Let’s start off with a management question this time and we hear from John Meddle, and John says: How is a promissory note for a lease option structured? For example, a $2000 note at 15% interest:
A: Would it be all due as a sum at the end of the length of the note, or would monthly payments be made?
B: Is it amortized?
C: How about a larger promissory note?
Alright John, very good questions and for all of you on the line that don’t understand what John’s talking about, from time to time we have folks come along that don’t have all of the down payment money. They have some of it but they also have a good job, good work history, good landlord history, and they are good candidates for us. The only problem is they don’t have all the money. Well, rather than throwing that customer away or waiting and waiting till a good one comes along, we work with those folks. I’ve built into my system a way that you can take situations and convert them to opportunities.
What we do is we create a payment plan for that customer to be able to pay us the money that they’ve promised us but they pay it to us over time. What John is asking about is about the promissory note method that I use where we basically reduce what they owe down to a promissory note that says an IOU, IOU you this money for this period of time. So, the first thing you need to do is determine how much they’ve got and then how much you’re going to actually have to put on a promissory note.
John is asking well, if you’re going to charge interest on this, how are you going to be able to collect that interest. The promissory calls for interest and you can actually put the amount in there and this promissory note can be found in your Volume One, Buying. It can also be found in Volume Eight, Property Management, and again, this is a tool that we need to use whenever we have a situation where the people cannot pay us all of our money. This also is a tool we can use when they don’t pay all of their money from a property management standpoint. Let’s say that they get behind on payments, we can take that one payment maybe and spread it out over time while still retaining the customer. This is very important in today’s volatile market to be able to keep all the customers you possibly can if they are a good customer except for the mistake or the situation they had. It’s far better to keep the customer than to it is to go try to find a new one.
What John’s saying is geez, your note calls for interest. How do we collect that? Is it at the end of the note or do we amortize that? The answer is you’ve got a couple of options. In your example, you say there’s a $2000 note at 15% interest. One opportunity is just to take the $2000 and add 15% to it. So, 15%, when you add that to your note, here’s exactly what you do. Let’s say that the 15% of $2000 is $300, then, it would be a note for $2300 and that would be divided by however many months that you’re going to accept that payment. What we usually do is we want that to be as short a term as it possibly can, but we also cannot over obligate our customer. We have to make sure they can afford the payment that you’re actually having them do.
For example, in that example it’s $2300; let’s say we give them 12 months to make that payment, then, that would make the payment $191.67. But, there’s another opportunity. We can amortize that loan over the period of time. Let’s say it’s $2000 at 15% interest, that would actually make the amortization $180.52. If we only took it for six months, then that would mean that we would accept $180.52 for six months and then a balloon at the end of those six months of $1037.25. So, what does this do for us? If you add the interest to the note, and then divide, then you’re assured of getting your interest. If you amortize the note on the other hand, then you’re only going to get the interest that you amortize that note for. Obviously, adding interest to is a good thing.
What are the caveats and why wouldn’t you always do that? It really depends on your state’s laws in terms of usury. Some states do not allow you to do what I just discussed which is basically a simple interest-type added where you take all of the interest and add it to the note. When you do that that can exceed the usury limits of your state. What you want to find out is what are the usury limits and can an individual, now this is an exception to the law in many states, even when there’s usury, an individual who lends money to another and is not in the business of lending money but only is in the business of working with somebody, are there any limitations on that. In other words, private situations is an exemption in many states where you can just charge basically however much interest you want to charge. In this case, if your business is not lending money, then you should not be subject to those laws. Again, I want you to verify that in your own state.
Very good question, John, and I hope that didn’t throw too many of you off the scent. The essential part of what you’re learning here is that you can have an opportunity to work with customers who don’t have all their money and all you have to do is take our Street Smart note. Now at the bottom of that note there also is a payment schedule, so, if you had erratic payments or perhaps they were going to make a payment every two weeks or even every week, you could put that into that payment schedule and just allocate it that way. Instead of making it a monthly payment, heck, why don’t we make it a weekly payment if they have weekly income? That’s another way that you can get it retired quickly.
Now Carol Yore has a question that relates to…actually, I have two questions she says: I purchased your program at Ray’s Entrepreneurs Days. Do you have an affiliate program for your license program?
The answer is, Carol, yes, I do, and we’re definitely interested in working with you if you can refer other folks to us, we will be glad to pay you for that referral. You can just call my office at 1-800-578-8580 to get details on that. If we have an area representative in your area, then that would go through the area representative and we are placing area representatives throughout the United States to represent Street Smart in your local area and that can actually provide additional support for you so that you can have answers on a Street Smart way from somebody locally that’s using the program there and they can help support you locally. We’re very, very excited about that program. If you’re interested in information about that, also give us a call at the office.
