seller who has six properties. He wants to sell all free and clear but only three to four are of interest to me. He is interested in our program but wants too much for the sales price. He is interested in no more than 12-year payout back with a balloon payment at the end and guaranteed full-interest payout. I would pay him several hundred dollars a month less than his current rents and keep all of his current long-term tenants in place for a minimum set time. In order not to let too high of an asking price kill the deal, I am willing to pay significantly higher but want to find some extra benefit through interest deductions.” Yes, he wants interest and lower property taxes. I love your idea of keeping interest as low as possible, but this does not seem like an option in his case. I thought of the following scenario. For example, instead of $180,000 sales price on the house and 2.5% interest which would give him about $208,500 as a guaranteed payout at 12 years. I would offer something like 5.8% interest and $150,000 sales price. This would still return $208,500 to him, but I would get significantly increased mortgage interest deductions as well as a lower property tax. Since I am guaranteeing him his payout whether paid early or not, then I do not appear to gain anything by paying it off early, so I like this idea. What do you think about that type of deal?”
A: Well Ryan, I always like the idea of a lower sales price. Why? Because if you have a client move in under our Rent to Own Program, and suddenly they are able to get financing or get refinanced in some way or inherit money or whatever the case may be, they would come to you with that and suddenly you have to pay off that underlying financing. That would be a bad day if you have agreed to pay full price for the property. Be careful about sizing up these situations.
One way as an alternative that would work is substitution of collateral. In the mortgage that the seller carries back, there would be a clause that says that you have the right to substitute collateral of equal or greater value should you ever want to. Basically in the case where a new client comes along and wants to purchase the property for all cash, then you would be able to move that mortgage over to another property if you have one or a group of properties that would add up to the collateral that the seller is looking for. That might solve your problem and keep that in mind as you negotiate with him. I would definitely encourage to get as low of an interest rate as you possibly can. Do not forget the Cost to Sell Worksheet because you can sit down with this seller at the$180,000 sales price, work backwards on the cost to sell legitimately, and be able to show him how it absolutely makes sense that you have to arrive at a lower number, and then finance that lower number. I think you will be in really good shape.
Another trick of the trade so to speak is to calculate the actual cash value of the interest. In other words, one of the things that I have done in the past that has worked real well is to add months to the loan. If, for example, you divided your let’s say $150,000. You divide that by $500 a month. What you are trying to do arrive at is how long it will take to pay that loan out at $500 a month. What can work too is if your seller has let’s say a 12-year time span here, that can be renegotiated closer to time. In other words, give your seller what they are looking for. I have had several situations where I was actually paying the seller too much interest in the past and because of lower interest rates, I was able to go back and renegotiate with the seller to get a lower interest rates. That is another option that you might want to consider as you are working with this particular seller. Remember that just about any note can be renegotiated some time later. We do not want to blow the deal by trying to get too many goodies inside this transaction.
Let’s just gets something nailed down. I think you have really got an opportunity here. Number one, the fact that the properties are free and clear. That really opens the door for you to be able to negotiate some really sweet deals with this seller. Number two, because he is willing to take a low interest rate. Obviously, if he was to be paid off in cash today, the place that he would probably put the money is the in the bank at maybe even 1.5% interest or even less. You have got the opportunity to bring that up to him and show him how you are actually going to benefit him. Number three and another negotiating point here is his tax ramifications. Obviously, this seller is going to be earning some serious capital gains on these properties. The IRS allows what is called an installment sale under form 4562 Installment Sale Deduction. He can report the sale of this deal over time. He does not have to pay on the gain until he receives it. In other words, his gain is now spread out over the next 12 years. Any other tax write offs or deductions that he has over the next 12 years can be used to offset the income that he has received from these properties. That could make a lot of sense to this seller because he is going to be absolutely nailed on taxes if he has owned them for a long time and paid off these loans.
I hope that benefited all of you on the call. Deal structuring is so absolutely critical on the path to wealth. Learning the skills and hearing them over and over and over and over again is what I call continuing education. Take advantage of this opportunity to really get yourself out there and learn this skill. In fact, let me just say master the skill of negotiating great deals not good deals but great deals. There are many different hidden profit centers in deals that sellers do not see, but you know because of your skill of how to take advantage of extra little tweaks in the deal that can make so much sense over the long term.
