Group Q & A

Lou Brown:

Good day, everybody.  Welcome back to another Street Smart Q & A.  I’ve had an interesting couple of weeks.  I hope you have too, and I hope your business is growing, expanding, and that there’s lots of things that are happening for you.  I want to relate to you, of course, during and in between these calls.  I also have my individual coaching calls with many of you, and I’m hearing some things that I want to make sure everyone is on the same page about.

First of all:  fear, fear of the unknown, fear of this market, fear of what the future is.  Friends, I’ve been around too long.  So, I guess, maybe, I have no fear.  But, I’ve definitely seen markets that I also was in the same exact position you are right now, where I’ve seen scary markets; and it seemed like nothing was selling; and what is the bottom, and where is the bottom; and what’s us all about, and where are my risks?  I just want to give you some comfort food here, to look at things a little bit differently.  We’ve always seen the real estate market come back.  We’ve always seen the values stabilize and come back.

Think of it this way; it’s like a pendulum, and a pendulum swings too far one way, and then it swings too far the other way.  But, as it equalizes and equilibrium occurs, it stops swinging quite as far in one direction and not quite as far in the other direction until it finally finds the middle.  Then, it starts to swing again.  So, right now we’re in a heavy swing to the left.  What that means is that prices are artificially low right now; these are not legitimate prices; just like prices were artificially high in the last market.  When the prices exceeded people’s ability to pay or enough people’s ability to pay, all of a sudden the market caught up, and people, all of a sudden, stopped doing what they were doing.  At this market, what’s happening is the banks are dumping properties; it is driving prices down.  They need to get them off their books.  They’ve had them too long, and they have a backlog of folks who owe them right now, and they need to get rid of these properties as quickly as they can.

So, that’s forcing the prices artificially low.  Now, if you think about it, all you really have to do is evaluate.  Not, what are things going for in the neighborhood, and what are other properties selling for, and is this the right price.  You need to look at it in exactly the reverse.  We need to look at it from an income standpoint, not a sales comps standpoint.  Not to say that you don’t look at the sales comps; I absolutely want you to do that and know exactly what’s going on in the market, particularly, how many other properties are on the market and what prices they are on the market for.  But, more importantly, what we want to look at is how much are they selling these properties for right now, and what can I get for rent right now.

Let me give you an example.  We had a contract accepted the other day for $27,500.  It’s a six bedroom, three-bath home.  Yes, part of those bedrooms are in the basement and all that good stuff.  But, the point is that it is a lot of house for the money.  Not only that, it’s a low price for just about anybody, any house, as it goes.  But, this particular house, it’s a low price.  Now, let’s think about that a little bit more.  Rent: what can I get for rent for a six bedroom, three-bath house?  Probably, easily, $1,000 per month, but if we want to move it quickly, what should we do?  The answer is lower the rent, get a customer quickly.  So, let’s say it’s $900.00.  Now, give away one-month rental income for taxes and one month for insurance or a combination of the two, and that leaves you with ten months worth of income you can use for expenses and debt service.  So, then we allow for, let’s say, $900.00 times ten months is $9,000.  Three nine’s is 27; so, in a little over three years, this house is free and clear.  Just take a look at this: $27,000, $27,500 plus my realtor is…I say realtor, but he’s really someone who goes on the MLS, finds leads, goes out and looks at them, evaluates them, makes the offers for me, and then shakes the tree, so to speak, to find the ones that are actually going to fall out and work for us.  And so, he gets paid $2,500 as a finder’s fee on everyone of these that actually closes.  I pay him absolutely nothing to go out and look at the properties, to evaluate them.  I pay for none of his gas.  If he doesn’t produce, he gets nothing.  So, his motivation is to get properties that close, which means they have to meet my criteria, which means he has to look hard and be clear with his numbers; or, otherwise, he knows there won’t be any more after that.

So, his big motivation is to get the deal done, get it closed, and get his check.  So, now that puts me up to $30,000.  Let’s say that I had to spend about $5,000 in repairs.  Then, I’ve got a property now with $35,000 cash that is worth well over $100,000 in the new market.  Or, when I say the new market, I mean the upcoming market that you have to be here right now.  Would you say that is a good deal?  Wouldn’t you say that is a good return on investment since we actually got to go through and find properties that fit this criteria?  So, the idea is to find properties at very low prices in neighborhoods you can deal with that do have renters, and even rent to own customers, that someday we can finance to own that property.  And then you’ve got a fantastic opportunity that you’ve purchased, way below market, way below standards, and knowing that within a couple of years prices are going to firm up and go way up because they are artificially low right now.  That’s what I want you to keep in mind as you look at today’s market, and we deal with the fear monster that is in many of your minds right now.  Okay, onward and upward.