Now, you go on to say: Is the certificate that came with the program for the free conference with one extra person just for the September conference?
The answer, Carol, is no. That is for your Millionaire Jumpstart, which is our two-day training. Now, that two-day training covers all the aspects of your Whole Enchilada Junior. We are going to discuss with you the business plan, some of the things that you need to know from the Buying course, from the Selling course, some negotiation techniques, land trusts, and personal property trusts. That’s what we do in that two-day event; cover a ton of information for you. We give that training six times per year. So, the dates for that are on my site at www.louisbrown.com. That’s L-O-U-I-S-B-R-O-W-N.com and you can get the latest date.
No, your certificate does not expire. If you can’t make that date, then you can just get the other dates and scratch through the date that’s on your certificate, put in the date that you can attend and the location you can attend, and we’ll be glad to take care of you. At the end of this month, September 29th and 30th, we’ll be in Orlando, Florida. So, everyone on this call that has not yet been to Millionaire Jumpstart or who would like to repeat it, just be sure and call the office to register, 1-800-578-8580, unless you have your certificate in which case it tells you exactly what to do on your certificate. All you have to do is fax that into the office and you’ll be automatically registered, and you’ll be getting an e-mail right back giving all the details about the hotel and arrangements for getting yourself to the hotel, what’s required prior to the event, things like that. It’s definitely important that you get there.
I don’t want all you guys to use that as a reason to do it later. You want to get to your Jumpstart as soon as possible because there’s really truly profound information that is absolutely critical to getting you Jumpstarted. Does that mean you can’t do the business before you listen to your CDs? Absolutely not, the CDs are chock full of information that allows you to get started right away. It’s just that the Jumpstart allows you to get it in a live format and also allows us to do some other things we can do in a live setting that we can’t do on your CDs. Definitely, get yourself, Carol, there as soon as you possibly can and we always appreciate all of your referrals and we are glad to compensate you for those referrals and I thank you for asking that.
All right, Louise has a question on a short sale: Hi Lou, thank you for answering our last short sale question. We are moving forward as you suggested. We have one more short sale question. We regularly search public records; we are in Illinois, to identify properties that are in foreclosure. For some that are 30 to 60 days away from the foreclosure sale, we would like to door knock to try and get the deal. When we know that someone is in foreclosure and is that far into the process, what do you suggest we say when we knock on the door? Thanks.
Okay, Louise, you’ve asked a great question and one that everyone on the call should really pay attention to. If you are working foreclosure lists, then taking the additional step of door knocking is absolutely a page-turner. This will make a huge difference in the results you get from your foreclosure approaches because lots of people will ignore your letters and everybody else’s too by the way. Let me take a drink of water here. Everyone else too that’s calling, listen, they’re just getting inundated if you’re in a market like that. What you want to do is take the additional step to show up on their step.
Now, here’s what I suggest you do. A lot of people when you actually show up on their doorstep are confronted. They’re confronted, first of all, they want to know how you found out that they were in foreclosure, and a lot of them are really, really upset. I’ve heard of people getting actual fist punches in their face and people yelling and screaming at them and things like that. Here’s what I suggest you do. Act like you’re just merely going from door to door. Ask the person listen, I’d like to own a house in this neighborhood. Do you know of any for sale? If they say no, you immediately say listen, I work with a group of investors and we are looking for a house in this neighborhood. If you find out about any for sale, we will pay you a referral fee for any house that you find, hey, even if yours was for sale we’d pay you a referral fee. Then, that we have found is a great door opener. They say well, funny you should mention that and by the way, yes, we can work with you. We’d like to know more. What you do is you got my Seller Presentation Kit there and all you do is go in and make your presentation, and you say this is exactly how we can work with people exactly like you in your situation. Then, you go through my Cost to Sell Worksheet and all of a sudden, you’ve got something that makes a whole lot of sense to that owner and gives them a perfect reason to do business with you.
Louise, you’re going to find that this is a great move on your part to go make these door knockings but do it in a very safe and secure way. Another thing that I’m going to recommend is if they don’t answer the door, I’m going to ask that the United States Postal Service and also Fed Ex has these wonderful envelopes, there are these flat envelopes. Now, if you happen to deliver that, well, that’s you delivering it. Inside that Fed Ex envelope is a letter from you that says that, now this time we’re actually exposing yourself because they’re not talking to you directly, so, you’re not at risk of saying anything you want to say. In fact, in our Platinum Program, we’re actually perfecting that letter and we’re getting great results from it. Those of you who are on the call that are not part of our Platinum Program, you should be because that is where we test and perfect all kinds of great unique approaches to the market that are just profound and cutting edge. One of things we are doing now is what I’m just now suggesting is using the Fed Ex envelope, but also having a letter in there that says exactly who you are, exactly what you do, and exactly how you can help people like them in their situation. We found great results from that because people just respond back to the what appears to be a Fed Ex envelope that was left on their doorstep, and you’ve got the opportunity now to touch them in several different ways when you approach them if they don’t answer the door. Isn’t that a good one? Aren’t you glad you tuned in for that little answer?
