Group Q & A January 23, 2007
Which is the first action to take to start your business? Build a buyers list or obtain properties?
You can’t really build a business without having some traffic. I think it’s great to build a buyers list, and we certainly have some ideas for you to solve that problem, but more important is to obtain leads to buy. Let’s get some deals coming in. Now one of the concerns that you and many people on this call have is oh, my gosh, what if I actually get a deal, what am I going to do with it. Well we’ve got a solution to that too and yes I do want you to begin building a buyers list but if you’re just getting started let’s just get some leads coming in. Let’s get you comfortable with asking the right questions of the seller, filling out that seller questionnaire, making your presentation using your credibility kit, designing the deal using your cost to sell guidelines, analyzing the deal using your property acquisition worksheet, and then making the offer to the seller and writing up the order using your purchase and sell agreement. I think those steps are highly critical and hey you know that every time an actor goes on a stage in front of an audience, hey they’ve all ready practiced and practiced and rehearsed and practiced. Shouldn’t we do exactly the same thing?
I think it’s a great idea to get with your spouse or a friend, or somebody else and just go through the process of doing this because you need to get a comfort level, you don’t need to be bumbling around and wondering what to do next when you are sitting in front of the seller. Let’s not do on-the-job training. Let’s do some of this experience in advance and then put the deal together.
Okay so of course what I want you to do Sammy is go to Volume 1 Buying, go to your List of the Deal Finding Checklist, and then pick out five of those and start focusing on generating your leads.
If you haven’t already been to Millionaire Jumpstart and it sounds like you haven’t been, then it’s time for you to attend Millionaire Jumpstart. Next one is coming up next month in Austin, Texas, and then in April in Atlanta, Georgia, but you definitely want to get yourself registered for Jumpstart and let’s start generating some leads that build your business.
Do you have a website or a service that will supply us with a mailing list for our letters to prospects and how much do they cost for say for zip code listings?
Okay very good news Sammy. Just this week at our Maximum Asset Shield that is beginning on Thursday in Atlanta, we are rolling out a brand new product called Street Smart Mail Whiz. The mail whiz is going to do all of this task for you. It’s literally going to get your list for you, it’s going to mail your campaign for you, and that includes postcards, letters, newsletters, all the different things, it will mail a campaign to a particular list that you choose, and it will do that over and over and over again depending on the campaign that you choose. You can choose a one time, you can choose three timer, a six timer, or a year at a time, and it’ll do all of that for you.
As far as what the cost would be, it really does depend on the size that you are looking for. You can choose 500, 1000, 3000, 5000, and they will customize a list for the number of, well really to the size of your budget. Of course, like with any business the more you have to invest in your business, the more leads you’re going to generate because they can hit a larger area for you, and of course I always recommend that you choose two neighborhoods that you like, that you want to own properties in, and that’s what your focus or your target marketing becomes, and we start building a business around that.
Very good question.
If we have a possible prospect but we did not sign the contract, yet would we be able to e-mail you to get your input and what is the turn-around time?
Well Sammy, this is the group Q and A program. This program is for you guys who are actually generating leads and questions that you’ve got on your business and it is once every other week. So twice a month we do this group Q and A. Now if you want to build a business, I suggest and highly recommend, that you get the next level of coaching that we have, at least, and that’s the direct Q and A. Now what that means is you can fax or e-mail your questions in anytime you want to and you won’t have to wait for an answer until the group Q and A call. You can actually get a direct answer immediately or very quickly if it’s a question that our staff can answer it’ll be turned around immediately, provided that we’re in the office that is during normal business hours. However, if it’s what they call a Lou question then they’re going to have to send that to me on the road and we’ll have to get that back to you. So, the turnaround time maybe longer on a difficult question, but the easy questions yes they can answer those right away for you.
Sammy that’s probably a great idea particularly when you’re putting deals together and yes I do recommend that if you don’t “know what you’re doing” let’s make sure that the deal you’re about to make is a good deal for you to make. I know that I had one of my coaching students send me one yesterday that was a quite complicated deal in Florida, and when I got into the details my student was about to make over a million dollar decision that would not have been good decision. So, my recommendation was not to do it and she was pretty far along on that deal.
So yes having my 30 years experience say yes or no to something makes a whole lot of sense and I hope all of you benefitted from Sammy’s question there.
Lou there is a ton of new construction going on where I live. I recently watched a subdivision start selling houses in the low $130s and two years later, they’re going for $190,000. What are your thoughts on buying first phase properties?