Let’s take a look at some questions here.

Q: have a property management question from Thomas Russell whose been a Street Smart client for many, many years, and Thomas says, “Lou, I have a default consent judgment where the court clerk said I can only receive the judgment for what is written on the consent agreement and not, also, the accumulated rent owed since the establishment of the consent agreement up until the time of the default on the consent judgment liked I’d get one if I’d gone to court.”  Is the clerk correct, or should I tell her to add the unpaid rent and fees since the consent judgment?

A: Well, Thomas, the answer to that really depends on how you wrote the consent in the first place.  The best way to write a consent is to include the upcoming rent.  So, what I do when I am coming up with exactly what we are going to have the tenant pay is we look forward at their payment plan.  We look at the calendar and their income.  We actually get out a calendar and look at all their paydays that they have coming up, the husband and wife, let’s say, and how much take home pay they are going to have out of each one of those checks and put it right on the calendar.  And we figure out exactly how much of that they’re going to give us, okay.

Well, there’s going to be some time involved in getting that done; so, we also add in the upcoming rent as well to that consent.  The other thing that some people have aggressive and also added is the default of their rental agreement amount.  So, your rental agreement also requires one month’s termination fee and two months for the termination which can be forgiven when they reinstate.  So, some people have been successful in getting a judge to actually sign off on a judgment that includes the default liquidated damages that’s included in your Street Smart standard rental agreement.

So, you may want to consider that as well, Thomas, and just make sure that in your consent judgment you are also asking for the future rents that are to be part of the payment plan.  Now, to fix the situation that you have right now, I would say that you have a consent judgment, but that does not mean that the rental agreement did not stay in affect.  So, what I would explain to the clerk of court is the ongoing rent that was required under the rental agreement is still dues, and that has accrued since the consent judgment.  So, naturally, if day have passed since the consent, that is new rent that is due, and I think it can be argued because the rental agreement, of course, did not close upon the consent judgment.  The rental agreement actually remained open, I take it, and I assume that these tenants remained in the property, as is typical, under consent.

So, that’s my suggestion on this one, Thomas.

Q: You also have a question: “I have a tenant that we verbally agreed to let them handle the repairs in exchange for adjustment rent.  Yes.  I normally use the work for equity, but this is a little more complicated.  The tenant said that after they had the septic tank pumped, they discovered a water leakage in the backyard associated with the septic tank, and they cannot afford to get it fixed, altering our agreement.  The tenant knows I have been too fair with helping them stay in my property for years, but you know, in a pinch, they could turn on you.  Could they force me, under Georgia law, to repair this plumbing problem?  Keep in mind that I’m at the option of filing a writ on them any day.”

A: First of all, let’s talk about the fact that you have made a change in the rental agreement.  Any time that you accept rent that is outside of the rental agreement, a rental amount that is outside the rental agreement, a payment plan, or an adjustment to the rental agreement, you’ve essentially created in law what is called a waiver.  You waived the old agreement in favor of this new agreement.

So, you have to be very careful how you manage this situation.  You’ve actually adjusted the rent down, and you’ve agreed to let them handle the repairs; so, you’ve got a situation here where you’ve got a real issue.  Now, you say that after they had the septic tank pumped, they discovered a water leakage in the backyard.  Well, what is this water leakage?  If there is water leakage in the backyard, it’s probably not from a water pipe; it’s probably from the drain pipe that was associated with the septic tank.  So, let’s find out what that is all about.  It may be that the tank is draining incorrectly.  It may be that the tank is cracked.  Let’s find out what the issue is.  Some septic tank companies will actually come out for just an inspection fee, $60.00 to $100.00, that they will charge to take the lid off, and then find, exactly, what is going on with the tank.  So, I would look at it this way.

You say that you are filing a writ on them any day.  Now, a writ is different than an eviction.  A writ is after you already have the eviction approved by the court, and now you are getting a writ of possession which means that you are already done with the court.  You don’t even have to worry about them bringing an issue to the court if you are at the writ stage.  But, if you are at the eviction stage, then you have the issue of them bringing before the court that you have not made repairs.

