DQuestion:
There is an empty house in my neighborhood. The tenant who had a life lease died recently. This home would make a great investment property, perhaps a sandwich lease option…maybe even owner financing deal. I would like to contact the owner to discuss various opportunities. In your opinion, is it best to approach the owners as an investor or as an individual who is interested in purchasing lease optioning the home?
Answer:
Initially you do not really have to draw attention to the fact that you are an investor. Initially you can say I am interested in owning a house in that neighborhood. I saw that yours is vacant and was wondering if you would be interested in selling it. That would be a good approach without putting them on guard.
Question:
If as an individual at what point do you disclose that you will not be living in the home yourself.
Answer:
Well I would not worry about it. What does the seller really care whether you are going to occupy the property or not. It should not be of any concern to the seller as long as they are getting rid of the property. Besides property taxes, insurance, the risk of vandalism. Many things are on that owners mind right now and if you come along to buy the property, they would probably love that.
Question:
By the way, the current owners inherited the home and live on the same street as the vacant property. Do you have any helpful do’s and don’ts’ for the new investor?
Answer:
That is a yeah baby, Janice, because this is fantastic. The property is vacant, the owners are accessible, you are not going to have to do a hunt, you can knock on their door, you can show up and say hey I am interested in owning a house in this neighborhood, I saw that one was vacant and I heard that you are the owner of it. Would you be interested in selling? Absolutely unbelievable opportunity. That is a great deal… do not blow it. I am hoping that the house is free and clear because what I would like to see you do is not go into the bank and not qualifying for a loan but actually having the owners carry back financing in the form of owner financing. I would suggest that you use your seller presentation kit, use that to go through the process of showing them exactly how you can buy the property.
At that point, you would be disclosing, of course, that you are an investor and you would be showing them the benefits of selling to you over selling to anyone else. That is of course unless they go ahead and give you a wonderful price, which in case that just solves the whole problem right there. I would suggest that you do your cost to sell worksheet from your seller presentation kit before you go so you will already know what the numbers look like before you go. If in fact they say a number that is around our discounted number from the cost to sell worksheet then you have got exactly what you want. If they do not, however, then you can whip out the seller presentation kit and the cost to sell worksheet and then show them that you first have to calculate what it is going to cost you to sell the home before you can sell it and if they would work with you, you can work through the numbers together. Get out your calculator, you let them fill out the question…the worksheet and the worksheet then guide you through all the questions that you need to get answers to.
For example you are going to put down the real estate commission at 6 or 7 percent, whatever is regular in your area…typical…then you are going to ask them, you are going to tell them of course that when you go to sell the home you are going to have to pay a real estate commission and that has to be calculated in and of course if they go to sell they home they would have to pay one too.
As you go through that whole process, you will be able to use tat tool, the cost to sell worksheet, to show them exactly what price you can offer them. Now that sounds like a great deal Janice and I would definitely be going for the low price and the owner financing on that and go after this tomorrow or maybe this afternoon.
Question:
I have an acquaintance in another state other side of the US that recently lost a 35-year-old son in a tragic accident. I hear this son owned four properties. At this point, I do not know a lot about the properties. Making the following assumptions, one, 80% plus mortgage on each, two no will, three no wife or children, four all single family homes, five he was the only one on the deed. What is the best way to approach these investments? Additionally what is the legal process, i.e. with the banks and mortgage holders when something like this happens?
Answer:
Let me give you a few tips here. First of all, in order for you to purchase the property, the property will have to go through the probate process. Typically a seller, whomever this person is, the lady whose son who died in the accident, it is likely that she is going to be the heir if he was not married and did not have any other children then it is likely it is going to go up line to the mother. That is fine. The only challenge is that she probably has not been through the probate process before and if she has she probably did not know what was going on anyway, which is actually good for us. What I would recommend is to go and put it under contract with her.
Between you and I let me explain that if you put it under contract you really do not have a contract because the person who signs it, the mother, really does not have the right to sign it until the judge gives her the authority to dispose of the properties. But that does not mean anything. I would go ahead and get it under contract anyway, and then start working with the mother on the probate process. You might say well I do not know anything about the probate process. So, what I would say is call the local probate court, talk with someone on the end of the phone and explain that you have just had a loss in the family, what should you do?