Let me encourage you all to come to Millionaire Deal Maker which is coming up April 23-26. It is in Atlanta. You absolutely positively need to be there. This time of course I always do teach based on the current market that we are in. This time is no exception because I am going to focus on the REO market, and what is available to us, how to make the offers, how to get them accepted, and some really neat tweaks to what we are doing in the market today. I encourage all of you to really take advantage of that and come see me April 23-26. Also, all of you Apprentice Platinums are going to stay over. On Tuesday and Wednesday of the following week, we are going to focus on your individual businesses and take them to another level. That is the intent of the Mastermind Meetings as we roundtable together, focus on individual businesses, and how to take them to that next level. It will make them a lot more profitable. I encourage you all to join us. If you are not a member of the Mastermind Group, by all means call 1-800-578-8580. Get yourself registered for the Millionaire Deal Maker and also for the Platinum Mastermind. It promises to be a very exciting group of days together. I am looking forward to it.
Q: Sharma asks, “Kindly help in understanding the difference between standard warranty deed and warranty deed?”
A: The standard warranty deed that I have in your book was hopefully to help you out, but I understand that there could be some confusion about it. The warranty deed I have in volume 4 Land Trusts is the one that I want to you to use whenever warranty deeds are called for in your particular state. Some states have grant deeds. Some states have warranty deeds. Some states have other types of deeds. In your state if a warranty deed is used, the one that I have in your book actually calls for the trustee’s name and the trust name already built into the warranty deed. It also mentions the trustee’s duties, powers, and responsibilities are as per attached exhibit A made a part here by reference. It is already built into your deed. The one that says Standard Warranty Deed is one that an attorney might use. Of course, they do not know anything about trusts. They do not know anything about trustees. They do not know anything about the fact that they need to refer to the trustee’s powers in the attached exhibit and that kind of thing. I just wanted to contrast the difference between the one that your attorney might use, and the one that I want you to use. If your attorney, when you are taking title to a property, uses a warranty deed that they are used to using on a daily basis, you want to be sure that that additional language is added to the deed so that when they record it on public record, all of those things are on public record as well. Hopefully, that cleared it up for you.
Q: Now we have got Anthony and Rachel Acevedo. “Hey Lou, we have got our first deal. It happened just after Millionaire Jumpstart. They gave us the property and are asking no money just to help save a little on his credit.” That is such great news. I am so excited. “He already signed the management letter, plus we are doing the title search. My question is what deed should I do? The reason is he is not asking for anything. The information of the property is his balance on the mortgage is $114,240. He is three months behind on payments $2862 and going on four months. Monthly payments are $926.51. The interest rate is 6.125% that after repaired value is between $33,000-$39,000. Please advice what to do. I have read the buying, but I am stuck in what to put on the deed.”
A: First of all, if I am reading this correctly, Anthony and Rachel, I am concerned. If the after repaired value is only $33,000-$39,000 and the mortgage is $114,000, I think we have problems here. I am very concerned about that. I want you to be sure that you are able to get that value lowered. I think the best idea for this deal is for you to go back to the lender and get this loan either modified or short sold down to this valuation. I am very concerned about this. I do not want you taking over $114,000 mortgage if it is only worth $33,000-$39,000. That is my first advice is let’s go back to the lender with the cooperation of the seller and let’s see if we can’t get this value reduced. The lender ought to be very cooperative in this case because you can prove with your CompWiz these values at such a low value. That is my advice on that one. Let’s say just for kicks and giggles that it did make sense for you to take over this loan. What I would do on these four payments that they are behind is I would ask the lender to modify that existing loan and allow your client to continue payments but take these payments that are in arrears and either eliminate them completely and forgive them. Alternatively if they won’t agree to that, then you put them on the back end of the loan. You conserve and save your cash and just resume the $926 a month payments. I presume that you are going to be able to get a significantly higher monthly payment on this property. That is a key factor right there. Number one, you do have a buyer for the property. My best advice is for you to begin marketing the property right away. Find a buyer for it under our Rent to Own or Owner Finance or even possibly retail buyer and then put them in the property when you close with getting the lender to cooperate with you on that. Great questions. I hope you will be at Millionaire Deal Maker because this is the kind of training that we do for four days there. Very important stuff.
