Hello everyone and welcome to another session on our Group Q and A where you learn the Street Smart secrets on how to do this business the Street Smart way. I’ve been very excited about the last couple of weeks. First of all we’ve bought a couple of properties and they’ve been good ones. We were able to get one seller to go to the bank and modify their loan, working with us and the other sold us their property subject to the existing 6% loan. So there’s real opportunity out there in today’s market place. I want you to not miss the opportunity that we’re going to see over the next couple of years that will be unusual and unique for you. If there’s anything stopping you, if there’s anything that is in your way of moving forward we need to address those things. We can do those on this group call, but we can also do it with your direct one-on-one consulting. I want to make sure that you don’t miss this window of opportunity, and I’ve ben screaming it from the rooftops, but I just want you to hear it again. We had a great session Millionaire Jump Start in Dallas over the last weekend and had some great folks from 19 different states there, had a lot of fun, very interesting conversation and a lot of excitement about what’s coming up in the future. So hopefully you’ll leave this call today motivated and ready to make some money over the next couple of weeks. That’s my expectation. Well let’s get down to it.
We’ve got a question here from Brenda Barrett on getting started, and Brenda is concerned. She says, “How do you handle leads that are out of your territory in another town most efficiently and economically. Is it worth it to do the deals if you are just starting out? We’re living on a lean budget.”
Brenda if you’re getting a ton of leads and you simply don’t have time to work it, the answer is no you don’t have time to work it. But if you’re getting a few leads and this is all you have to work with then I say by all means work it. Usually on the other end of the lead is a $20,000 to $30,000 dollar profit, so I definitely am willing to work it and travel to get that money. Now the question becomes from a management standpoint and a marketing standpoint, is it worth it? Again I point back to are you really in a position to turn it down? If this is a good one, work it. That doesn’t mean you can’t sell it. There’s plenty of doctors, lawyers, CPAs in that town that for a slight discount they would love to take over that deal after you’ve already done all of the leg work on it. So let’s talk about the possibilities with it, but I would first, Brenda, do the numbers and if the numbers make sense and you can back into your price based on the cost to sell worksheet, then I say by all means.
Also over time I’m going to encourage you to build a buyers list, and the buyers list then would give you the motivation to go ahead and do this deal out of town because you’d have a list of out of town buyers for it as well, and we’ll talk more about that in MPI. If you have not yet scheduled for MPI coming up in June, it’s June 5-8, we’re going to in depth on building your buyers list in advance of having deals. It is so important today that you have literally hundreds of leads and in fact we had someone at the MJS that over, I believe it was, a two week period, they had built 92 leads. Another one over a two month build period built 474 leads. So I want you to understand that this is a process that we have, that we teach you to build, there’s some tools that you need to have this work, but just imagine the motivation in your business if you already had 474 buyers. You can absolutely blow it out in terms of types of properties to buy because you’ve got so many ready, willing, and able buyers to play the game with. So if you haven’t yet booked for MPI, I only do this event once per year. So it’s important that you make your call 1-800-578-8580, 1-800-578-8580. We already have more than half of the event sold out. So it’s important that once we get to that full mark, we won’t allow anyone else in and they’ll have to wait until probably around May or June of next year and this is way too valuable to miss. So definitely get yourself booked in, get your seat reserved, and we’ll even work with you on a payment plan on that. Brenda that’s absolutely critical to where you are right now because I need to give you some confidence in your business and that’s going to come from actually having that buyers list.
We’ve got an REO question from Debbie _____(5: 14) who says, “If a house already went to sheriff’s sale and did not sell, is it now an REO?”
The answer is yes, Debbie. That means that they took it to the sale, opened it to bids to the highest bidder, no one bid except the bank, and the bank ended up being the winning bidder. When it became a winning, or when it became an asset of the bank, that went into their REO department, which stands for Real Estate Owned. What they do is immediately list it typically with a local realtor that they have a relationship with, and then that realtor goes about selling it usually beginning with their own buyers list. So I encourage you to get on the buyers lists of all realtors in your area that work with banks in listing REOs.