Well Kris, I’ve got a lot of thoughts. First question I have for you is even though you’ve got an appreciating area my concern is where’s the discount? If you look at my wealth wheel the 1st thing we talk about is buying right and buying cheap. I want you to buy with a discount going in. You get that discount and you’re going to be in fine shape. You don’t and you’re merely being a tourist. Of course, if you have a full-time job and buying properties is only an occasional thing for you, then you can afford to pay more for properties, but if you want to build a business out of this and truly make it into how you make your money, then you must buy with a discount going in.
As a couple of other considerations I have with this new construction conversation: one is you’re going to have to go to the bank and get a loan, highly unlikely that it’s going to come with an existing loan on that property. So one of the things I love to do is buy used property so I can take over the existing financing. That’s not going to be available to you in this new financing scenario. Let’s say that you do, and you don’t mind going to a bank and qualifying for a loan, then I’ve got another idea for you. Why don’t you go to the builder and talk with them about the last 2-3 properties that they in the subdivision? Typically, when a builder has built out a subdivision, they want to get out of that place and go on to their next project, so they’ve got 2 or 3 lingering houses. Many times you can buy those houses at anywhere from a 20 to 30 percent discount, and those discounts are significant when we are going to use the exit strategies that we have. So, talk with builders and see when they might have a situation where they’d like to just get rid of a property and you can buy that at a discount.
I’ve got more suggestion for you Kris and I think everyone on the call can benefit from this, but Bruce is passing me a note here and what Bruce is saying also is that if you’re planning to sell your new house you’ve got to wait for the new buyer that’s coming in to also sell their house, so you end up with a contract that’s a contingency contract, where they can come in and buy your house, but only if they get rid of the old house.
Next thing the thought that I had also that I was about to say is model house. You can work out a deal with a builder to buy the model house, typically at a discount, and the builder will sign a one or two or even three-year contract with you to rent the property. They rent the property at fairly significantly above the traditional rent in that neighborhood. So what’s the benefit to you, you get a discount going in, you get a model home which traditionally the builder’s going to put very nice upgrades in, nice moldings, nice countertops, nice cabinets, all the upgrades that they up sell a potential buyer with, are all going to be loaded in that model home, which is a nice thing. Then they will agree, in a contract, to restore the home when they move out. Meaning they’ll repaint, they’ll resurface, they’ll take care of any damages, anything like that. The other good thing is that you’ve got a great income stream for a guaranteed period of time with that contract. It also helps you to qualify for financing because you’ve already got a tenant for the property, the banks will have no problem loaning money to you on that scenario.
The next question is from Jennifer. I am very new to real estate investing, although I’ve been very interested most of my adult life, so please excuse the infancy of my question.
Well first, of all Jennifer there is no question that is a dumb question or an unnecessary question. If you’ve got a question we’ve got your answers right here.
I attended your speaking engagement in Dallas, Texas and will be attending your Millionaire Jumpstart in Austin. However, I have a question that may not wait until then. I’ve been working to locate the contact information for the owner of a piece of acreage that is currently being vandalized by dilapidated mobile home. It is on a well-traveled rural highway and in fairly close proximity to Dallas approximately 60 miles out. The land is approximately 4.1 acres, valued on the tax rolls at $22,000 and has a market value of $25,000. There is approximately $1200 in back taxes owed on the property. The owner inherited the property in 1996 from a family member, and has only made one partial payment of the taxes due in the past three years, way back in 2004. The property will be entering the tax foreclosure process soon, most likely June. We have done some research and discovered that the current owner is 87-years-old, and living with a grandson or other relative here in Dallas. You can see the reason for my urgency.
Yeah, you’re saying he is 87-years-old and you’re not sure how long he’s going to last, and right now he is holding the deed. I have his current contact information and intend to call him and discuss the property. I would like to buy the property before it goes to auction and intending to offer to pay the outstanding taxes upon close of sale and give the current owner a lump-sum payment. I am planning to offer something in the neighborhood of $3500 depending of course on my conversation with the owner.
My questions are: 1) what would the process be to close this property potentially without having to take the elderly man to the title office to sign the necessary closing documents? Details please.
Let’s start with that. The closing process would be, first of all, you must get the property under contract, secondly when you get it under contract you must order a title search and make sure there’s no other issues for example, what if they didn’t appropriately do the probate of the property? What if there are other liens or encumbrances on the property? We don’t want to take that chance, so be sure that you do a title search. Third, once you do that title search then you’re ready and prepared to close on the property. Now that does not mean that you have to drag the owner into the office. Many title companies offer mobile closings so they’ll send a paralegal or an attorney to the gentleman’s home and they’ll close it right there. The other option is for you to close it yourself, and actually order a mobile notary to come with you or to meet you at the property and they’ll come and for some serious money, you know like $60 to $125 dollars…they’ll come and notarize the documents that you’ve prepared, or you could get the title company to prepare the documents and then you meet the roving notary out there at the property and then they’ll sign them. So you’ve got several options. Another one is to merely take the gentleman to his local bank, usually there is a notary on duty there, and they could notarize the documents with the gentleman present. So, that can keep you out of trouble and make this work just beautifully.