All right, we’ve got a question here from Vickie Blako. She says: Hi Lou, I just want you to know that if it had not been for you and your teaching me the Street Smart System, I would not have been able to pick up 14 houses this past weekend from just one homeowner who is losing all of her houses. She called me from one of my letters that I sent her, and she said that she was losing a home. I met her and after talking to her discovered that she was losing 13 more houses, and I just happened to have my papers with me because you taught me that you just never know when someone is going to give you their house. She signed over all 14 houses and never even thought twice about it. She thanked me and thanked me for stepping into her life. Thanks Lou, you’re the best, Mark and Vickie Blako.
Oh, that’s a yeah, baby, Vickie, I’m so glad to hear that. Now, those of you who are on the call, Vickie is in Kansas City, and this opportunity is happening all over the country. You guys just recognize that there’re are plenty of people that are burned out, burned up and they never did learn the Street Smart way to own property so they’ve gotten themselves in situations where you can just step in and instantly build a full portfolio of properties, but the caveat here is you still have to buy them right and you still have to buy them cheap regardless of the fact that people are willing to sign over a deed. So, I want you to be careful about how you take title to properties like this because I don’t want you to get at risk and you to just merely be the relief captain on the Titanic for somebody else. You make sure that this thing makes sense when you get it.
Vickie, you’re a great example and a testimonial of how the Street Smart System really works. One of my favorites from you is that very expensive house that you were able to get in distress and you bought it subject to the existing loan and you got the pool table and the swamp buggy, and all that stuff. Vickie got like a million dollar house by taking over subject to an existing, I think it was an $800,000 loan but it was a great interest rate; she didn’t have to qualify for the loan, and she got an absolutely beautiful house on water and all of you can do that too. Vickie, you’re just an inspiration to everyone that’s on our call and by the way, I like what you did here. Anytime you guys get a deal, go ahead and post it to the Q&A. Let’s let everybody else know about it.
In our Platinum Program, all of the Platinums post their deals as soon as they buy a house or sell a house; they put it on the Platinum website. We have a special group that’s just set up for our Platinum members, and they all converse with each other and it’s a great community of support where you can actually get uplifted on a daily basis by seeing other folks that you know doing what you’re trying to do. It’s a very, very uplifting site and we just get many, many posts on a daily basis. So, you guys can also do that on the Group Q&A and I don’t mind sharing that because it does help to uplift us all. By the way, get involved in our Platinum Program because it will totally change your life and exactly how you’re thinking about doing this business will completely change, and you’ll have so much more advancement very, very quickly because you’re involved in it.
Next question is from Brian Musa. He says: How would you approach a short sale if the first mortgage and the second mortgage are with the same company?
Well, that’s a great question, Brian. In fact, that ties in with another question that we got. Let’s see, let me tie this in here. Well, I’m not spotting it right away so let’s cover it on your question.
If they’re with the same company, Brian, it’s going to make it tougher for you to work with those folks. When the lender is let’s say Countrywide and they’re both servicing the first and the second mortgage, then they’re going to be looking at that. Now, one thing to keep in mind is while they might be the servicer on the first and the second, it does not necessarily mean that the investor is the same on the first and the second. What an investor will do on a second mortgage is completely different than what an investor will do on a first mortgage. I don’t want you to be concerned that there’s not any opportunity for you even if it’s with the same lender or the same servicer. In fact, you can work with the same servicer on two different mortgages. But, what does happen is it limits you on what you can do with that servicer. You see, sometimes when the second mortgage is with one lender and the first mortgage is with a different lender, then we can actually short sale the second and take subject to the first mortgage which is a great thing, but we can’t do that as easily if it’s both with the same lender. Be careful there and make sure that you have all of your ducks in a row when you’re talking to them.
What I recommend you do is first approach them as a financial advisor working with the Joneses. Discuss with them the possibility number one of lowering the interest rate, if the numbers make sense, on both mortgages down to a number that makes sense for you to be able to take over that mortgage and still have a cash flow on it. If the numbers don’t make sense, regardless of what you do, then the only thing you can do is offer the short sale. Again, acting as financial advisor for the Joneses that you have been able to find a buyer for that property and you’re going to be able to offer the lender a one time shot at paying off both loans at less than they’re owed for the mortgage. So, that’s the approach I would make if both mortgages are with the same company.