Now the second part of that though is Debbie, is that they may not yet have hired that realtor. So what I want you to do is contact the attorney who handled the sale and what you’re looking for is contact information on who managed listing that with that realtor, who works with the bank. If you can get their name, telephone number, e-mail address, something like that you can say that you have a buyer for the property. Don’t go as a buyer of the property; go as you have someone who is a buyer for the property. That way that gives a little bit more leverage that looks like there’s actually a third party agent involved even though there may not be and I would highly encourage you to make that contact. Now if the attorney is not cooperative in giving you any contact information, I would go ahead and prepare a contract, submit the contract to the attorney, ask them to send it on to their contact within the bank. That way the banks, and create a cover letter that you found a buyer for the property, put yourself as agent as the buyer and then that way the attorney can get a few feathers in their cap for having helped their client get rid of their property without going through the pain and suffering of trying to sell it. You have to do a little nursing over the phone and some relationship building over the phone, but it really works and you definitely can buy this property without it being exposed to the rest of the marketplace. That’s one of the games that we try to play, is to always buy property that is not in competition with everyone else out there in the market.
We have a tax sale questions here, “Lou I have a friend who I am thinking about partnering with to buy some tax sale properties. I thought we should form an entity. Which entity do you feel is best and why, LLC, general partnership, etc?”
Well my answer is I would recommend that anytime you’re getting into a partnership-type situation, I think it’s far better to begin and operate as a joint venture-type relationship. That means that when you and this other person come together you actually purchase this one asset, that one tax sale. Now in my example it would not be you buying it and the other person buying it, nor would it be an LLC or a corporation or anything else buying it. Instead it would actually be a trust buying that tax sale. Now this trust, which you can form from your paperwork that I’ve provided to you in Volume 5 Personal Property Trusts, then you would be able to form that trust, the asset would end up being this tax deed or tax lien, whatever it is that you’re purchasing, then the beneficiaries would be you and this other partner, the beneficiaries of this trust. Now you would outline your relationship using my Beneficiaries Agreement that’s built into your paperwork. The Beneficiaries Agreement essentially becomes a partnership agreement. That way we’ve put the asset out of the line of fire on public record. We have insulated your ownership from your partners’ ownership and anything that might happen in their life and not have it contaminate your life, and then third we’ve set up the relationship between the two of you in that partnership agreement called a Beneficiaries Agreement. All of that is covered in your Volume 5 Personal Property Trusts. Anyone that is on the call that doesn’t have that you absolutely need to get it because if you’re going to do partnerships this is the only thing that really makes sense and it’s what I call the Street Smart way of doing business because you’re not putting yourself at risk in that relationship, so, so important.
The second part of that question is, “What are your thoughts on getting properties through tax sales? This will be my first time going this route.”
Well my feeling about tax sales is that it is a highly specialized and very difficult to manage process. By that I mean that tax sales can vary from state-to-state, from county-to-county, and even from municipality-to-municipality. So it is very critical that you would learn all of the nuances and aspects to it. There can be fail points here and those fail points is what I’m concerned about. This is, to me, I consider it to be a highly specialized area of real estate, and it’s not really one to get started with. I think it’s far better to get started with residential real estate, put renters or lease optionees in the property, master that process. Then when you have excess cash that you can bury into a tax sale over a long period of time or through your IRA bury it for a long period of time, then learning more about tax sales is the time to do it. I always say one of our _____(12:05) is that there’s a time and a place for everything. So with a time and a place I want you to make sure that you’re not spending your time without having the right results. In other words, tax sales are very competitive and unless they are not in your area, in which case it makes a lot of sense. I’ll be glad to field more questions on this but again I just think caution is the place to be particularly if you’re just getting started in the business.
Now Tom _____(12:40) has a question on “I have a few questions, I’m in Ohio. One the agreement from deed contract doesn’t mention anything about your ability to lease it out to a tenant buyer on lease option. Do you need to include this language in the contract or do you already have the right to do this by nature of an agreement for deed contract?”
Well the answer Tom is essentially you do have the right because you are taking possession of the property and without there being a separate statement specifically stating that you do not have the right to allow a third party to move into the property or you do not have the right, then it is specifically allowed. So whenever the words say, don’t say you can’t then you can. Now there are a couple of things in our agreement that do point to your ability to do this. One on page 125 of your buying guidebook and I am presuming that you’re talking about buying using the Agreement for Deed. So then we would go to Volume 1 Buying and on page 125 of the filled out version, you’ll see that on paragraph 23 it mentions assignment. It says “Grantee shall have the right to assign grantee’s interest under this agreement without prior written approval of grantor to such assignment.” So that means that you can assign this to any third party that you deem along the way you can assign all or part, understanding that when you buy real estate there’s something called the Bundle of Rights, and the Bundle of Rights includes your ownership of that property, your ability to get other folks involved in that property, is included in your Bundle of Rights. All that is your ability to lease the property, your ability to option the property is all considered in that Bundle of Rights. So essentially in that assignment clause you have the right to assign any or all of your ownership interest in that property and that makes it very, very powerful. Great question Tom.