Let’s see here. Just follow the steps that I have in Volume 1 Buying and that will guide you through the whole process. Make sure that you’re not going to leave out any of the steps. Remember that you want to use the checklist that I’ve got built in there and use all the documents that I mention.
Now, one interesting little thing that you’ve brought up is that you want to buy land, the 4.1 acres, but also there is a mobile home on there. Now you mention that it’s dilapidated so you may not really care about this, however I would suggest that you sign the purchase and sale agreement for real estate, which is BSH1301 and that’s your form number BSH1301, and then in the special stipulations sections mention the 1973 Fleetwood or whatever the mobile home is, that you’re also buying that as well. You’ll need that when you go to transfer the title, although, if it’s a very old home it may not even have a title. So check that piece of it out and maybe he even has the title to the home, which would be a great thing. Otherwise, you’d have to order one from the state. There could be some value in the home, you may not be putting value on it, but mobile homes are rehabable just like regular homes are. In fact they’re not as much trouble to rehab as a house is, and floors can be replaced, roofs can be replaced, windows can be replaced, there’s a lot that can be done. Now with that said, you don’t want to spend too much if it really isn’t a good home with good bones, so to speak. So be careful about that one, but if you intend for the home to be included in the transaction be sure and list it in the Special Stipulations section of your purchase and sale.
By the way while I’m on this subject for everyone on the call, we do have a standard personal property purchase and sale agreement, which is page 24 of your Volume 5 Personal Property Trust workbook. There you’ll be able to buy things like vehicles, mobile homes, any kind of personal property and that is form PPT3003, that’s PPT3003. That allows you to buy any kind of personal property, not just a mobile home, or a vehicle.
Okay let’s see here is there anything else. I’ve made some notes here. No, I think we’ve got that covered for you. Boy, that was a great question, I think everybody benefited from because that does give you a foundation of understanding on what to do when you’ve got a mobile home. It is personal property; it is not real estate unless the mobile home has been attached to the land. In other words, they’ve taken the wheels off, attached it to the land, many times they’ll put a mobile home on a foundation, when they do that, then it becomes actually real estate and not a mobile home any longer.
You also have another question: What forms would be necessary to execute the sale and how could I go about finalizing, in an expeditious manner, so that he is still living long enough to execute the deed before the property is brought up at auction?
So again we’re just going to use that Purchase and Sale Agreement and you’re going to get that notarized, excuse me not the Purchase and Sale Agreement, you’re going to get the deed notarized so that it is clear that he’s the one that has the right to sell the property and that his intent was to sell the property. Now he is going to be the grantor on the deed and you are going to be the grantee. However, my recommendation is that it would be your trust that would be the grantee, rather than yourself. I recommend that you should take all of your property in trust and never take title to property in your own name, and even we can get rid of any properties that you currently got in your own name by deeding them out of your name and into a trust. More about that at the MAS class, which is Maximum Asset Shield.
All right, the next question is a short sale question from Greg Vining. Greg says, “Hey Lou in Texas is the discount given by the lender on a short sale always taxable income for the seller?
All right Greg, first of all, it has nothing to do with taxes. It has to do with tax law and it has to do with the banks motivation level. When I negotiate a short sale, one of the things I’m negotiating for is that the bank will not do a IRS reporting on the loss that the bank is taking. In other words, let me describe it this way for everybody on the call.
Let’s say that someone borrowed a $100,000 loan, let’s say that the bank took a short pay or a discount down to $80,000. That means that there is a $20,000 loss to the bank and in the eyes of the IRS that’s also a $20,000 income to the seller. Why? Because they signed documents to borrow $100,000, if now all they have to pay off is $80,000 then essentially they had that $20,000 income. So, banks have the option of either reporting that to the IRS as income or not. If they don’t report it, of course, then there is no taxable gain to the borrower or at least it’s not seen by the public. It’s not seen by the IRS that they had a gain. However, the bank has the option of filing what’s called a 1099 form, and actually show that they had that income. If they do then our seller is subject to paying taxes on that income, depending on the rest of their tax picture. So that could be a real problem for our seller and that’s why I always try to negotiate that the lender will not report. Now I can’t guarantee that so I always tell my seller up front that I’m going to do everything I can do to have the bank not report, but I cannot guarantee that that’s the final negotiation, that they won’t say at the final moment we will do the deal, however, we’re going to report. So I set that up in advance with my seller so that they know what the pitfalls are, but even with that let’s say that they did have a $20,000 gain, remember that their taxes are not $20,000, it’s only taxed based on their tax picture. So, if they’re below the earning level or below the poverty level guess what, there is no tax due. If they have other write-offs, they can be used to offset this gain, so to speak. If they’re in the 15 percent tax bracket, that means that the taxes would only be $3000. It could be that if there was enough room in the deal you could even write a stipulation that said if the IRS ever charges tax on this that you would be willing to pay the tax, whatever that corresponding tax is relative to this particular property. I’ve done that several times and it actually worked. They never came back, they never asked me for any money, and they felt totally comfortable that they were okay when they did the deal with me. So I hope that gives you several different options Greg, and everyone on the call, because short sales you’re going to see a lot more of in the next couple of years.