Brian goes on to ask: I own a property subject to, and I took out an insurance policy the Lou Brown way, but they think the mortgagee’s original policy is still in force. What should I do?
Well, Brian, I think you should get rid of that original loan; excuse me, that original policy because that policy is a homeowner policy. If your seller signed all of my letters, then they appointed you as the manager. Well, as the manager of the property, obviously you’re going to put a tenant in that property. If the loan has been in place in excess of a year, most of the time the lenders don’t really have a problem if you place a renter in there. One exception of that is FDA money when it is or FDIC money also, there’re different programs out there by the way and these different programs sometimes have grant money attached to them. There are restrictions when grant money is used for people to be able to buy houses and when that grant money has restrictions in it that you cannot rent it and you must occupy it for the full time, then you’ve got a problem. But, on the other hand, if it’s a conventional loan like a Fannie Mae or a Freddie Mac, then most of the time they don’t say a thing if you place a tenant in the property.
So, for all intents and purposes, that’s how we’re working with the lender that you are acting as the manager and that your customer, your client, the owner of the property, who between you and I is actually the seller of the property, has placed their property into trust for estate planning purposes and has hired you as the manager of the property. You, as the manager of the property, must put a tenant in the property. When you do that, you’re going to have to change the policy from homeowner coverage to a landlord/tenant policy. When you do that, you will cancel the homeowner policy and you will put the landlord/tenant policy in place. When you put a landlord/tenant policy in place, then you’re going to need to name the mortgage company as the mortgagee on that landlord/tenant policy. I also want you to name yourself as an additional insured on that policy.
Brian, I hope that cleared that up for you because that question comes up a lot and insurance is always a confusing thing, and it does take a few times to hear it to actually understand what I’m saying there. Sometimes you actually have to experience it to discover exactly how all that fits in place.
Okay, we have another question here: Can you give me any marketing tips on how to separate my FSBO from the other houses for sale?
Well, what I’d recommend is that you list this property on a number of different sites. If you’ve been to my MPI training, which is Massive Passive Income, one of the things we do there is break down a number of different marketing opportunities for you. We actually give out the most current websites there that you can post your properties for free or for small dollars and we recommend you post to all of those sites.
Let me give you a couple of examples: Craigslist.com, which you have to update regularly, but that’s a place that you can get some activity. Another one is rent.com, another one is fsbo.com, so we’ve got multiple different places that you can put your properties. By the way, if you haven’t come to MPI yet, Massive Passive Income, you absolutely need to get yourself registered for it. It’s not going to be scheduled again this year, so you can go ahead and call the office and get registered for it and even get yourself on an extended payment plan so you can budget this, but it’s critical to your future in this business because we go into many, many different exit strategies to get you moved out of the properties. They are advanced techniques on exiting your properties very quickly. One of them being the eBay technique where you actually auction off, you can auction off the property there but we recommend that you auction off the down payment on eBay. We’ve got lots of different techniques that you really do need to learn. We can also support you on the coaching program. If you’re part of our One-On-One Coaching Program, we can provide to you these documents that they get you there right now instead of waiting for the training as well. So, upgrade your coaching everyone on this call, and we can give you additional layers of support with your coaching.
Just think about it, just one month of coaching can totally turn around your entire portfolio. We’ve seen one coaching call put $20,000 in people’s pockets just from ideas I give them on how to exit out of their properties. Understand that that half hour is very, very critical to your overall portfolio and cash in your pocket.
Let’s see, we do have a thing called the Selling/Renting/Marketing Checklist that’s also provided to members of our Up Level Coaching Program.
Another question is: I own a house with a partner that we are flipping, and I know my partner stretched too thin financially. He’s pressuring me to reduce the price of the house. I don’t want to do that because it’s already priced below market. How would you handle this situation?
I would suggest that you market, market, market, market, market. Don’t reduce the price; take that money that you would’ve gotten in a reduced price and spend it on marketing. That means that you want to list it. There’s another site called iggyshouse.com, that’s I-G-G-Y-S house.com and that actually allows you to post it to the MLS in certain areas free of charge. That means that you don’t even have to pay the flat fee-listing fee to get it on the MLS. I would like you to do that as well as expand your exit strategies. Maybe you’re just trying to sell for cash. Another idea as I mentioned just a minute ago is maybe if you market it on eBay and you actually auction off a down payment and you carry back owner financing for a period of time. At least you’ve gotten rid of the monthly cost of the debt on this thing. You’ve got yourself in a position to have a customer that you could work with to get their credit cleaned up to the point that you can actually take title to the property. Excuse me; I said take title for the property, to the point that they can get qualified for a loan. It may not be perfect credit, but it will be enough to get them qualified for a loan.