Let’s see here, there’s a second question, second part of this “If a seller doesn’t want to give up the deed, it sounds like you can’t do a subject to because with subject to you need to put the property into a land trust. The only way you can put the property into a land trust is if you have the deed. Am I understanding this correctly?”
Well Tom, yes you are. When someone, when we are buying a property subject to the existing financing, we are buying it. That means that we get the deed to the property. Now of course you’re going to put it into trust as I teach you, so that the lender does not have the ability to call the loan due, but essentially you’re putting that property into trust and you’re getting the ability to go ahead and do anything you want to with that property. The backup plan to that, if the seller will not give you the deed to the property, your backup plan is the Agreement for Deed we just discussed in your other question. So that means that your deed remains with the seller and you get the ability to do anything you want to with the property, which could work. One caveat that I’ll add to this that makes it very powerful is that you can say to the seller “Well I understand that you don’t want to give up your deed, I do have another way that we could buy your property that would allow you to retain the deed. My only concern is this what if something were to happen to you and now I put my customer in the property, they’re ready to buy, they’ve gone to the bank, they’ve qualified for a loan, they’re ready to get the deed to the property, and for some reason you can’t deliver the deed, and let me just illustrate this. God forbid that you die, something happens to you then I’m really stuck up the creek without a paddle. So I don’t want to take that risk. Here’s one way that we could handle that. You would merely deed your property into a trust. It would be your trust and the agreement would be with the trust. We would go ahead and put the deed in escrow with a third party and that escrow then would hold that deed. If I do what I say I’m going to do and of course I fully intend to do that, then all I would have to do is go to that third party to get my deed because you’ve already done everything I agreed to and trusts avoid probate. So if, god forbid, you were to die, I would still be able to get my deed and take care of my customer. Does that make sense to you? Good, then let’s go ahead and do it that way.”
So you see Tom, there is more than one way to skin a cat, there is more than one way to design and craft a deal. That’s part of what we teach at the Millionaire Deal Maker, that what you want to do is analyze the issue, break that down, come up with a solution that makes sense, as soon as it makes sense then you think of all the objections the customer would have. If they would object to anything you start with yourself why or how would you object to and then you come up with the answer before you sit down with the seller, and that way you can be able to go ahead and get the deed. Now I’m going to encourage you Tom that once you’ve become comfortable with this process and once you understand more about this process, you will always get the deed subject to. Once you learn the magic words to say and the encouragement to the seller, the seller is always going to cooperate with you. So that’s a bit of good news for you on that one.
Now we have another question “When placing a tenant buyer into one of your properties, do you have three separate contracts? 1) Option contract, 2) Rental agreement, 3) Purchase and sale agreement?”
Well the answer is no. We have two agreements. It’s the option contract and the standard rental agreement. No need for a purchase and sale agreement because that is addressed in the option agreement. In fact it says that a purchase and sale agreement will be executed when they’re ready to exercise their option to buy, however, if one is not executed then the option agreement shall stand as the contract to close with. That should solve the problem for you.
Great questions, really great questions. Keep them coming.
Okay Carol has a question on loan modifications. Carol _____(20: 00) says, “Lou thanks for doing these sessions they are packed with such great info.” Thanks Carol I like hearing that. Here’s my question. “I am working with a home owner who has a fixed rate at 11%, because of her debt to income ratio. When she called the bank to ask for a loan modification they said no. She was not in danger of going to foreclosure. Is this a dead end or is there a next step?”