Most of them have a web site, they have brochures, they have guidance to guide you though the whole process. All you do is read it and tell her what to do and if you have any questions you just call back the probate court and ask those question. They always say well we are not attorneys, we are not allowed to answers these questions, say I know you are not supposed to answer these questions but I am just asking you a question and I will not hold it against you if you got it wrong. I am just asking you right now what typically happens in cases like this.
Finally, if there are any complications, you can call and speak to a probate attorney or hire a probate attorney to take you through the process. I just want you to be careful not to loose any money on this because basically I do not like to see or encourage my licensees to spend any money on a property until they actually have control of it. In that case, if you had to hire an attorney that might cost you money. I would expect her to pay for that in any case if an attorney had to get involved. You can do your own probate the challenge of course is these properties are in another state. So, probate will have to be filed in the state in which the property is located and the county in which the property is located typically. That is going to require…if he owns properties in multiple states then there would have to be multiple probates done.
You got the point here Janice, is that to put it under contract, number one, walk the seller through the process, number two, and then close on it hopefully with owner financing because, yes when the person dies the heir can carry back owner financing. Also, your other question was what happens in the legal process with the banks and the mortgage holders. Well typically, the heir, whomever is going to be taking care of the estate, is going to have to continue to make payments. Now the banks will be lenient
If they get behind on payments but not forever especially when you call the bank and tell them oh my gosh I am the financial advisor working with Ms. Jones, she has just had a recent tragic loss, we need some time to go through the probate process, then the bank will be lenient on that.
What also can happen is that she just continues to make the mortgage payments as if nothing ever happened. The bank will be none the wiser that the person is dead, does not matter anyway as long as you do the paperwork the way I teach you to do it. The deed will have to come through the powers granted by the probate court because obviously he is not there to sign the deed and the deed was in his name. So, that is going to be the only way that the title can really be transferred but another benefit you could bring to the table, Janice, is you could offer to take over the management right away and using those collected rents you could pay that mortgage payment until this paperwork is completed. That also gives you further control over the property because that is what is really needed at this time.
Question:
Can you also assume a mortgage by using yourself directed IRA instead of a land trust? What are the advantages and disadvantages?
Answer:
Well ____(13.19) I have got some good news for you. Your land trust can still purchase the property and then you have your self directed IRA as the beneficiary of that trust. You have got the best of both worlds in this case because it is really the trust and the trustee that owns the property; it is the IRA that is the beneficiary of the property. So, yes the IRA is buying property, yes it is buying property with existing debt on there. Now, you hear some folks say well and IRA cannot own real estate. That is absolutely untrue. An IRA can own real estate.
Number two, when the IRA purchases it can take over debt. It cannot originate debt but it can take over debt or take subject to existing financing on the property and that is a wonderful thing in this example. So, that allows you to build your IRA, of course the IRA also gets all the cash flow and all the benefits of it. It may be better for you to take this over unless you just do not need any other income yourself because actually taking over an existing property subject to gives you the tax benefits against your personal income. Also, all of the mortgage expense is a write off as well as the property taxes and the insurance is all a write off against your income.
So that along with componentized depreciations like I teach allows you to have significant additional depreciation and that additional depreciation can be used against your ordinary income whatever that might be. You have a couple of options, keep this as your own or have the IRA purchase it with its funds and have it as the beneficiary of the trust.
Question:
Structuring a deal, it is listed at a hundred and nine, nine and vacant for 3 years, will accept $90,000 needs $60,000 to clear debt. Now, house is free and clear needs $10,000 in repairs.
Answer:
Well Irene, I would definitely say that if you go to the seller, you sit down with the 1099 or whatever your compwiz comes out to and you want to compwiz this product, this house, and come up with the exact value. It has been vacant for 3 years so obviously it does need work. You say it needs $10,000 in repairs. You want to make sure that utilities are on. If they are not on if could cost you big time because the property has been vacant that long may need upgrades in the plumbing, the electrical and the gas lines in order for the various utility companies to turn on the utilities. So, you want to be very cautious here, you want to use my standard real estate purchase and sale agreement that requires the seller to have those utilities turned on before you inspect the property.