The septic tank issue in the backyard, as long as it is not backing up into the house, is not as grave of an issue.  However, we don’t want to leaking bodily fluids all over the backyard either.  So, it’s a good idea for you to go ahead and get this repaired, and again, I would, first, get someone to go out and evaluate what the situation is before you decide what you want done.  We need to find out; is it a cracked top?  Is it merely that the pipe that comes out from the tank has busted?  On some older tanks, they’re actually clay pipes that over time corrode and break.  So, it may just be that the pipe just collapsed, and the water is just going into the backyard there.

So, those could be fixed without having to replace the entire septic tank.  That’s just a repair of a length of pipe.  So, let’s evaluate what it is, but the truth of the matter is if you are evicting them anyway, you are going to have to get it fixed anyway; so, why not just go ahead and get it fixed, and you will be okay.  “Thank you for having the material that has stood the test of time in my business.”

Well, thank you so much for saying that.  This is Thomas Russell.  Thomas has been with us for a long time, and I just appreciate it to hear from good, long term clients like you that have also stood the test of time and remained in the business long enough to be able to receive the fruits of your labor.  I’m so pleased to see that you are doing so well paying down, paying down, paying off those mortgages and having the increases in the value, increases in rents, and everything that we teach.  So, I’m looking forward to seeing you again soon, Thomas.  Okay, Thomas, great questions.

I hope everyone learned from those management questions because it always comes up when you are dealing with tenants, strange little things from time to time.

Q: Now, we have a purchasing property question from Phillipe Victor who says, “Lou, I have a problem with getting correct values of the properties I try to buy.  I do not have a realtor that I can consistently go to for property values.  I use Zillow and HomeGain, but they’re values vary widely.  What do you recommend?”

A: Well, Phillipe, we do have, as part of the Street Smart system, our Comp Wiz, and the Comp Wiz is different data than Zillow or HomeGain use.  The free sites such as Zillow and HomeGain use a very base level of data that’s purchased from data mining companies that actually have people go to the courthouse and register information that’s being recorded at the courthouse.  Then, they upload this data to the data streaming, and then there is an algorithm used to give you a, quote-unquote, “zest of it” or value.  But, these values are very, very unreliable as you discovered.

What I found is CompWiz works better because it is a much higher level of information.  What I mean is that a much higher price is paid for the information; thereby, opening up a lot more data.  At the base level, it only opens up a little bit of data.  At the higher price, it opens up a lot of data, and when you open up a larger data base, you are able to find the answers that you are looking for.

So, I would definitely recommend that you call the office and get involved in Comp Wiz.  It’s $59.95 a month.  You can look up any property in the country.  But, what is great about it is that when you put in your property information, it gives you anywhere from 15 to 20 comps that are right in the area for that property, and it starts off with the one that’s the very closest to your property and then it spreads out from there to approximately a mile.  In some cases, depending on if it is in a rural area, it will go further.

Now, what is good about that too is that you can look for other comps that are within your same sub-division because they give you the sub-division name as part of the short legal description.  So, what I do first is put in my subject property, and then I look through all the comps that they provide, finding the ones that are actually in that sub-division.  Those are the ones that I look at first.  Then, I look at others in the area.  We’ve got another product that we use, also, called our Prop Wiz, and the data that they provide is from a different data source than Comp Wiz.  So, we like to look at both, and the other thing I can get from Prop Wiz is that they actually show me the neighborhood as well.  So, I can look with an aerial view of all the neighborhoods around my property and around this sub-division, and then go ahead and look at how many other properties are in foreclosure and whether the neighboring neighborhoods are going up in value, or they’re going down in value.  It’s got a heat sync map that shows you all the red dots, and that shows you all the ones that are in foreclosure.