We’ve got another question. When would you buy a note as opposed to doing a short sale on a house? When would I buy the note as opposed to doing a short sale?
Alright, what he’s referring to here is that the…one of my recommendations is when you are getting a short sale from the bank that you attempt to buy the note rather than pay off the bank. You are paying them off, but you’re buying the asset that they have which is the note. If you have an opportunity to buy that note, then it can give you more options to work with that note rather than simply paying off the loan.
The answer is I buy the note when I have a chance to buy the note. Sometimes, they don’t give us the chance to buy the note and they just completely say that you cannot buy the note; the reason being that it was sold on the bond market and it’s included in a pool of mortgages. When a note is included in a pool of mortgages, they can’t really dip into that pool and sell that one note off. They can sell lots of notes off but not one at a time. If it’s a portfolio loan on the other hand, then they will do it. I hope that cleared that up, that we buy the note whenever we can and then we short sale it when we cannot.
Lots of good questions on this call. Lots of variety on this call too.
Here’s another short sale question. Obviously, that’s a sign of the times now because we’re getting so many short sales and so many short sale opportunities, and yes people are having tremendous success doing it the Lou Brown way when they’re doing their short sales. So, that’s a good thing for you guys to really work on. It is a lot of work and I want you to recognize that I don’t recommend that you spend a whole lot of time on short sales.
Let’s see, this one is: Here’s the scenario: The house is worth $197,000 but the mortgage balance is $200,000. The first mortgage is $160,000 and the second mortgage is $40,000. If I want to offer the second mortgage company $2500, what should the purchase price be on my Purchase and Sale Agreement?
Okay, let’s cover that one. The purchase price should be $162,500 because it’s going to be $160,000 on the first and $2500 on the second if you’re not planning to short sale that first. Now, the other option for you though is to get the seller to sign a blank contract. What that allows us to do is take that first page and use that as a negotiating tool so when we start working with the lender we can actually put in an offer for maybe $140,000. Maybe they will discount the first in addition to getting the second discounted. If they won’t do that, then you still have the option of changing that first page of the contract to $162,500 and resubmitting it or, any numbers in between. The idea to keep in mind here is you want to keep as many options open as you possibly can when you’re negotiating your short sale. Good question.
Alright, the next one is: How do you do a short sale if the first and second are with the same company? Oh, I think I’ve already covered that one in this call. That’s the one that I was looking for before. Subject to is not typically possible, and you’re going to have to just basically short sale the whole thing, but I gave you the scenarios when you can have an opportunity to work with that lender.
Let’s see here. Alright, now we have some trust questions. Connor Sules asks: Lou, I bought your trust course at the George Miller’s Probate Uncovered Boot Camp and have listened to all eight CDs but not yet studied the manuals, yet, I’d like to immediately pose as an example my main task taking care of my main asset, a commercial building in another state than California where I live now. George says maybe I will answer this myself and find the answers inside my own knowledge, but just in case anything I have in my mind of doing is an error, here goes the question. Current situation with my commercial building:
1. The title is in the name of my revocable living trust.
2. The tenant deposits my rent checks into my Bank of America account that is now in the name of my living trust.
3. Rent from this property is the bulk of my income.
4. It is encumbered by two small mortgages and the first from a private lender, the second from Wells Fargo business equity line of credit.
Street Smart steps I would take to improve the situation:
1. As trustee of my living trust, I would
(a) Deed the ow Hproperty to a land trust.
(b) The trustee would be my wife in her maiden name or my property manager’s cousin’s wife in her maiden name since he has the same last name as I do.
(c) I could be the director or the trustee.
Okay, let’s just stop there. Let’s go back to (a) deed the property to the land trust. That depends, Connor, on what you’re trying to accomplish. You already have the property in a living trust, so what would be your goal of changing it to a land trust? My answer would be that you want to create some privacy, because right now it’s probably in the Sules’ family trust or something that’s very out there on public record. It would probably be a better idea to have it in this nebulous name that nobody knows except that right now your tenant does know that name. We want to keep in mind that what your goals are, are just as important to this conversation as the technicalities of what to do.
If that is your goal to create privacy, then you’re on the right track. You would deed it as trustee of your living trust. You would deed it out of your living trust and into your individual land trust and yes, with someone else as trustee of that land trust. Good question there.
The next part you’re saying is that you could be the director of the trustee and that information is private. What I would say there is yes, you could be the director under my trust and yes, you could be telling the trustee what to do, but you can also do that as beneficiary. So, if the beneficiary of your land trust is your living trust, then you as trustee of your living trust can tell your land trust trustee what to do. You don’t have to use the role of director; you already have that power under the terms of the land trust. I hope that made sense to everybody on the call. That’s a very good question.