Q: Vicky Blaco… welcome Vicky. I hope you are going to make it to MDM. I am missing you. Vicky says, “Hi Lou. I have another question. I am still doing simultaneous closings. All of a sudden I am having trouble finding a title company who will close one of these. What do I do? They are telling me that they are not legal in Kansas and Missouri.
A: Vicky, this is a noose that has been tightening for quite a while. We have definitely seen it throughout the country where simultaneous closings are becoming a thing of the past. Let me clue everyone in on what a simultaneous closing is. That is when the new buyer’s money comes to the closing table, and you essentially use their money to close your side of the transaction with your seller. Let’s use the example of you are selling a property for $100,000. You are buying it for $50,000. Your buyer comes to the table with the $100,000. You take $50,000 of it, and close with your seller and grant a new deed to your buyer. Good work when you can get it. Again, lenders are looking at all aspects of the closing these days. One of the things that they look at is vested title. Are you vested in title on the property? If not, they do not want to do the transaction at all. That is where the pushback is coming from. As far as the illegality of it, I disagree that it is illegal. What I will say it that title companies are creating a lot of this breakdown. Title companies are saying we are not going to approve titles in these types of transactions. Obviously, if you can’t get lender’s title insurance, you can’t close. The word illegal is probably the inappropriate term, but not possible is another way of putting that.
Let’s go ahead and look at alternatives. It is called table funding. We call it dough-for-a-day. There are a lot of different ways that you can get money to the table. Vicky, if you could go ahead in my example. If you had $50,000 come to the table, you use that money for essentially a day or two. Close with your seller, and then you are in a position to deliver a deed to your buyer and their funds are not being used for that, then that will work. The only challenge is that there is a cost, usually 2.5-3.0 points, that you would have to pay of the closing money on your side. In this example let’s say it was 3.0 points, then it would cost you $1500 to get the dough-for-a-day program. I can get it done for you for less than that if you are interested in that and need it.
Basically, what is required on a dough-for-a-day program is that you do have a certified buyer, that there is an approved transaction, that the money is lined up, and that the deal is not going to fall through. The person has not changed jobs or any of the underwriting guidelines have not changed, then as long as the seller gets paid off that day, there should not be any problem at all with the buying side of the transaction. Obviously, this dough-for-a-day is going to be used for the buying side of the transaction and then the money is going to be reimbursed from the selling side of the transaction where you are selling to your new buyer. The only problem, Vicky, these days is that there is going to be an additional cost to you of doing business. That is a sad thing, but it is a sign of the times because of all of the challenges that the lenders have had with bad loans that they made to the wrong people. We always end up paying the price on these things.
Q: Alex Pinon from Miami, Florida says, “Lou, let me first say that I loved the Millionaire Jumpstart and can’t wait for the next year of my life to begin. Thank you for everything. I can’t believe I didn’t take the website deal Friday night blah, blah blah…”
I can’t believe you didn’t either Alex. I mean come on, it is time. Give us a call. Let’s see what we can work out with you. “My question is that my sister owns ten properties in Memphis which she got all through a wholesaler. Basically, purchased low, hard money loan for repairs, and refinanced at 80% on all of them. She opened one LLC and one bank account for all ten. She has a property manager who gets half of the first month’s rent because he fills the property and takes calls. She told me she charges half a month’s rent as deposit and moves them in. She is experiencing some problems with turnovers. She also now lives in New York as of a couple of months ago. What is the best possible way to approach the situation to begin the Rent to Own Program for her? What does the property manager cost to handle? How do I restructure her business? Do trusts benefit the same as an LLC regarding taxes?”
A: Wait a minute. Slow this car down. I am going to take your ten questions in order, Alex. Let’s first start with the ten properties. Yes, you can train the property manager to do the Rent to Own Program. Yes, it would likely work. I would first start with the existing clients in the property. It is going to take the right approach. Basically, it is a sales approach to the folks. It might be good for you to go ahead and get the name and telephone number of the tenants in the property. We are going to have you call them up. You call as the trustee of the trust that owns the properties. Tell them that the board of trustees has authorized you to approach them to give them an opportunity to own the home that they live in. You have got a phenomenal opportunity for them today because right now, if they have not owned a home in their name in the last three years, then they can get an $8000 tax credit as long as the property exceeds $80,000 in price. That is the piece of this that I do not know, but if it is a $70,000 property, then the maximum allowable is $7000 credit and so on.