All right we have some subject 2 questions here, a lot of them tonight. We have Sammy _____(25:47) who says, “Are we supposed to record the deed when we buy the property subject to? If we record the deed would this trigger the due on sale clause?”
Well Sammy, it’s usually not the recording of the deed that triggers the due on sale clause, it’s other actions: One is that the lender is tipped off that there has been a transfer of the property. The tip-off typically occurs when the seller of the property tells the bank that that’s exactly what’s happened. So, we need to council with our seller to make sure that they don’t tell the bank that. The second thing that can be a problem is when the lender, you call up the lender and say, “Hey I want you to start sending me the mortgage papers on this property.” Well that can be a problem too, because the lender doesn’t have any relationship with you, they’ve got a relationship with the borrower. So, that ‘s the reason Sammy, that in my Volume 4 Land Trusts, I have built in a steps in the Due on Sale process and there I actually guide you through all the forms that you need. One of those forms is when the seller appoints you as the manager of the property and as the manager of the property, you’re supposed to deal with everything relative to the property, and that typically allows you to get in relationship with the lender and have the lender start sending you all the paperwork, all the statements, and things like that, related to the loan. So, that’s our key factor there.
Now recording a deed certainly could trigger the Due on Sale clause but if you follow my steps in Volume 4, page 148, steps in the Due on Sale process, you should not have those problems. If you’ll just do everything I say there, all the forms and I know who is on this call here some of you guys, you hate the paperwork, you want to skip the paperwork. Gosh, wouldn’t this be great business if we just didn’t have any paperwork? You’re absolutely right, but the deal is in the details and the devil is in details. So, in order for you to be street smart, paperwork has to be a key criteria of doing this business. You must absolutely do the paperwork, do it right. No I didn’t put a whole bunch of paperwork in there just to make the book thicker, I actually want you to do each piece of paper that’s in there, and I have in sequenced so that you do it exactly the way I want you to do it.
All right Michael Lane has a subject 2 question and he says, “With an adjustable rate rider, on a deed of trust subtitle transfer of the property or a beneficial interest in borrow, it goes on to say, it means any legal or beneficial interest in property including but not limited to those beneficial interests transferred in a bond for deed, contract for deed, installment sales contract, or escrow agreement the intent of which is the transfer by borrower at a future date, to a purchaser. If all or any part of the property or any interest in the property is sold or transferred, lender may require payment in full. My question is this: I already set up the trust docs, took the deed in the name of a trust, and I’m getting ready to record everything. Does that language in the deed of trust potentially jeopardize my deal, by giving the lender the ability to call the note?” Thanks. Mike.
Mike, yes. The lender can call the loan due. The trick is they have to know. One of the interesting things about how we transfer property, subject to, is that the lender is more or less of our compadre here. Now just imagine this, they’ve got a job to do, and we’ve got a job to do. Their job is to follow the requirements of the mortgage or the deed of trust. Our job is to not go to the bank if we can possibly help it. What a wonderful thing if we can come in and take over an existing loan. Now think about this with me for just a second. Imagine this, the bank has a defaulted mortgage, we come in, reinstate that loan, that defaulted mortgage which was a heavy anchor on the banks book, has just been made good, and the bank has been made whole again. What have we done for the bank? Have we helped the bank? Absolutely, and of course that’s our goal in all of our real estate transactions. We help people…we don’t hurt people. So, in our process we’re helping that banker to not have a default on their books anymore.
Now just imagine this, whenever a banker has a dollar on their books that is in default, that means that there’s $7.00 they cannot lend. So, for every dollar they are restricted in lending by $7.00.
Now let’s take that into the hundred thousand, two hundred thousand, three hundred thousand dollar stratosphere and multiply that times 7. Are we hurting the banker or helping the banker, when we reinstate that loan? Of course, the answer is we’re helping the banker.