Carol as you know having been a graduate of Millionaire Deal Maker there is always another way we can do it. So what I would recommend in this case is that you know step in as her financial advisor, and that you tell the bank that you have examined her finances, you’ve found that while the loan may be current right now it’s not going to be current next month, and if they’d like to go ahead and work with this now then you can go ahead and bring forth everything they need in order to have this go away and not be a problem anymore and that yes indeed the interest rate will have to be reduced from 11%, and go ahead and try for 5%. What you need to do is calculate what her existing payment is and what the new payment would be. Then you come up with that difference. That difference would be $400, $500, $600 whatever that number is per month in reduction in payments because of the lowering of the interest rate. Then you would use that number as the argument with the bank that your client needs to have another $400, $500, $600 per month to keep them solvent and out of bankruptcy, and if you can get their cooperation on this then we can keep the loan current, everything is going to be fine. If you can’t get their cooperation then you’re going to have to recommend bankruptcy. That usually gets their attention and what I would encourage you to do is stay with it because it’s going to take a bit.
One of our clients just got their loan, their own loan modified from 9-3/4% interest down to 5% for two years and then it increases to 6% thereafter. It lowered his payments on that property by almost $600 per month. So what I’m sharing with you is absolutely real and it’s something that can happen but it’s now time for you to take control over this and you make the calls and you control the conversation with the bank and tell your seller not to have any further cooperation with the bank or not to have any further conversation with the bank, but to refer them back to you so that you can manage what’s being said, otherwise, you’re going to get two different stories going and that’s really going to create a problem for you to be able to get what you need. When you get the paperwork back to them, the paperwork should match what you’ve said. So in other words, her numbers need to show that she needs that extra $500 or $600 dollars per month in income and that’s exactly where it’s going to be sourced is the reduction in this interest rate, and this gives you a property that makes sense and that you can make a cash flow off of. Again you need the cooperation of the seller and you’re going to need to get them in agreement that there’s only really two ways that you could buy this property: 1) That the seller pays you to buy, so that you have a cash flow on it, or 2) that the bank takes the reduction. Either way you need their complete cooperation on this. If they don’t want to be the one to have to make the payment, then you’re going to need them to cooperate with you in getting this done. That should make a lot of sense to them. Great question.
Next question from Velva also on loan modifications. “Hi Lou, hope you’re recuperating and don’t need surgery.” Yes some of you don’t know but I had a little ACL injury on my knee and yes I’m recuperating quite well and I’m not planning to have surgery, much to the chagrin of my doctors who are licking their chops hoping to be able to bill me for surgery, but my plan is that we’re not going to go there. Velva goes on to say “Recently I asked you about a loan modification on my primary home. The lender is Bank United in Miami, Florida. Have you heard of them? Are they known to be difficult to work with?”
Well it may be that they’re part of United Community Bank throughout the county. There is an alliance in a number of States of banks that are community based banks but they are supported by an umbrella organization. I find them to be easy to work with because many of their loans are portfolio loans, and portfolio loans are very easy to modify whereas loans that have been sold off to third parties are harder to modify. So I would definitely work with them. I would definitely, as I answered Carol’s question, show numbers that support that you absolutely positively have to have this reduction, and that you need this extra $400, $500, $600 dollars a month in income to cover your bills, otherwise, there’s going to have to be a different alternative, a different solution to this problem. Keep me posted on how that goes. I love hearing these things work out.
By the way we’re hearing great success these days with EMC, with GMAC is also doing them, and Citibank, and Chase are also cooperating. So we’re seeing that what I promised some months ago would happen is actually happening, and I promised in an MDM session that the market’s constantly changing and the reason that we need to get together every six months to talk about deals and deal structuring is that we have to focus on what is the right thing to do in today’s market, and right now is a great time to learn about loan modifications because the banks are doing them and I promise that that would evolve about a year ago and we definitely have seen a number of real good success stories in that. So be looking to that as a way to buy properties and leads that you would have otherwise thrown away.