Now, remember that I want you to get it under contract first, then in the contract it will require them to get the utilities on so do not blow the deal before you even have deal. Once you have that opportunity you come up with the compwiz final value, you work backwards using your cost to sell worksheet and finally come up with the bottom line number. It says here that you will accept $90,000 or they will accept $90,000, let us see how close that comes to what the compwiz comes up with, excuse me, the cost to sell worksheet, rather, comes up with. It needs $60,000 to clear debt now. Well since you tell me that the house is free and clear really this is other debt that the seller has. That is fine. Let us find out what the monthly payments are on that debt and instead why do we not offer to cover the monthly payment rather then giving the $60,000 cash/
I would explain it this way to the seller, I would say well you know the property needs significant repairs before I can really do anything with it so what I would suggest is let me go ahead and make payments to you for your debt on a monthly basis and then I will continue to make those payments until we get the house sold. Will that work for you? Yes, good. Boom you just got a owner finance deal rather then a cash deal and that is what I would really like to see you do, Irene, make it into an owner finance. There is obviously other ways that you could structure that but I think I want you to really focus on that one because that has got a lot of opportunity.
Question:
I have never done a subject two. What do I saw to the mortgage company and what forms do I have the seller sign? I have a 42-unit apartment building that is going to foreclosure December 13th and 20 duplexes. All unites have tenants so I was going to try to do a subject two.
Answer:
Well Vicky, I have got some bad news. Apartment buildings are typically under a commercial mortgage not a residential mortgage. The ____(21.18) federal depository initiations act, which instituted the due-on-sale clause, has an exception to it. When you place your property in trust for a state planning purposes then the lender is prohibited from calling a loan due.
But unfortunately, Vicky, that just applies to up to 4 units, after 4 units it is a commercial transaction and those protections do not exist therefore in this case the lender can call the loan due. That does not mean that they will not work with you and what is a good idea is to chat with the lender, tell them, I know about your experience, your and marks experience is tremendous in the real estate business so tell them that you know exactly what you are doing, you have background, you have experience, you have a track record and what you would like to do is take over the existing financing. Then it is all on the table, it is up to the lender to basically vet you and make sure you are a good potential customer for them and hey lenders want to lend.
I have had situations where I have taken over an apartment building and yes I mean the lenders want a little spiffier in that so I had to pay them one or two points to allow me take over but absolutely no personal recourse, absolutely no personal guarantee, it was all negotiated and the only thing they wanted was a point on transaction and two points on another transaction.
One that is coming to mind right now was a 15-unit apartment building and the lender took 2 points so I was able to take over the existing $600,000 financing for two points. I did not have to go to the bank, I did not have to qualify for a loan, I did not have to provide and appraisal, I did not have to do anything. All I had to do at the closing was give them $12,000. Was that worth it? You better believe it was worth it because I would have had many more costs then that to go through the lengthy and arterious mortgage, financing process, which I did not have to do. All I had to do was show them my track record and tell them what I was going to do with the building.
I had a business plan when I went to the bank and they understood exactly what I was planning to do. I recommend you do exactly the same thing, besides these properties are in foreclosure. The lender let me explain something Vicky; they do not want to own property. Vicky I would put all that together, I would go see that banker and I would not…initially I would get an appointment over the phone but I would go in and talk with them.
I would say I know you have got this 42 unit apartment building plus the 20 duplexes being foreclosed, I am working with the owner right now, they are willing to sign these over, all I need is your approval and we can reinstate this loan. What I am asking you to do Mr. _____(26.11) put it on the back end of the loan and with my management skills; we will take this over immediately. This is a phenomenal deal Vicky and if you will do it the way I teach you do it you cannot help but win.
Question:
When first buying a property do you fill out the offers etc. in your own name or the land trust name?
Answer:
This is the purchase and sale agreement. It is a standard purchase and sale agreement; it has blank comma as buyer and blank comma as seller. So, who is the buyer? It is you, as agent so whenever you use your name, when you use my purchase and sale agreement it allows for assignment so you as the buyer can assign this contract. Now, who are you going to assign it to? Well anybody that might buy it wholesale but also if you are going to keep the property you can assign this contract to your trust and the trust and the trustee closes on the transaction.
So that is why I always put you comma as agent because really we do not want to bother with our trustee having to be there, you can just do that yourself. When I say be there, I mean when you are signing the purchase and sale agreement. They do have to be there obviously for the closing. They have to be able to sign all the documentation for closing.
Question:
When you get an authorization to release information singed can you use an
LOC’s name? I have been using my name alone and there are times when I am working and cannot make calls. My wife is a stay at home mom and can make calls for us while I am at work. What do you recommend?
Answer:
Well I say you would get two authorization to release informations, one blank and one filled in. The filled in one would have your name or her name as the authorized people to talk with the lender. The blank on can just be on hand in case you need to have another entity come in later.