That is the first good news that I have for you, Alex. It is definitely an opportunity right now for you to take advantage of. In this case, you would actually be selling the properties to the tenants not rent to owning them but actually selling them. All that has to happen is you sign with them an agreement for deed under my Owner Finance Agreement for Deed Program. When they sign the Agreement for Deed, you will give them credit for the $8000 plus any other cash that you can get out of them. Let’s say that they have got $2000 plus the $8000 now you are getting $10,000 down. You have them sign a promissory note for say 30 days. The good news about the new tax credit is that it can be applied for online. The money can be received in as little as eight to ten days. They can get the money. No, they do not have to wait until taxes are filed next year. Yes, they can amend their existing return. They are going to file IRS form 5405 for the first time home buyer credit. Again, that doesn’t necessarily mean that they have never owned a home. It is just they have not owned a home in their name in the last three years.
This is the approach I would take with it, Alex. First to offer to sell them the property with owner financing. Under my Agreement for Deed scenario, remember that you are going to retain the deed on the property until they pay out in full. According to the IRS, land sales contracts are acceptable. My Agreement for Deed falls under the guidelines of a land sales contract. This absolutely positively terrifically works for everybody that is listening right now today. You have an opportunity to take advantage of this up until December 1, 2009. I think first of all, your approach to them would be best.
Second, let’s say that they say they have owned a home in their name or they have absolutely have no money or third, they have no desire to own the property. You can still try the Rent to Own Program. Please do get some kind of option fee from them, $1000 or $2000, some kind of money. My general number is around 3% of the value of the home. That is $100,000 property, then I am going to get a $3000 option fee. That is nonrefundable, so that when they move into or in your case they already live in the properties, now they have got a $3000 credit towards the purchase of the home if they buy. If they do not buy, you owe them absolutely nothing.
The other thing that it is a real good scenario for them if they need to build up down payment money is that they can stay in the home and every month that they pay on time, you can give them a credit towards the purchase of the home. Let’s say again that it is a $100,000 property and let’s say that the rent is $1000 a month, then in my scenario I would typically give about $100 a month credit towards the purchase of the home every month that they pay their rent on time. Any month that they do not pay on time, they do not get their credit. There is a great scenario.
Q: To finish that line of questioning then, can you train your property manager?
A: I would and the good news is Alex, I would recommend that you go ahead and get the websites because now your property manager can direct your clients to your website. As a matter of fact, you might get your sister to pay for it because now you can post all of her properties on there that are vacant. The property manager on all of the signs and marketing and everything that is done for her company can direct them to that website that explains our Rent to Own and Owner Financing Programs.
Also, it has a grant money button on the left-hand navigation bar. Those of you who are on the call who have not seen that, it is very powerful. Anyone visiting your Street Smart websites, remember this is exclusive to Street Smart. You won’t find it on anyone else’s website. If you do, they stole it from here. I want you to let me know about it, so I can go after them. The idea is that you have an opportunity to go ahead and move that into the Rent to Own category. That is the marketing side of it. The training side, of course, you have got the documentation and everything else. You did not mention anything about him charging a fee on a monthly basis for collections, just a half a month’s rent to fill the properties, which is very reasonable I might add. They often also charge a percentage of the rent for collecting it. What does the property manager cost to handle?
There are a few ways to handle it on a rent to own basis. Let’s say that the property manager finds a Rent to Own client with $3000 down, then typically we will pay 20% of the cash that comes to the table. That does not include the money from the government. This is real cash out of the buyer’s real pockets. If they are bringing me $3000, then the realtor or the property manager or the mortgage broker who brought me that lead is going to get $600. Remember they have to do some of the work too to earn that 20% down in addition to bringing the lead. That is how I would pay your property manager on the Rent to Own deals that they are able to put together.
Q: Your next question is how do I structure her business? Do trusts benefit the same as LLCs regarding taxes?