Now Sean Tran has a question “I have a prospect who purchased a home in July 2007 for $355,000. They took out a $266,000 mortgage and put the rest down as the down payment.” That’s great. No other liens on the house. That’s great. “They got into a loan they couldn’t afford and are now four months behind. That’s $10,800. Their monthly payment is $2700 TITI, property tax is $2400, insurance $1800, and interest is 9.8% adjustable on a three year ARM. Countrywide has not sent a letter yet.” I wonder why? They probably don’t want that property. They probably don’t want that problem so they haven’t even pursued anything just yet. Let me go ahead and comment on that as well. Countrywide right now is in a takeover position with Bank of America coming in to buy out Countrywide’s assets. It’s likely that the folks that do the workouts for Countrywide have been told not to do anything. So they may be sitting on a lot of these until that merger is complete or almost complete, and then I believe we’re going to have an absolute avalanche of workouts and short sales with Countrywide but not right now. You go on to say “Seller is willing to sale for what they owe on the property.” So that’s good news. “Comps are rare since this area is rural and houses are custom built. Land is one acre and has a pool. Three thousand two hundred and nineteen square foot built in 2002. My best estimate is $280 to $290 range but the county has appraised it for $320 last year. The house has been listed with a realtor for three months with one walk through and two phone inquiries, listing to expire at the end of this month. My question is if this would be a good candidate for a short sale with Countrywide, given that there is still about $15,000 to $25,000 in equity in the house? Subject to is too risky given the thin margin in a declining market.” Well I’m not sure I’d agree with you Sean and Sean goes ahead and says “Thanks. Orlando, Florida.”
I’m not sure I would agree that this is not a good candidate for short sale, but as we discussed in the prior two questions I think the better plan is to get this loan modified down to five to six percent interest and then get this arrearage, the $10,800 do that as a loan modification as well through a forbearance agreement and that means that you can take the $10,800 and put it on the back end of the loan or do a payment plan on that. That way you’ve put yourself in a position to source your funds. You see while you are going down the route of looking at this as a short sale, the problem is let’s say that Countrywide did agree to a $266,000 short sale. The problem is or even less than that, the problem is you still have to source those funds. In this case you’ve already got a $266,000 loan on there and if the property really is worth significantly more then by all means you do have your source of funds right there if you can get the interest rate right, and you can get the terms right. So doesn’t it make more sense to go down the other road in fact, and go ahead and work this as a transaction that you can make work long-term? And by that I mean that your exit strategy could be that you provide the financing. So while the realtor can’t get it sold, well the realtor is looking for customers that can qualify for loans, you’re not. In fact you’re looking for customers that can’t qualify for traditional loans because in my scenario you would be the bank and there’s plenty of folks out there that would put $25,000 to $50,000 down on this property which would be your payday that day along with a payment per month with you being the bank rather than the bank being the bank, and that way you’d be able to get a spread from your five to six percent interest that you’re able to get this modified to, to let’s say 9.9, 10.9% interest rate that you could get on the backside. So this could work out very, very well for you Sean. I really encourage you to pursue this and really encourage you to try to work with the existing financing there because I think you’ve got a whale of a good opportunity. Also in the meantime, as soon as this listing agreement expires, I would go ahead and start marketing it and building your buyers list while you’re negotiating with the lender. It could be that a buyer would come along that could qualify for a loan for say $300,000 and you’d just make the spread in between the $266,000 and $300,000. So there’s lot of opportunities here that I see for quick cash as well as long-term cash. Great question, Sean.
Hope everyone learned a lot from that and deal structuring is absolutely critical to your success. You can never learn enough about this subject, and that’s why I say let’s get together at least every six months to learn more about deal structuring at the Millionaire Deal Maker. The next one is coming up I believe it’s in September, and you definitely want to get yourself registered for that, don’t even wait just go ahead and get yourself registered and we’ll even take payments over the next number of months to get you paid up on that at zero interest, so that you can at least have your money paid at the time the event comes up. We do things like that for our Street Smart clients, because we really want you to get the in depth education that we see people really get it and the lights go on when you get that kind of training.
Next question is from Fred _____(33: 26) and Fred says “I am working with a real estate investor who did not use the Lou Brown system and is now in a position to have to dump four properties via a short sale. None of the properties have second mortgages, and the seller only wants as an exit option, a short sale on each of the four properties. The question is, does this investor have any ability to exclude forgiven debt from her 2008 tax return? I am hoping to direct her thinking back to subject to options as I think that as an investor she is not entitled to the same income relief provided by the IRS as a person who is short selling their own primary residence.”