In other words if you blow it and the deal is not going the way you want it to you can always break it off and somebody else can call using the new authorization to release information. That was the blank one this sometimes allows you to have a second chance at a property.
Question:
Who can I call in my city or where can I get to see what the penalty is for bandit signs?
Answer:
Well you would call code enforcement. Sometimes the code enforcement is part of the police department in some cities and other cities it is a municipal office and you would just merely call city hall and talk with code enforcement and say hey is there a fee for posting a sign and let it go from there.
Question:
I met up with an old friend who is an executor for the Bank of America trust department in my city. He says he comes across estates with real property all the time. What is the best way for me to foster this relationship? Will they be offended and not willing to work with me if I submit offers 40 to 50 cents on the dollar?
Answer:
Well great news. First of all, you got a relationship and what did I just say a few minutes ago to Vicky? If you have a relationship, you can do what is called relationship based banking which is a wonderful thing. They will bend over backwards to help a good customer. So I would definitely, definitely take him to lunch. I would definitely chat with him about your referral program and how you pay referral fees and if he says oh no that would be conflict of interest or something like that I would say well if a box of Omaha steaks shows up on your door just know it came from me and I need your home address. But definitely get with him on any properties that they are currently working and explain to him about the cost to sell worksheet.
Say well, this is exactly how I evaluate the numbers I come up with on my offer. So I do not want you to be offended when you get a low-ball offer because all I am doing is it is not low ball at all. I am taking into account all of the expenses I will be faced with when I go to sell the property for retail on the open market. By the way, they are going to be the exact same expense that you will be faced with and we all know that properties sell for a certain price minus all of the costs. Well those will be taken into account when I make my offer. Will that work for you? They say yes and you are off to the races.
Question:
What is the best way to influence a seller?
Answer:
Well I have mentioned it on this very call John. That cost to sell worksheet is extremely influential but I would not stop there. I would also use your seller credibility kit. The quick kit, when you sit down with a seller and go over who you are, what you do, how you operate, how you can help, how you differentiate yourself from all the other investors out there in the world, how you can buy their house today which differentiates you from the traditional buyer and how you can work together. Even credibility using testimonials of folks that are built into our credibility kit.
Where do you get this folks? If you are on this call, you likely have my whole enchilada junior and on your forms disk there is a seller credibility kit. It is called the seller presentation credibility kit.
Question:
What deals am I supposed to avoid?
Answer:
I would say that anywhere there is equity when the equity is not clear, in other words you do not know what the value is on that property, you are not clear about how much true profit there is on that deal that would be a deal to be afraid of and to avoid if you cannot clarify.
Another type of deal I would careful of is any deal that does not cash flow. If there is not a positive cash flow on the property, no I am not interested depending on where you are in your investing career. Now if you can afford to carry properties and you can buy them with great equity, and the only problem is that they do not have great cash flow well that is okay because it is an investment for you. If you are depending on that cash flow to pay your bills and buy groceries, well, I want you to be very careful and not buy that property at this stage of your career. That does not mean that you cannot pass it on to someone else and make a referral fee. You absolutely can and in fact, put it under contract using my standard purchase and sale agreement and then use my assignment of purchase and sale agreement rights, which are both located in your ___(36.35) volume one guidebook. That would be a great way to handle that little situation you got.
A third type of deal that I would be afraid of is any deal that is out of your realm. So in other words if you have never developed subdivisions, you do not have any business looking at developing in subdivision. If you have never done a hotel you do not having any business looking at a hotel deal. Those are the ones you need to pass on until, again, you have built your foundation of income and your foundation of wealth. Then you can look at any kind of property in any location because you can afford the weight to the profits.
Question:
Where can I go to find buyers?
Answer:
Well, think about it. Where do buyers reside? How about apartment complexes. The way I teach you to build your real estate business is to buy in your backyard as close to where you live as possible in a price range that is the medium price range and I like you to be 5 to 10 minutes from where you live, period. There is so much real estate right in your own backyard, why would you not go ahead and develop a marketing campaign, which I have got all that for you. It is built into our mailwiz program where they automatically obtain lists and mail for you. That is where you are buying so should not you find your buyers in the same place. Where are you going to find those? At apartment complexes.
What we do is send a periodic post card to the occupants in the apartment buildings and have them go to our web site. They fill out our questionnaire, they tell us exactly how much money they have to work with, when they are planning to move, the number of bedrooms and bathrooms they are looking for, the location. All those things are available on our web sites.