A: First of all, as you know I would recommend that each one of these properties be deeded out of the LLC that owns it currently in to separate individual land trusts, each with a different name, and then you could still retain the LLC and should keep the LLC as the beneficiary of those ten different land trusts. As far as taxes go, the land trusts are flow-throughs that flow through to the tax return of the beneficiary. In this case, the beneficiary is the LLC. Nothing would change in terms of the LLC’s taxes or the reporting of taxes. You would simply follow the rules. There is a section of land trusts volume 4 called Taxes and the Land Trusts. It actually gives you the step-by-step process for how to report the taxes.
Q: “I want to start my own business by restructuring hers and use a successful cases in my presentations. What do you think, Lou?”
A: I think that is a great idea, Alex. You mean your presentation to your sellers and your buyers? Absolutely, I think that is a terrific thing because any time that you can show a seller or a buyer credibility and longevity in your business, then you are going to benefit from that because they are going to be convinced that you know what you are talking about. You can solve their problems. Alex, I hope to see you at MDM. Be sure to get yourself there because what you are getting yourself involved in really is magnificent in terms of the ways that you can structure transactions for your own business. It is absolutely critical to your future.
Q: Carol Holcomb: “Hi Lou, I am getting ready to close on an REO property and have a lease purchased buyer interested.”
A: That is a good thing! You are absolutely right Carol. That makes me very happy. I am happy to hear you are closing on some properties. “Would you please review how you qualify them based on their income, et cetera? They tell me they have about $500 for a down payment. In today’s economy, how do you determine if their job is secure if there is such a thing?” Well first of all, let’s go there, Carol. I do not know that there is such a thing in this economy. I will tell you that I do look at longevity. Once of the ways that I qualify people is to ask them where do you work, how long have you been there, and how much do you earn? As far as qualifying them, I add up their household income. Let’s say it is a husband and wife. The husband makes $3000 a month and the wife maybe she works part-time and makes $1000 a month. That is a total of $4000 income coming into the family. Three-fourths is twelve and that means that they can afford about $1250 a month in rent or payments. I will go a little bit higher if it a mortgage payment than I will for rent. Basically, that is a quick thumbnail sketch of how we really put the program together.
Of course, I will be going into a lot more depth at MPI, Massive Passive Income, is coming up in June this year. In the meantime, just go ahead and always interview anyone who calls in about your property. Find out more details about them because if they do not buy this property, then you can find something else for them. I am more interested these days and teaching very heavily that what you want to focus on is building your buyers list. I am happy that you have someone with $500, but frankly that is not good enough for me.
What you have not told me is what the purchase price is or the details about that. The thing that I would encourage you to do is try to get more money because $500 is a bit weak. Even if you have to accept $500, now of course that is always that number plus the first month’s rent.
Do not ever just accept that and allow them to move in. They have to have a significant amount of money including the first month’s rent before they can move in. When I say a significant amount of money, I would like to see in the very minimum at least two months’ rent. If my rent is $1000, I want to see at least $2000 on the option fee and their first month’s rent. That means they do have to come up with $3000 to be able to move in.
Are there exceptions? Sure there are, but let’s look at the situation. In the scenario I gave you before, why not just go ahead and take them right on out to agreement for deed if they can get the $8000 and you can put that in your pocket. Why not go ahead and do that? That is a lot better than $500, Carol. I would highly strongly encourage everyone listening to this session today to really take advantage of this. It is a light under the bushel. Most realtors have no idea about this or if they have an idea, they have absolutely no idea how to take advantage of it. We have put together all of the programs and the procedures for this. In fact, I am going to be going into detail about this at MDM, so you need to really get yourself there because this a critical time to be able to take advantage of this. Carol, I hope that took care of everything for you. I am looking forward to you closing on that property and moving the client in. That is going to be a very good day for you.
Q: We have a question from Dick Rosen on selling property. “Lou, I need to get more efficient at wholesaling. I am on a successful path with buy and hold, but I can’t seem to make my wholesale machine work. Put me on the right track to generate some cash flow through wholesaling.”
A: Well Dick, I would say this. It all begins with that buyers list again. I want you to contact everyone you can that you know in the business. Ask them who do you know that buys property and what kind of properties are they looking for? Get names and telephone numbers, call the people up, and tell them that you are finding deals on a regular basis, and you are looking for buyers of those deals. You do not mind just taking a slice of the pie and letting them have the rest of the pie in terms of having it for retail, and would they be interested if you find a great deal. Let me give you a quick story. We had a property that we bought one time. The wholesale buyer had it under contract to buy that property for $40,000. We agreed happily to pay $85,000. That was a clean $45,000 profit for this wholesaler. Imagine this, because we were willing to pay that much, of course there was a lot more that was available on that deal. Keep in mind that wholesale deals do not have to be restricted to small numbers. There can be good numbers as well.