Now if you’ll notice that last little piece of the sentence it says, “Lender may require payment in full.” Mike they didn’t say we will or we shall, it’s says we may. That means mother may I. It means you may do it and then again you may not and most of the banks today, with the number of defaults they have on their books, would be idiots to call a performing loan due. So what we want to do is get in a relationship with the bank, pay the payments on time, not be the red flag that all the other defaulted mortgages are, and move on down life’s road after a while and we get the insurance changed over and we pay our property taxes, and we pay our payments. The bank is just going to be snug as a bug in a rug, and so you’ve got to follow the steps that I was mentioning to Sammy earlier, you’ve got to follow those steps in Volume 4 and you’re going to be in fine shape.
Now Tim Hogan says, “Dear Lou, My question is that I have taken a property subject to just the way you recommend to do. I have wasted no time. I put the property back on the market with the rent-to-own program. I have had more cash buyers for the property than tenant buyers, so I have decided to sell.” Well Tim congratulations, that’s good news. “Now since this has happened so quickly, how do I handle selling the property now instead of later with title not being recorded in the trust’s name?” Well I think what you are saying here Tim is you have yet to record the deed and now you are wondering what to do. He goes on to say, “Do I do an assignment of Purchase of Sale and Agreement right putting in the amount of consideration, or do I do an addendum to the Purchase and Sells Agreement? The only thing that I am concerned with is I don’t want the seller or the buyer to see the amount of money I am going to receive from this deal. Please tell how you would handle this. Thank you for your help. The MP3 downloads are the greatest.” I’m going to come back to that comment in just a minute. All right let’s go back to “How do we handle this situation?”
Well Tim, this is a very interesting question and everyone on the call is going to really benefit from my answer on this one, or answers. First of all you’re in a bit of a tight place here. About the only way you can get what you want, which is privacy, and not have the seller or the buyer know how much you’re making on this deal, is that you’re going to have to control the closing. Now some of you who have taken my advance training know that I talk about controlling the closing being a key factor in being successful in your real estate transactions. That means that you have a team member, who is a title company or an attorney, who closes all of your transactions. Both when you buy and when you sell. This person has been enrolled in working for you, not against you. So, this person has a role in making sure that your transaction goes off without a hitch. One of the things that that kind of team member can do is they can allow a closing to occur, which is called a simultaneous close, and a simultaneous close allows us to have a buyer in one room and a seller in another room. The seller signs their documents; the buyer signs their documents. The attorney cuts a check and they cut a check to the appropriate parties, whomever they are, and they all leave the building not even knowing that the other person was in the other room. That and then of course you get cut a check too and neither of the parties see the other. That is one scenario. It is difficult to do if you are just getting started in the business, because many attorneys really don’t like to do simultaneous closes unless they know you, unless they have a relationship with you. So, Tim that is our first order of business is to create a relationship like that and then start putting the deal together.
Now the other alternative is to do exactly what you mentioned. Do an assignment of purchase and sell agreement rights and your amount of consideration would be right on that assignment. Yes, the buyer is going to know how much you made. So I always preface the conversation this way. I say, “Well let me ask you something Mr. Buyer, you’re satisfied with what I’m offering you the property for, you’re satisfied that it is a good deal? Is that correct?” Yes. “Well now what if I were buying this property for say $40,000, would you have a problem with that? Would you have a problem with the fact that I’m making a sizable profit on the sale of the property to you? Or are you just going to be satisfied with the price that you are paying, being a good deal in the market place compared to all others?” So, I get them to commit to me that hey they don’t have a problem with that. Now frankly Tim, some people do. So, we have to be conscious of this and it may be that that’s just not going to fly in your particular situation. If that’s the case then we’re going to have to literally close the transaction with the seller, turn around, and close the transaction with the buyer.
Now there is another alternative and it’s called Table Funding. Many private moneylenders will do what’s called Table Funding. That means if you couldn’t get the simultaneous close with your attorney, and you didn’t feel comfortable doing the assignment where the seller and the buyer knew how much you were going to make, the next alternative is bring the money to the closing. You can go to a private moneylender and cut a deal. So listen, I’m going to need your money for about an hour. I want you to bring it over to XYZ Title Company, and you can just sit there while the transaction is taking place. You bring the certified check, the closing attorney is going to accept your certified check, they’re going to close, because they’ve got good funds on hand, and they’re going to give deeds and titles and everything that they should, sew up all the paperwork, and then you’re going to get paid off from my sale of the property. Which is going to happen like an hour later, and so my sale of the property then will generate all of your monies coming back to you as a pay off and it will be shown right on the HUD 1 closing statement. Now this pay off will also include a tidy little sum from your troubles. Will that work for you? And Tim that’s the only sad thing to this is it is going to cost you some money and in some cases serious money, especially when you’re dealing with private moneylenders, private money pros, I should say. Now, if you could go to your grandmother and describe this same thing to her, or you know what I mean, somebody you know, somebody in the family, a relative or somebody that you said merely that you’re going to make a good profit on a deal, but it’s got to be done a certain way, and hey they can sit in the lobby while the whole transaction is going down, and they can be assured that they’re going to walk right back out with their money…How much would they want for that? Then let them name a number and if you’re satisfied with the number, you just got the funds to close that.