Once you market to that list, that apartment list, again mailwiz can do that for you then you drive traffic to your automated side of your business, the technology side let technology side take over by having the customer fill out the questionnaire there telling you exactly what they are looking for. As soon as you find out that you have got customers, you can go buy houses that match that customer profile. What they tell you they want, okay you go find some houses just like that and bring it back to those customers. You can even put them under contract subject to the sale of the property to a third party and then you submit our mass e-mail or bulk e-mail from the backside of your web sites, you send your whole list, the list of properties that you have to work with right now and guess what? You are going to find a buyer.
Also, your Street Smart web site generates additional traffic through the Internet. We use things called key words that are built into your web sites and these key words are found by all the spiders on the web site, on the internet that are looking for certain words, certain content. Once they catalog your site, which we actually do for you.
We submit your web sites to 12 different search engines and when they actually catalog your site, you begin getting traffic over the Internet from people that are searching under the key words that we help obtain for your web sites. So, you really got a powerful tool to get yourself totally taken care of. It is a great avenue for you.
Question:
What are the web sites for foreclosures?
Answer:
Well there are web sites out there for foreclosures there is forclosures.com there is forclosuresdaily.com but these web sites have been designed mainly as subscription web sites.
There is another way you can do this, Susan, is just to obtain a list from melissadata.com and you them that you are looking for the 30, 60, 90 day list and depending on where you live and unfortunately your e-mail does not tell me where you live but if you just look at the foreclosure requirements for your state, if there is a default list that is obtainable through the sources that we have then you can go ahead and obtain that 30,60,90 list and that means 30 days, 60 days, and 90 days late by the way, once you have that list you can market to it. Mailwiz will even help you obtain that list so you do not have to go through the pain and suffering.
Question:
Where do you go to find foreclosed properties?
Answer:
I think that is similar to Susan’s question. One other thing I will mention. This one does not say foreclosure properties it says foreclosed properties. That means REO’s. Those are bank owned properties. No the bank will not put you on their list; they do not even have a list. What they do instantly as soon as a property becomes available is they list it with realtors. So what do you do? You find the realtors that are the active listers for banks. You can just merely pick up the phone, get the yellow pages and call every real estate agency in town and ask them do you have an agent there that specializes in listings of foreclosed properties from banks, period. Whoever answers the phone will probably try to talk you into doing business with them, say no I am only interested in talking with the realtor that routinely does work with banks and lists properties through banks. That will give you some great resources.
The other is our company called ASG, AssetSolutionGroup.com. What Asset Solution Group does is we go to banks and buys like 500 house lots at a time. So rather then buying 1 or 2 we are buying 500 at a time and then we are redistributing them to our Street Smart network and our buyers.
So, if you want to get on that list all you have to do is go there and fill out the investor profile. The other thing that we do need from you is a proof funds letter, proof of funds letter. It does not have to be your money, it could be anybody’s money, the proof of funds will come from a bank or institution whomever has those funds writing a letter that Jim Jones, whoever that is that has the money, has X dollars available in Y accounts or X amount of credit available and that allows you to be able to access any of our packages that we have come down the pipe. Instead of you buying one or two properties you can by 5, 10 properties at a time and go ahead and I encourage you to build a network as well.
Your own local network of folks that you can redistribute these properties to and it allows you to mark them up. If I sell them to you at say 60 cents on the dollar you could sell them at 70, 80, 90 cents on the dollar depending on the condition and the location of the property.
Question:
What is the first step to take on Monday? What step should you take on Monday?
Answer:
Well I would say if you do not have a plan, create one. Create a business plan. If you have not yet been to millionaire jump-start that is exactly what we do there. Starting from the beginning we create exactly the number of properties you are going to purchase, how you are going to find those properties, where you are going to find those properties, what type of properties, what price range of properties, what location, everything is determined then you go about marketing.
Well that is going to take a minute. In fact, it is going to take several months to get your whole marketing up and running. So what would be another way, just pick up the newspaper and start making outbound calls to people that have a listing in the paper.
Question:
Is there a resource to find rental rates in other cites? Real estate prices are very easy to find.
Answer:
That is absolutely right Joe but what you can do is go to rent-o-meter.com and what they do is allow you to put in a particular location and address and they will give you back some data on listings and pricing in that area. Also, another source is to go to the MLS. If you have a realtor, if you are not a realtor yourself, if you have a realtor friend, they can go pull some rent comps typically from most MLS locations.