You do say I could be the director of the trustee and that information is private. That’s true, but also the beneficiary’s name is private as well.
You go on to say (d) the beneficiary of the land trust is to be my personal property trust strictly for this land trust and no others. That’s fine, and then we can make the beneficiary of this particular personal property trust the bottom of the funnel, the revocable living trust. That’s absolutely correct.
Then you say (f) the trustee of the land trust that I will deed this property to will be directed by me as director of the land trust to enter into a management agreement with my already existing California Sub S personal real estate investment brokerage. It holds my associate California real estate brokers license and now my management company. Yes, you as director could direct the land trust trustee to enter into that agreement, but you also as beneficiary could do exactly the same thing and tell the trustee to enter into the management agreement hiring your Sub S-Corp to manage the properties. It could also hire you to manage the property as well. You have the option of either being you or being the Sub S as the management of the property.
Good questions. I’m glad this is clearing it up for you and probably for a lot of other people on this call too.
You go on to say (g) the tenant can continue depositing into the same account. Sub question, can the rent-receiving account stay in the name of the revocable living trust as beneficiary of the personal property trust that is the beneficiary of the land trust. Or, should the account name be changed to either the land trust name or the management Sub S-Corporation name?
Okay, I wanted to take that as a chunk there. Well, Connor, let’s go back to your goals. If your goal is that the tenant does not know that the owner is the revocable living trust, then, you would need to create a separate bank account for this asset, we could say this and all other real estate assets. In fact, all income because you literally can take your personal property trust paperwork and use that to identify an ID number and then use that to create a bank account and open a bank account.
By the way, many of you on this call are not aware that we have established a relationship with Bank of America, and Bank of America has absolutely no problem opening these trust bank accounts and in fact will do so by fax. If you are interested in that information, just call my office 1-800-578-8580 and we can give you or fax you the documents from Bank of America so you can use that to open your trust bank account and that makes it a lot easier for you to be able to create those kinds of accounts.
So, Connor, to finish answering that question, if you don’t want your tenant to know that the premises from a privacy standpoint that we don’t want the customer to know that they can actually deposit into that account, well, let’s go back to our premise. What you’re trying to create as a goal is that they don’t know that your living trust is the beneficiary of this new owner, the land trust, then, you’re going to have to change everything so it doesn’t look that way. However, the letter that I have in my Land Trust Book, Volume Four, has an opportunity for the new owner of the property to appoint you or your company as the manager of the property. It says something basically that is hello, this is to inform you that the property that you lease from us has been sold. The new owner has some new paperwork they want me to go over with you. By the way, all future rents should be deposit to xyz instead of 123. The other option is they can be made payable to the new management bank account and not your Sub S-Corporation, not the management corporation and not the beneficiary’s name. That way, you are creating privacy over on that side as well. That’s cramming a whole bunch of trust stuff in here, but I think you all can benefit from it.
The present lease is with me personally and not my living trust. Can it stay that way or is a lease change necessary?
Well, again, going back to your goals, the lease change would be necessary; the new owner can and in fact by law must take over that lease. So, it does by default and operation of law go to the new owner. If you want to change the information from that, you could merely send a lease addendum to them notifying them that the payment should now be made payable to the other entity and not you, rather than having to change the entire lease agreement, unless there’re new provisions that you’d like to get into a lease agreement. That would allow you to do it.
A lease goes back 30 years and may go another 20, but expires in 2 years probably to be extended a year before that, i.e. the next 12 months. Complication – though neither lender would demand payoff, could either lender object to or stop me?
Well, Connor, because this is a commercial transaction the answer is yes. We have the luxury under the current Garn Saint Germaine Act under residential situations to prevent the lender from calling the loan due, but we don’t have that case in the case of the commercial property. The lender does have the option to call the loan due in a commercial transaction. I want you to be careful about that one, but they usually don’t do it in the case of the trusts.
Lou, if I can take care of this main task with the help of you and your forms and your course materials, getting all the rest in pretty good order should be a snap. If you could give either an e-mail answer or a coaching call recorded answer that I could listen to, that would be great.
Connor, I will say that we have the luxury of not an overabundance of questions this time so I was able to take yours as they come, but understand that most of the time I can’t get that many questions answered from one client. When you’re a member of our Direct Q&A, you can fax or e-mail questions any time during the month and get instant answers back on those or quick answers back. Now, what happens is if my office can answer it, my coaches in the office answer it. If they can’t, they call it a Lou question, and they save it for me. If I’m not in the office, then I get to it as quickly as I possibly can. Either they e-mail or fax it to me on the road or hold it for usually 24 to 48 hours till I get back to the office. If you’d like to be a member of our Direct Q&A, that can get you answers, and there’re no limits to the number of questions that are asked, okay, on our Direct Q&A. All of you who should be on that which is all of you on this call, then you can go ahead and upgrade to the Direct Q&A by calling our office at 1-800-578-8580.