Think about someone like myself as a potential buyer. Anyone who owns property in your target area, and let’s start with your out of town owners list. Well, we call it out of town owner. The other name for it is absentee owner. In other words, wherever the tax bill is sent is not the address of the property. Many of those people are investors. They receive knocks on the door all of the time from us in terms of postcard marketing that we send out because we are looking to buy their properties. What if you take an entirely different approach?
Take that exact same list, and send a different postcard saying that you are looking to sell them properties, are they looking to acquire more properties at a huge discount, and you want to put them on your buyers list. You want to know things like the number of bedrooms and bathrooms, the location that they prefer, the price range that they prefer, the types of properties that they are looking for, and build your own little wholesale network and wholesale list. With that and with our selling website, you can also do a bulk e-mail to your buyers list. You can sort your list and find all of the people that are looking for properties in a particular area and then boom, send out your bulk e-mail to all of those folks through our website. It is a really powerful thing. They say, “Well Lou, aren’t I only supposed to send that to investors who are looking to buy property.” No, send it to your list of anyone who is interested in a property in that area because they might be able to do a work for equity plan. They might be able to bring another buyer to the table. I do not like to restrict who I am sending it to. I mean, I am not going to waste anybody’s time. I do not send it if they are not interested in that area, but other than that I want to send it to as many people as I can to get the exposure on that property. Dick, that is wholesaling 101. Build the buyers list. Once you have buyers, you can literally shop the MLS for properties.
Right now, that is one of the things that I am going to be teaching very strongly at MDM is the REO and how to buy REO properties. That is Real Estate Owned by the bank because right now that is my shopping list. I am buying properties at huge wholesale discounted prices. I am going to teach you how to do that. We just got an accepted contract for $22,500 on a 4-bedroom 2-bath house. We just closed on one yesterday. Bruce, what was that one. How many? That was a 4 bedroom, wasn’t it? Yesterday, we closed on a property for $30,000 that was a probate situation not an REO, not in the MLS, not known to anybody. I am going to talk about both sides of the business, both the traditional side as well as the cash side of your business. It is going to be quite exciting because I want to show you. In fact, I am going to have photos of all of the properties we have bought recently so you guys can really embrace what we are doing and be able to take it back to your market and totally duplicate it.
Q: Now, we have got Vicky Blanco with a trust question. “I am having to find another title company to use. I am being told from different title companies that the land trust is not legal in Missouri. I have had three title companies turn me down. Any suggestions?”
A: Well Vicky, again it comes back to the title insurance companies. What you are looking for is title insurers who have no problems with trusts and they shouldn’t. They should absolutely have no problems with trust, but again there are some unscrupulous few who make life difficult for the legitimate and ethical many out here in the world that are doing good business. I would say that I would start calling the title insurance companies themselves, such as Old Republic, such as United Guarantee, Stewart Title, Chicago Title, and Minnesota.
Who is another one that we use? First American Title. Call up the title insurance companies and ask them if they have any problems with land trusts in Missouri. If they say yes, ask them why and what is the issue? Second, I will bet they do not have any problem with traditional trusts such as living trusts. Ask them if they say, “No, we have a problem with land trusts”, again I want to know why.
Q: The second question is how about living trusts? Do you have any problem if I take title to a property in a living trust?
A: If they say they have a problem, I am going to say that is not legitimate because everyone has a right to estate planning and to be able to put their properties in trust for estate planning purposes. Let’s keep the diligent search, Vicky, for folks that are not going to have any problems at all with doing that. It is likely that you are going to find one that has no problem with it.
Q: Hollis Keane has a question. “Lou, I want to set up a trust bank account. What are the steps?”