Well Fred there’s good news. The IRS in its write up about debt forgiveness and about tax relief on debt forgiveness, there’s a lot of research that’s been done on this and my friend Al _____(34: 35) has done that research. In fact you can get his system called the Gold Mine of Brilliant Tax Strategies through our office and what comes with it is a 29 page report on buying properties subject to and another report on debt relief when you buy using a short sale, and in that report he reveals that the IRS’s publication says that and he gives you all the IRS publication names and numbers and sightings and all that sort of thing, that the IRS says the sale and/or disposition of property. So while this would be considered a disposition rather than a sale that means that the exemptions could qualify under those terms, and one of the things they look at is hardship situations. So obviously this investor has had a hardship situation, maybe there was mortgage fraud involved, where the amount that was funded was higher than the market price. Whatever the reason might be, so it stands to reason that this particular customer might qualify for the reduction, the IRS would grant and therefore have absolutely no taxes or comeback on the taxes because of their situation. Yes even if it’s rental property or even if it’s investment property. So that’s definitely something you may want to research.
If you want to get Al’s program call the office 1-800-578-8580. It is an absolute wealth of information and those of you who haven’t met Al will meet him at the Maximum Asset Shield coming up in August. He’ll be a guest there, a guest faculty member, and he’s going to cover some of these issues for you face-to-face and teach you some things, I promise you you’ve never heard before about saving money on taxes. He’s absolutely a wealth of information. He’s a real estate investor too, which makes it real handy and he understands what we’re up to as real estate investors.
Well Donny Tran has a question “I am from New Orleans. I would like to put my family’s residence into a trust. As you can recall from the Katrina incident the government grants are only for an individual’s primary home. If put into a trust can the beneficiaries still receive the benefits the home owner has? Many people in the region who have home owners insurance were screwed.”
Well I’m sure that’s true that the insurance companies did not cover what they should have covered and they really got into a lot of trouble. I’ve got good news for you Donny. The way the IRS and the government looks at our trusts, these particular land trusts and personal property trusts, is that these particular kinds of trusts are not the same animal as other trusts. So let’s review for a second. There are 30 different kinds of trusts out there. The IRS looks at some trusts as what’s called complex trusts, and they have their own tax returns and their own tax tables. Other types of trusts are considered simple trusts, and they flow through to your personal tax return or the tax return of whomever is the beneficiary. That means that if an LLC was the beneficiary it files the tax return. If you are the beneficiary you file the tax return. Also for IRS purposes they see these particular kinds of simple trusts as flow through entities and, therefore, they’re invisible for tax purposes. That means that these types of trusts can be granted all the government grants for the individuals home, yes the property can be put in the trust. Yes those beneficiaries can receive those benefits and all that good stuff because of the type of trust this is, and I always stress that land trusts and personal property trusts are unique kinds of trusts and some people say the word trust, they don’t really understand that there’s a distinction among trusts. So this particular kind of trust does qualify for that and yes you can get all the benefits that you would have gotten. Isn’t that good news?
Okay, now Darrell Hearn asks “I am wanting to put my existing house; I am getting ready to market, it into a trust. I’m not sure about the steps to take. Can you help me with that please?”
Absolutely Darrell, you would merely go to your Land Trust Volume 4, steps to take in putting your property in trust, and let’s see here this actually got turned to the wrong page. So let me go find that for you. I’m looking in the guidebook, anytime you have a question about the forms to use or the steps to take, always go to your Table of Contents. All of my systems are set up so that the table of contents guides you through and I’ve done it in the most logical manner I can possibly come up with, so that the first thing you need to know is the first thing you come to. The second thing you need to know or do is the second thing you come to, and that’s exactly the way I’ve laid it out. Go to your Table of Contents in your Volume 4 Land Trusts and right there it talks about information needed and steps to take when creating a trust. That’s all the way on page 4, right at the beginning of the book. Then it calls for Land Trust creation information worksheet and then it gives you an annotated worksheet so you actually know what the questions are and then what the answers are to those questions, and how you can do your own. Then you actually see a scenario that runs through all the documents called Sample Land Trust and the Players.
Now all you’ll do is bring up my forms disc on your computer and click on Volume 4 Land Trusts and then begin opening the documents, and this will guide you through all the documents giving you a filled in version and a blank version of each of the forms, right in front of your eyes and the guidebook so that on your computer screen you can actually highlight the blank lines, then start typing because it will take away the blank lines. One of the gifts that we give you when you come to Maximum Asset Shield is we actually give you the auto-fill version of all of the paperwork. So you would merely, you graduate and receive this special forms disc. It allows you also to have an auto-fill version so that you fill out that one page and it auto-fills all of your trust documents. Isn’t that a good thing? In fact every time you graduate each one of our in depth trainings, you get special software that auto-fills everything that we cover during that event. So it’s extremely powerful and if you haven’t yet signed up for MAS, you need to absolutely do so. It’s coming up again in August and just call the office 1-800-578-8580 to do so and not only that we will give you a payment plan on that as well at zero interest. So go ahead and get yourself signed up for these upcoming events because this in depth training is absolutely critical to your future.