Now, what is good about that is if you are looking at a particular property, and you are going to go visit with the seller, you can also pull up all the foreclosures in that sub-division and go knock on those doors while you are visiting the seller as well.  So, it opens up more of a lead source in an area that you are already interested in buying property in.  I highly encourage that if you are going to be successful in this business and serious about this business, then you need proper data sources.  When we look at a property, which we bought about 20 in the last few months, one of the things we look at is the MLS comps.  We look at what is available on the market and what the price points of those are.  We look at our Comp Wiz.  We look at our Prop Wiz.  We look at Zillow.  We look at everything and try to evaluate from there what it comes down to in terms of value.  But, it does come down to what I said at my initial remarks when we started the column.  What is the rent that I can actually get?  If I can get a good solid rent in that neighborhood, I’m not too worried as long as I can buy it way below market.  In most markets in the country, not all of them but most markets, there is kind of a 1% rule that if the property gets $1,000.00 a month, it is worth about $100,000.00.  But, in some markets, you get $1,000.00 a month.  The property may be worth significantly more than that, $200,000.00.  So, there are adjustments to make to what I am saying.  But, generally speaking, I like to look at the 1% rule, and in the example I was using earlier, I said I could probably get $1,000.00 or more a month rent; I was looking at that property being worth, at least, $100,000.00 that we’re buying for $27,500.00 plus the realtor’s thing of $2,500.00.  So, it’s a total of $30,000.00 for property because of the rental income that’s indicated value is $100,000.00.

That tells me everything I need to know, right there.  But, I still look at the comps as well because I do want to look at my salability factor of that property, both now and in the future.  I don’t want to have it in the portfolio long term if there is not a good long term indication of increasing values in that neighborhood, and one of the things that would deter me is if there was a great deal of foreclosures right there next door to our property.  However, again, if the price is low enough, I will buy it anyway.

Hopefully, that cleared it up for you, Phillipe, and I want to make sure that you do get the right tools that you need.

Q: Ryan Gillespie: Ryan is from California, and he says, “Hey, Lou, thanks again for all your great council.  It’s helped me tremendously to wade through this maze called real estate investment.  Today, I have a question regarding private money lending, borrowing.  You’re disclaimer that’s in the lender presentation kit alerted me to the possible issue of asking people for loans or to invest with us.  The disclaimer says that the document is not a solicitation.  But, isn’t that what we are trying to do through it?  Can you tell me what we can and cannot do or say regarding trying to get people to invest with us through lending funds for real estate investment.  Thanks so much again.”

A: Well, sure thing, Ryan.  What you have to understand when it comes down to securities is that when you send someone a prospectus…let’s say that you were going to create a company, and you are going to do initial public offering, or not even a public offering, you are just going to do an offering to the public; you have to send a prospectus.  That prospectus gives indications of your plans and business plans for the company.  But, it does not guarantee any results.

So, they have all kinds of disclaimers in securities documents that say this is not a solicitation; this is for information purposes only.  You are to do your own due diligence.  So, anyone that we are dealing with when we are soliciting them to lend money or to invest is to give them information about our business and what we do.  But, it is up to them to not rely on what we are telling them but to do their own due diligence, their own research, and create their own comfort level on releasing their money, and that’s really the purpose of a detailed information package.  So, when you are sitting down with the lender, what you want to do is talk to them about your business, how it works, how you are able to make your money, and definitely, in today’s market, this couldn’t be a better time for you to be investing in real estate and for them to have their money in real estate.

All you have to do is show them all the headlines from the last two weeks of the continuing decline of the stock market and say, “Would you agree that there is a better place to put your money to work that has a long term future?  Wouldn’t you agree that housing is something that everyone needs?  Wouldn’t you agree that they are always going to need housing?”  Well, that is exactly what we do.  We are in the housing business and provide folks the opportunity to not only rent property but to someday own that property as well if they choose to.  So, our program is wide reaching because not only will we give them the opportunity to buy it, but we can even finance it for them.  What we do is work with folks just like you, and we put your money to work in long term investments in real estate.

What we do is borrow the money from you, and then we put it to work in various types of investments and real estate.  Some are short term.  Some are long term, and we don’t even have to worry you with that process.  All we do is give you a note for your money; your funds; put it to work; and allow the interest to accrue while the property is going up in value.  And then at the end of the term of our agreement, we can sell that property; we can liquidate it; we can sell it to the tenant; whatever the case may be, pay off your loan, and you’ve got your money back.  But, I’m going to share with you that you probably won’t want your money back.  You’re going to want it to continue to grow in a good safe environment that we have available for you.  Let me just show you a little bit more about our company.  You whip out your lender presentation kit and go through it with them; show them all your good stuff.

Q: We have a business management question from Ryan who says, “Can you quickly tell me if there is any difference between using “as agent” versus and/or signs in your documents?”