A: Actually, what I suggest that you do, Hollis, to make life easier is just contact my office at 1-800-578-8580. We have paperwork from Bank of America. We have already paved the road, found, and trained a particular office inside of Bank of America that has absolutely no problem with setting up your trust bank accounts for you. In fact, they will even provide a free-use bank account, no minimum balance required, which means no monthly fees on the account, and will give you three accounts. They give you a checking account, a savings account, and another account that is a sweep account that sweeps it from one account to another. They know all about it. That is why I say if you go into your local Bank of America, they are not going to have any clue what you are talking about. We have some paperwork set up and a direct link to the particular bank that is trained in doing this. That is just going to make your life easier, Hollis. To begin with, what I am going to recommend is that you go ahead and open your volume 5 Personal Property Trust Guidebook. I need you to go ahead and obtain an EIN number which is an Employer Identification Number also known as TIN or Taxpayer Identification Number. You are going to use your Social Security Number to obtain this TIN number, then we are going to use this TIN number to open your trust bank account. That should work very well for you, Hollis. Once you have that number, then you have what you need to go forward and open the trust bank account. If you have any problems or challenges with that, write back, and we will be glad to help you with that.
Those of you also on here, I want to encourage you to get involved with our next level of coaching and support. That is the direct Q&A program where you can fax or e-mail questions any time during the month and receive a very quick reply. If it is a question that is asked routinely, then someone from my office will get back to you. If it is what they call a Lou question, then I will be answering those for you. Our intent is to have very good turn around on those kind of questions. You do not have to wait for the group session twice a month for that to happen. Now one thing also is that you get the added benefit of getting the group sessions as well. You get all of the Qs and As from everybody else in addition to the ones that you ask.
Q: Lolett Sharma asks, “How does one establish a bank account for a land trust?”
A: That is the one I just answered. “How does somebody detect a land trust?” Well, about the only thing they can do really is plug in an address of the property and come up with who it is titled in. We were told today that in our county 190,000 parcels of property are in trust, which we found to be very fascinating. It is hard to believe that is the right number, but that is what we were told by someone at the tax office. That means there are a lot of people using trusts. That is a good thing. How do you detect one? There is no real detection device, but you could do searches on some county’s databases to find who the owners of properties are. They are going to have a tough time if you are using my strategies because we are using a variety of trust names, a variety of trustee names, and so on that make it hard to tie everything back together. What are the disadvantages of a land trust? I would say that the disadvantages are that a lot of people do not know about them. You have to be the one that is in the know about the trusts because you do run into a lot of uninformed folks out there that do not know any better. They turn up their nose or they turn away from them when in fact they should be turning to them.
Q: The next question is “Is a TIN number required for a land trust?”
A: The answer is no. It is not. You only need a TIN number for reporting purposes. If nothing is going to be reported, then you do not even have to have one for the land trust. I suggest that you get one number for all of your land trusts and one number for your bank account, your personal property trust. “If the designated trustee stays in Canada, what are the things the trustee needs to do in terms of actions at the time of setting up the trust? Is it a good decision to have a trustee in Canada?” Well Lolett, the question becomes is the person in Canada a Canadian citizen? If so, then they cannot be a trustee of a property in the United States. The trustee can be situs somewhere else other than the United States. In other words, if your trustee is in Canada and is a United States citizen, then yes, they could act as your trustee. That is an interesting thing.
Q: You say, “What are the things the trustee needs to do in terms of actions at time of setting up the trust?”
A: Basically, if you are setting up the trust they have to sign the appointment of trustee, the declaration of trust, and land trust agreement. That has to be signed in front of a notary, and the affidavit of trust as well needs to be signed in front of a notary. Those documents are held by you with a copy held by the trustee for safekeeping for your benefit.
Q: “When purchasing a new property, house or land, is it better to have the seller convey it directly to the trust trustee?”
A: Absolutely, that is the best you can possibly do because then you are not ever in the chain of title on that property. That is the best place you can possibly be from a privacy and asset protection standpoint.
Q: “Regarding LT2107, clarify the meaning of instructions to real estate closing agent. Kindly clarify the background and reasoning behind this form.”
A: Well Lolett, as I said earlier on the disadvantages of a land trust, many time closing attorneys do not know about these and need instructions. I created a document and a form for you to be able to give them those instructions in writing in a way that would be least confusing for you.
Well folks, we have come to the end of another chalked full of information group Q&A session. I just really appreciate you all being licensees of the Street Smart System and really appreciate your business. I look forward to seeing you again here on the group Q&A in a few weeks. Good luck. Good health and may God bless. Good day.