Now I’m taking some time here training you guys tonight, because I want you to see that there’s more than one way to skin a cat. There are many different solutions that we have. When you’ve got situations like this don’t just walk away scratching your head, that’s the reason for this coaching scenario, and remember that we’ve got the direct so that you can get a direct answer right away too.
Now Tim goes on to say, “The MP3 downloads are the greatest.” Thank you for that remark Tim, and for everyone on the call we have, if you’re not aware of this, we have now uploaded the calls with MP3 format. So that means you’re going to receive an e-mail tomorrow and in that e-mail it’s going to say you can replay the call, and you can not only replay the call, but you can actually download the call to your MP3 and listen to it as many times as you want to. Hey that doesn’t mean you can share them with everybody else. Let them get their own. As Jesus would say, “Let them get their own box”. Tell them how to get connected with us and we’ll train them too, to be successful real estate investors.
Okay, and then Tim goes on to say, “I will see you Thursday at MAS. Tim Hogan of North Florida.” MAS is the Maximum Asset Shield. Tim you’re going to hear a whole lot of interesting things at Maximum Asset Shield where we’re going to talk about trusts, land trusts, personal property trusts, and living trusts. My gosh if there is anybody on this call that is not registered for MAS give us a call at the office tomorrow. 1-800-578-8580, even if you can’t come to this one, get yourself registered for the next one because we already have a very large waiting list for the next one as well. So get yourself registered for that because its just a-can’t-miss training on all the aspects of trusts, and we even do the trusts in class. We do a land trust. We do personal property trust, and a living trust.
Oh by the way Tim be sure and bring a deed with you so we can put together a model trust while you’re in class, and we get all your questions answered.
There is no substitute for live training folks. My advance trainings are like no others on the planet. No one else has this kind of training at any price, so you need to get yourself there.
All right the next question is from Nathan Grass, one of our advanced coaching students. He says, “Hi Lou, Here is a scenario I want to run by you. I purchased home 1 from John Smith, subject to the existing financing. John Smith applies for a new loan for home 2. Question: Are the payments that I am making to the lender for home 1 considered income to John Smith as far as his qualifying for the loan for home 2?”
All right, let me just re-explain what Nathan just said. He’s saying, “Are the payments that Nathan is making on John’s loan considered income to John?” As far as his qualifying for the new loan on the new home he is getting, the answer is no.
Nathan here is the deal. Once John sold that property he deeded the property away, so even though there is still an existing loan in his name, and on his credit report, that is not income to him, nor is the write-offs for the interest deduction, income or benefit to him on his taxes. Every payment that you make is a credit to you. That is your benefit not his, and the IRS has ruled on this stating that anyone who pays on behalf of another but you know has all the use rights and benefits of the property, then is entitled to the interest deduction and the other party is not, even though the loan is in their name. That’s not exactly the question you asked, but I wanted to cover that one as well. So no, there is not income that is accredited to John Smith your seller, and no, he is also not entitled to the interest deduction on the payments that you have made.
Okay good stuff guys. Good stuff. I’m very impressed with your questions tonight.
Okay we’ve got a lease option question here from Doug _____(45:29) and Doug says, “I also understand that lease options are almost impossible to do in Texas, because of their law limiting lease options. Is this true? Doug in Southern California”.
Well Doug not exactly. The law that they did pass in Texas, which is only one of 50 states, in other words 49 other states do not have this law, only Texas passed this idiotic law that basically says, “They don’t like long term lease options there”. They did not put a restriction on short-term lease options. So, Doug you can do a six-month lease option with no restrictions. Now with that said you could always give a six-month lease option and then later extend it if the person did not purchase the property for some reason, such as they couldn’t qualify for the loan yet. All right, we’ve got a solution Mr. Jones we can just rewrite your option and give you an additional six months. All right, that’s solution number 1, Doug.
I’ve got another solution for you. I read the law, it’s interesting, and it says that the lease must be done contemporaneously or at the same time with the option. Isn’t that interesting? In other words, there is no law for or against rather an option being done at another time. In other words, like maybe a month later for example. So you could start off doing a lease and then a month later give your client the option to buy, and it might be an interesting little conversation to have with a client, and say listen our company is prepared to give you an option to buy. We’re going to charge you a deposit of $3000, now a month from now. If you make your payment on time, we’re going to take that $3000 and we’re going to credit it as an option fee, and we’re going to give you the option to buy this property because you paid on time and you did what you said you were going to do. Otherwise your $3000 remains as a security deposit, refundable when you move out. Now wouldn’t you rather have an option to buy this property? Yes. Good then that’s what we’re going to do a month from now when you make your regular rental payment. That might be a solution Doug, because they don’t mention any scenario like that in the law.