Now John has a question. This is a situation each land trust beneficiary will be a personal property trust. Each personal property trust beneficiary is an LLC. Question: Can or should this LLC be the beneficiary for the trusts for my business properties, personal, house, business and bank accounts, i.e. everything, with a modest level of anxiety about being attached or sued?
Okay, well, the land trust beneficiary with the personal property trust does give you two levels of protection and privacy. Each personal property trust beneficiary is one LLC. I would recommend that you have just one LLC and not one LLC for each property, or that could cost you a fortune and make you be responsible for a whole lot of additional chores that you don’t have to do. Yes, and that LLC can be your business properties, it can be your business and personal bank accounts, but it’s not necessary to do it just that way. I recommend that you actually have one personal property trust for your bank account, another personal property trust for each of your beneficial interests of your land trust. Then, you can have one LLC as beneficiary of all of that or, you can keep the bank account separate from that LLC and only have beneficial interests protected under the bank account because it would be rare that anybody would sue the bank account because the bank account does not do any business. It merely maintains money and manages money. That gives you an opportunity to be protected there.
Now, let’s see here. I do recommend that as your estate grows, that you get connected with our recommended source that deals with your entities, your LLCs, corporations, limited partnerships, and that is our Entity Wiz. The Entity Wiz also teaches you how to create equity stripping, wherein you create two LLCs and one lends to the other and takes back as collateral all of the beneficial interests of all of the trusts, thereby putting another layer of protection in which really gives you some profound benefits that most people don’t get. It can really stop somebody short of being able to grab your stuff. Good question, John.
Jim Williams, one of our Platinum students, has a question here on deal structuring: Hi Lou, I have a question about what a lender said to a potential customer. This customer has a first and second mortgage. The second is $30,000, the first is $162,000. The first is behind two months and the second is behind three months. The value of the house is $178,000, not much equity, so I explained I could not help her, therefore, she called the first lender and the lender told her to sell anyway and pay them and not worry about the second. What’s going to happen at closing? Does the second go away? What about the lien? She has been diagnosed with an illness that is life threatening and has already moved into an apartment, cannot pay anything to anyone. The second said that in order to short the note, the account needed to be current before they would discuss anything with anybody. What’s your take on this scenario?
First Jim, that’s a great, great, great question. The second is merely trying to position. The second is saying look, if you send us money, we’ll talk to you. Well, that is just a ploy. Don’t pay any attention to that at all. They would love to be able to get the money if they could. You need to call as their financial advisor, as Mrs. Jones’ financial advisor and explain that she has a life-threatening situation here and that you have found a buyer for the property and if they would just work with you, you can get them taken care of. However, if they don’t, you’ll be advising your client to file bankruptcy and then you’ll make sure that they get not a dime out of the bankruptcy because it’s going to use up all of the equity in the property anyway and all the interest is going to accrue on the first, and the first is going to be taken care of first, thank you very much. They’re going to get completely squeezed out.
What I recommend is you offer no more than $1000 to the second and that you also go back and offer the first a significant discount because there obviously are players in the discounting and they’re just saying look, bring us an offer, we’ll look at anything that comes down the pike. Your offer can also be enhanced by having an acceptance from the first that says that no more than $1000 can go to the second. Then, you send that to the second and the second sees that the first is already a player on the short sale and now the second is definitely going to want to be a player because they’re saying well, look, if the equity that the first had is being reduced, it’s definitely going to be less for the second. That should help you a lot. I think everybody benefited from that one, Jim, on how to structure that deal.
John has a question here on lease options. He says: Doing a promissory note $3500 lease option fee, how long do you make the payments for, several years?
John, no, we don’t want to do that if we possibly can. We like to shorten that option period, the time that we do our promissory notes for down to about a three-month period. I’ll take it out to six months, and you just really need to look at your situation and see if it’s a really qualified candidate and that they can indeed make the payments. You want to try to get that money in as soon as you possibly can. If they don’t get used to making you those payments, then it can really be a problem for you.
Would I take it out longer than six months? The answer is it depends. How long have they been at their job, how much money do they make, what are their prospects at that job, are they taking the property as is, are they going to do some equity, sweat equity in the property, am I giving credits for taking the property as is? These are all factors in me giving them longer to make the payments. I would rather see you not do the work and instead give them credit than do the work and have to work out a payment plan on the option fee. The credits of course they still sign a note for the $3500, the credits are only earned when they do the work and that is all covered in our Work for Equity Program.