Now we have another, let me get over here to another trust question. Hopefully that was helpful to you Darrell because all the answers are right there in your book.
Roger Allen asks “I am buying a car for our daughter in a personal property trust. Can I be the trustee, my wife the successor trustee, and my daughter the beneficiary since I will give her the car in two years anyway? Our daughter is going to grad school in DC, and that is where the car will be in a couple of weeks for the duration. Since she is still covered under my auto insurance policy if an accident were to happen, god forbid, could I still be personally sued since they could tie the vehicle back to me by the insurance, thus nullifying the purpose of the personal property trust.”
Okay Roger let’s start with buying the car in the trust, and what we’re describing everyone on the call is Volume 5 Personal Property trust. Yes you can take title in trust. It would be that the title would be in the name of the trust and the trustee. So yes you could be the trustee or your wife could be the trustee or even a third party could be the trustee. Yes your daughter could be the beneficiary. Now with one caveat I presume that she is 18 years of age or older. If not you would be her guardian under the trust. If she is 18 years of age or older then yes she is the beneficiary under the trust and therefore you’re off the hook as far as liability goes. Your insurance may not be but you personally are off the hook once the minor reaches the age of majority, then the parents are no longer liable for the actions of the adult and they get in trouble that’s their problem not yours. Same happens in law, in criminal issues and everything else. So you’re off the hook if she’s 18. Everyone should breathe a sigh of relief now and then we’ll go onto this second question which is about the insurance liability and that would be up to your insurance carrier. How the insurance is titled under the policy, I prefer it to be titled under the name of the trust and the trustee with the drivers being covered under the policy, but the caveat I always offer is that we want to get paid. If there’s ever a problem we want to get paid. So that’s the real question you want to ask the insurance company is “Listen we’ve got the property in trust, it seems to me like if the property is owned by the trust then the name on the policy ought to be the same name as the title of the trust is. So if you differ from that tell me why and then we can argue that as well.” That is a big issue that we cover also at MAS, Maximum Asset Shield.
Regarding trusts we’ve got more questions here, one from Angie Flores who says, “Lou can I start a personal property trust empty with a name for my business I want to create in the near future until I create some assets to start an LLC?”
Well I would recommend that you don’t do it that way Angie. You could start a personal property trust anytime you want to, and you could start and LLC but if you don’t have an LLC there’s no need for one right now. You could create the personal property trust or the land trust any time you want to, and when you know that you’ve got a deal coming, when you’re getting ready to close one that’s a good time to create your trusts. How do I obtain the taxpayer identification number? It’s all there in your guidebook in Volume 4 Land Trusts and as I said earlier what we do is go to the table of contents and then you’ll actually find the answers. Let’s see here. What is it called in your guidebook? IRS form SS4 Application for Employer Identification Number, page 139 of your Land Trust guidebook, your Volume 4. Just go there and you’ll get all the answers you need on how to obtain that taxpayer identification number.
And to continue with your question you say “The trustees social security number should be used or should I use my own?”
The answer is usually it’s going to be the taxpayer’s number. So if the taxpayer is the LLC, then we’ll use the LLC’s EIN number to obtain the trust ID number. If you are going to be the taxpayer, that means the beneficiary of the trust, then we’ll use your social security number to obtain the TIN number.
Should the trust have the name of my future business or not?
It can. It absolutely can. It’s up to you how you name the trust and there are no restrictions to how you name the trust.
What is best to operate other business with the trust principle besides real estate?
Well you can as I teach you in your personal property trust guidebook, you can put any property into a personal property trust. You can put stocks, bonds, mutual funds, bank accounts, CDs, sea doo’s, mobile homes, motor homes, gun collections, coin collections, anything you choose into a personal property trust and because you have the software to do so it makes it very simple for you to be able to just create another one, create another one, create another, and create another one and then be able to segment and segregate those assets into separate pockets making it very simple and very easy for you to be able to create all of that. Great questions Angie, lots of stuff there.