Good question and I bet a lot of Texans on this call liked that answer as well.
Okay, John K. asks, “How are we to get 3 percent down and still get a leasee in place with our owner financing terms, when over 85 percent are asking 0 down owner financing in new homes in our hot San Antonio, Texas market place? This is in the newspapers. Wouldn’t this affect us here?”
Well John, it absolutely would. I mean if they’re asking 0 down on offering owner financing on new homes, well that’s absolutely going to affect you. However, John let me quickly tell you that the customer that would qualify for the 0 down is not our kind of person. It’s not our kind of customer. You see what they’re doing here John, is they’re trying to ferret out people with good credit. What they’re trying to do is show someone with good credit that they can actually purchase the home. So, they’re using a loss leader or a come on, to get people to respond, and say its owner financing. Okay, well you are going to have to apply Mr. Jones. So then, they do fill out a questionnaire and an application and voila, they discover that they’ve got a 680 credit score and they can actually qualify for a loan. Mr. Jones, I’ve got very good news for you, you don’t need our owner financing, you can qualify for financing at the bank, and they are offering you a lower interest rate than we’re offering with our owner financing. Now isn’t that a good thing?
Well John, the type of customer we’re looking for is one that has credit issues, that can’t qualify for anything. You see the factor that they’ve put in here is new homes…they say new homes. All right do you really honestly John think they’re going to take somebody with bad credit to move into their brand new home, give them owner financing with 0 down? I don’t think that’s going to happen, but don’t take my word for it. Why don’t you call them up and find out? I really doubt that that’s the case, that they’re giving people with bad credit a 0 down entry to move into a brand new home.
Okay now we’ve got a tenant question. Jason Macintosh and Christina Jones asked the question, “Hi Lou, We have just had our first opportunity to file a Consent Judgment and have run into a few road blocks with the Magistrate Court. We initially filed a Dispossessory Warrant when the tenants didn’t pay on time, then submitted your Consent Judgment with a weekly payment schedule. The tenant missed a payment and we went to file your Affidavit of Default form and were told by the Judge that it was not legal, and that she wasn’t going to issue the Writ of Possession, due to the fact that the tenant had paid some of the money owed. We’re hoping you can give us the information needed to convince the Judge that this is in fact legal.”
Well first of all Jason and Christina, and by the way those of you on the call are going what in the world are they talking about.
In our advanced training called MPI, Massive Passive Income, I talk about very interesting ways to be able to get people out of your property, and one of them is with a form that we have in our Volume 8 Property Management System that we teach at MPI, that helps you to get people out. What happens is as Jason and Christina describe, they filed a dispossessory warrant, and then they filed a consent judgment. Now what I presume here, Jason and Christina even though you didn’t say it was that that consent judgment was actually signed by a Judge, because that is the requirement. It is signed by you and your tenant, and then it’s agreed to by a Judge. So, first of all I would go back to that Judge that signed it. That’s where I would file the affidavit of default. If it’s the one and the same Judge that is telling you “no”, I would say well please explain this to me, you signed an agreement that said you would issue a consent judgment and a writ of possession if they defaulted. So you signed an agreement that said you would do that and now you’re saying you won’t do that. Please explain that to me and we can go from there, and then the judge says, “Well that’s just the way it is”. Now let me tell you something that’s exactly what a Judge can do. They can say, “Well that’s how it is” and then all of a sudden you’re stuck with the Judge’s ruling. So I would offer to, when you go to the Judge, I would offer to show them all of the payments that have been made, and show that there’s been no subsequent payments. If the Judge says, “That’s still no good enough”, then I would say, “Can we please get an emergency hearing?” Let’s have the tenant come in and confirm that everything we’ve said is true, and then at that hearing the Judge can then give you your writ of possession and your judgment at the same time. That’s about the only solution I have when you are dealing with Judge’s, because unfortunately, it is a crapshoot every time you go to court, and sometimes you get Judges that do not have wise reasoning.
All right someone asked, Lisa Reardon asks, “What is your opinion about wholesaling used mobile homes and is there a website for obtaining their resale value? Thank you in advance for all you do for us.”
Well Lisa, I did not look this up but I believe there is a blue book, in fact I know there is, I think it might be Kelly Blue Book, and they have a blue book rating for used vehicles but they’ve also got a separate one for used mobile homes. So, you might find it just by going on the web and looking up Blue Book or Kelly Blue Book or even Google Prices on Used Mobile Homes, and I think you’ll find the answer to that one Lisa.