By the way, anyone who is on this call that doesn’t have that is missing the boat because that is a true opportunity to get your properties moved. It’s another exit strategy that we talked earlier about that can give you an opportunity to move the properties with less money in have because your new customer is actually taking on some of those duties and keeps cash in your pocket. There’re plenty of people out there that love my Work for Equity Program and paperwork is absolutely critical when it comes to that.
One last question that I am going to try to cover. I’m going over a little bit but I want to get to as many questions as I can in all of these calls.
I am having difficulty getting a lease option for sale with a house selling for $129,000 in Winston-Salem, North Carolina. The rent is $995, seems a bit high for the area, but is needed to provide some positive cash flow. Lease option fee is $3500 and I’m willing to work with them on payment. The area is not the best. About two miles away on the main street by this house is a tough area. I am using your Selling/Renting/Marketing Checklist. Any suggestions?
Well, I would suggest, John, that you do make sure that the rent is a number that people can afford, but we can get our money in a number of different ways. As I said in the last question, I could reduce that by getting more money down. Don’t just get locked into the $3500. Here’s what I want you to learn. Don’t make the program fit the person. Excuse me, don’t make the person fit the program, make the program fit the person. What we want right now John, is we want calls. We want people to call. If they’ve got $4000 a month in income, they can afford the $995 rent. Don’t get caught up in what the area is doing. Get caught up in what they can afford.
We’re looking at about a third of their income going towards rent. Even if they make $3000 a month, they can afford that rent. The other thing I want you to look at is their down payment. Instead of advertising $3500, let’s advertise to get the phone to ring and that way you can say different things in your advertising. “Low down for right buyer, low down possible. Call, work for equity.” Put something in there “come fix me up,” anything that you need to do to get that phone to ring. Then, once the phone rings, we look at the customer and we interview the customer. Where do you work, how long have you been there, how much do you earn? And, your spouse where do they work, how long have they been there, how much do they earn? Do you have a 401k, do you have an IRA? Places that you can resource money gives you an opportunity then to have money to restructure your program because I wouldn’t accept less rent if I’ve got a better prospect that I could get more rent from, and we could do a graduated payment program with them. We could graduate the rent up in say six months. These are all opportunities to just find out who’s on the other end of the line. Don’t tell them about your program, you find out who the customer is and then you match them to your program.
Okay, I hope you learned something from that, and my gosh, we’ve gotten to the end of another phenomenal Group Q&A, answered about 30, 35 questions on this one. Remember that you can download these and you can listen to them on your MP3. We have a lot of people taking us up on that now and that’s the reason that we went to recording the calls and loading them to the Internet so you could either listen to them on your computer or you could listen to them on your MP3 by downloading them.
Just a reminder that this is a four-level coaching program and this is the Group Section that is given twice per month, an hour at a time, where I just answer as many questions as I possibly can for you. Now, the next level is our Direct Q&A where you fax or e-mail your questions in all during the month, and you get answers all during the month. Included in that is this Group Q&A twice a month. Then, our next level is our One-On-One Q&A where you can actually meet with me one time per month at 25 minutes and we actually work on your business. You have required reports that have to be sent to me where we actually look at your marketing, what you’re spending for marketing, your marketing campaign. We look at the leads that you’ve generated. We look at a number of different things and we actually work directly with you on your business.
Now, the next level above that is our Platinum, where we meet three times per year in two-day meetings, three times per year, where we all come together and mastermind one another’s businesses. It’s a phenomenal opportunity to take you to the next level and everyone who’s been a member of our Mastermind has exceeded their expectations and grown dramatically. In fact, many of our Mastermind members have been able to make at least a million dollars in one year by being involved in that program. In cash and equities, they’ve been able to build their business that much that quickly. This is literally from starting at ground zero with no properties.
We want to be able to support you in that way, and we can with an accelerated coaching program. You think you can do it on your own, and you’re absolutely right, however, with the help of a coach, it’s so much better. Can you just imagine that an athlete would be a member of any team without a coach? It just doesn’t happen. The coach sees things that you cannot see on your own. The coach can do things that you cannot do on your own. The coach can direct you to resources that you have no idea about. The coach can keep you out of problems that you’re not aware of.
So, definitely, you need to be a member of our coaching program and you need to step up to the plate and get yourself advanced to the next level.
Well, folks, it’s been a pleasure for me to spend this time with you. I’m looking forward to talking to you again in two weeks. We expect you to have high profits and accelerated learning in the next two weeks and may God bless you and good luck on your business. Talk to you soon.