Now Bernice Stewart asks a question “Property trust, piercing the trust veil. If I put real estate property that is mortgage free and has a large equity into a trust how can I get equity lines of credit, with a bank, on these properties since most banks will look at the owners credit which a trust won’t have.?”
Okay let’s answer that first Bernice. Great question. The answer is we’re going to take the bank down the right road. First of all the only thing the bank should really care about is if there is enough equity to protect them, if they were ever to take the property back. Number one that they could get the property back and number two that there would be enough equity. The answer is of course if it’s free and clear there’s plenty of it. Bank of America will do these all day long in trust. You can call the office for a contact person within Bank of America; apparently they can do these things from different offices all over the country. So call 1-800-578-8580, we can put you in touch with the right person that can actually do an equity line against your real property or against your rental property. They’ll do a 70% loan to value and it’s at a floating interest rate but the good news is that you’ve got access to the cash and the beauty is it’s just sitting there waiting in the form of a checkbook that you can write a check anytime you choose against that equity line of credit, really powerful way for you to advance yourself in your business.
You go on to say “For rental real estate I can see I might use positive cash flow but that won’t work for my personal home.”
Agreed, your personal property, your home is a bank though. The way I look at it is if you’re in the phase of capitalizing your business, then you should wring out equity out of the home that you have and I like equity lines of credit because you don’t have to pay any interest until you actually have to use the money, but that becomes a real great source of capitalizing your business while you’re growing.
Also she says “How do you protect the trust veil if you are the beneficiary and using your credit to secure loans? How do you structure things to handle these types of issues? I’m from Ohio.”
Well Bernice I would say first to answer that question you need to go to Financing and the Land Trust. It’s page 146 of your Volume 4 Land Trust Guidebook, and I encourage you to go there and it actually takes you step by step through the process of what financing through a trust is all about. The beauty is that the lender can be pledged the property that’s in trust by the trustee, and the lender can also receive a signature on a note of both the trustee, who has no personal liability and you who may be the guarantor on the loan. So they have all kinds of recourse if they were to take the real estate back and still have a loss, they can still come after you personally, you signed the note. The good news there is that while the mortgage is on public record in the name of the trust, the note is not recorded. So that’s a private document, that’s kept private and we do talk a lot more about this at the MAS, Maximum Asset Shield. So I definitely, definitely encourage you to get to MAS. We’re going to go in depth and in fact we even have a banker there that helps you through this process so you can understand exactly how it works. We’re even working to have this approved in all 50 States so that you actually have the bank relationship go to for permanent mortgages as well as equity lines of credit.
Okay, lots of great questions this time. Wow, we’re covering a lot of ground today. I hope you’re all learning a ton of stuff. We’ve just been able to churn through about 25 questions and I’ve got room for maybe one or two more here.
What happens when I have been filing tax returns and paying taxes and I now opened these trusts and no longer have income, what does the IRS do? Please elaborate on this.
Well the IRS again doesn’t do anything and this is an issue between you and the IRS, in terms of you being the beneficiary of the trust you would be the one to file the tax return. So while the trust would receive income and distribute it to its beneficiaries which is exactly what these trusts do, it flows down to the beneficiary. So what you really have to decide is who is the beneficiary. Is it an LLC? Is it a corporation or is it you? If it’s you, you file the tax return and the income did not go away it just went to the beneficiary. Hopefully that cleared it up for you and their quite happy to do it that way.
After purchasing and several _____(55: 05), my name appears all over county records with each of my rental homes. How easy is it for someone to crack my land trust and see the beneficiary?
Well Joe once we deed these properties out of your name and into the trust name essentially it appears for public record purposes, that there’s been a sale and once that sale occurs you personally are no longer liable. In fact most trust laws throughout the 50 States actually support that the trustee is not personally liable on any issues that come up regarding the trust nor is the beneficiary liable on any issues that come up under the trust, which makes it very powerful for you, thank you very much, because there are no issues that could detach to you personally. Very powerful stuff. I’ll give you more about that at MAS too where I actually sight the laws and lay it out for you, what the benefits are throughout all 50 States on trustee and beneficiary liability. It’s very powerful, very great place to be for all of us when we’re doing our trusts and getting ourselves set up.