Okay trusts. Andrea Johnson has a question, “Dear Lou, What is the best trust to start for a financial windfall coming my way? I do not understand where to go first with the check. Sincerely, Andrea.”
Well first of all let me introduce you to my Real Estate Investors Total Package, Andrea. I know where you can put that check. Put it to a good investment to your future. Get yourself set up with every tool, training, technology, and coaching support that you need, that we’ve got. Just all kidding aside though Andrea, I do want you to create a personal property trust and open a trust bank account. What you’ll need to do is use the affidavit of trust and the SS4 number or the SS4 form in your Volume 5 Personal Property Trust. First of all, you’re going to obtain a TIN or taxpayer identification number, for the trust. Next, you’re going to go into the bank with your affidavit of trust in your briefcase. Do not mention the affidavit of trust to the bank. If the bank says, “Well we have to see trust documents in order to open this trust bank account” then you show them your affidavit of trust and that should suffice. If they want to see more, we can talk about how to solve that problem. All right but generally that’s going to be good enough. Now you’re going to set up the XYZ Management Trust, whatever you want to call it, and make yourself the Trustee. Therefore, any checks made out to you or the trust, or any other parties, you’ll be able to deposit to that checking account as the manager for that account, as the Trustee for that account.
I’m going to have a lot more explanation of that at the Trust Training, where we actually go through the scenario of setting up a trust bank account.
Generally speaking, that is the steps in the process for setting up your trust bank account, and you can deposit that into your account as soon as you’ve got that set up. So, that should be clear.
All right, we’ve got an entity question here from Doug _____(58:15), all right, “According to a friend, Texas is now taxing LLCs on gross profits not net profits.”
Well Doug another reason not to have an LLC. That’s exactly what you’ve taught me there. No, I’m not aware of that taxing criterion in Texas. I will do a little bit more research on that one, but I am going to tell you that is one of the reasons that we always take title to all of our properties in trust, so that we can’t be hit by all these stray taxes that the states come up with. In your state, in California, they have a franchise tax, which charges $800 per entity in the state and that’s a terrible thing. So if you’ve got corporations, LLCs, limited partnerships each one of those are taxed at an additional $800 over and above the standard ongoing dues, fees, and tax returns that are required for those entities. Guess what not a trust, not in California, not in Texas, not anywhere. So that’s one of the reasons that we always start with trusts and that’s why I just say that you guys there is just no substitute. You have got to get the training on the trusts. It is absolutely critical to your future.
Well I have a few questions left and we will forward those to the next call because we have to the end of another great session. My goodness we’ve answered a whole pile of questions for you today and if you’ll notice this is exactly how our coaching calls go. It is all meat. What I do is take your questions and I give you the right answers, the straight answers using my 30 years of experience of buying, selling, and holding property. I definitely want to hear from you again. I definitely want to hear about your successes, and I want you guys to call in and get upgraded on your coaching. Call 1-800-578-8580.
Now this, what we’ve just experienced is our Group Q and A, we do this twice a month. We also have Direct Q and A, as I was mentioning earlier, where you can actually fax or e-mail your questions in, anytime during the month and get a direct individual answer, in addition to being able to also take advantage of the group coaching, because that’s included in your Direct level.
The next level is the one-on-one level where I am your mentor and 25 minutes a month we actually get on the phone and talk about you and your business and we accelerate your business. You have homework, you have responsibilities, and you have somebody looking over your shoulder to make sure you’re doing what you’re supposed to do. Also included in that one-on-one is the Direct Q and A throughout the month and the Group Q and A twice a month. So, as you can see I’m layering your education and I’m layering your coaching to be sure that your supported all along the way.
The final layer or level of coaching that we’ve got is the Platinum Master Mind Coaching, where you actually, you and your team actually come to an event here in Atlanta, 3 times a year, for 2 days each and we actually master mind one another’s businesses. Now we have two levels to that: there’s the Apprentice Program and the Pinnacle Program. The Apprentice Program is for those of you who are just getting started…maybe haven’t done anywhere from 0 to a couple of deals then we definitely have a whole different kind of conversation that we need to have versus those of you who have done many, many deals and you want to accelerate your business to the next level…that’s the Pinnacle Level and we have a phenomenal experience with our Pinnacle Program because we’ve been having so much success from all of our members of the Pinnacle Master Mind. So, we will decide which one is right for you based on your experience level and we will plug you in.
The next Master Mind is in February, so if you’re interested in the Master Mind please by all means call our office at 1-800-578-8580 and they can discuss with you any of those levels to upgrade your success in this business.
Well folks we’ve come to an end of another great coaching call and I say to you, “You are doing the street smart thing” and I expect you to go out in the next couple of weeks, make a lot of deals, make a lot of money and may God bless. Talk to you soon. Goodnight.