A: Okay, Ryan, here is where you use and/or signs.  It’s on a purchase and sale agreement.  If you are purchasing a property, what you want to do is have the freedom and flexibility to be able to assign that contract to a third party and perhaps get a wholesale buyout.  You sell you contract for $5,000.00, $10,000.00 or more, and they purchase your contract, and you make that assignment fee, and because you put the words and/or signs after your name, it made that contract fully assignable.  Now, in other places in our documents, we put our names as the purchaser or the manager or the project manager or the seller, and when you sign contracts wearing those hats, it’s you, as agent, acting in your capacity as agent for whomever has hired you whether it be the trustee of the trust that owns the property, which in most cases it is.  They hired you to manage that property, to sign contracts, to rent out the property.  Hopefully, that clears it up for you, Ryan.

Q: Milan Chilupa says, “Hi, Lou, I am currently working with Bank of America on short sale on a second, and they want to give my customer deficiency judgment and a secure note to repay the difference from what they will receive as a payoff, and the minimum as a payoff is 10%.  Any suggestions about this?  Thank you.”

A: Okay, well, Milan, what the bank is doing is called negotiating.  They are attempting to negotiate that the borrower will actually pay them back their money.  So, what they are saying is, “We’ll go ahead and release this collateral for this much money, but we’re looking for the rest of it to be paid back in some way over time.”  I would say, “Nice try.”  I would just merely say, “Mr. Banker, I appreciate what you’re doing here, and we very much appreciate your help in getting this deal done.  The challenge is that this is not going to work.  I cannot recommend to my client that they sign this note to repay the difference because they’re already slipping into darkness, and what we are looking to do today is get this taken care of.  Now, we found a buyer for the property.  They’re willing to pay this much for it.  If you are willing to accept that, then let’s call it a day.

If not, then go ahead and spend whatever you need to spend, go ahead and foreclose on the property.  You’re going to end up with the same amount of money, and you’re not going to get a deficiency judgment either.  So, either way, you are going to be in the same position.  Can we go ahead and get this done today?  At least, you will get your money now versus much later.  What do you think?”  Just council with the counselor, and try to get them to accept that payoff because they definitely will.  In most cases, again, they are used to intimidating people.  Most of their conversations are direct with the borrower.  So, when you sometimes think that all they do all day long is work with people like us, that’s not true.

Most of the time, they are working with the people who actually own the properties, and they get them to do all kinds of things because the truth of the matter is the people did sign a mortgage.  They did agree to pay this debt, and the bank does have the right to ask for this.  But, it doesn’t mean that they won’t accept less.  So, just negotiate your way out of it, and you’ll be fine.  Okay.

Q: We have a trust question from Carol Holchum who says, “Hi, Lou.  I am purchasing an REO property.”  Congratulations!  “And I want to know about putting the property in a trust.  When buying from the real estate agent who represents the bank, I have to put my name on the initial offer.  I am told that I can’t change the name of the buyer to a trust without renegotiating the deal.  What do you advise?  Thanks for the great help on all these calls.”

A: Sure thing, Carol.  Here’s the deal.  Initially, when you signed the original contract with the seller, which is HUD, you need to sign that contract in the name of the trust.  So, the initial contract needs to be XYZ Trust as the purchaser, and even have your trustee sign the contract.  That way, you are not going to have this problem.  HUD will accept contracts from trusts.  What they won’t accept is a change later.

Our earlier conversation with Ryan revolved around assignments.  HUD will not allow a contract to be assigned.  So, the and/or signs thing is not going to fly on a HUD contract.  What will fly is when you actually go, originally, as an entity and purchase it that way.  Let’s face it; they receive contracts every day from LLC’s, corporations, and individuals.  So, there is no reason they wouldn’t accept a contract from a trust.  I think where you are getting caught up is trying to change it after you have already gotten the contract acceptance from HUD; that’s not going to work.  You will, literally, have to close it in your name, bad news, and then assign it from your name to the trust.  You can do all that at the same closing table, but that’s one of the requirements that a HUD contract has.  I hope that cleared it all up.

By the way, HUD, for those of you on the call who don’t know what that is, that’s the Department of Housing and Urban Development.  What happens is when the Federal Housing Administration, FHA, forecloses on a property, it’s actually underwritten…the loan itself is underwritten by HUD, and Housing and Urban Development actually ends up being the owner of the property when it’s an REO situation, and they foreclosed and gotten the property back.  So, then it’s them that’s the seller of the property, and it goes on off to whomever the new buyer is.

Q: Now, we have a question here from Bill Green and, also, his partner, Gerry Lenderman, and this is a question about entities.  It says, “Regarding forming trusts, the context is Bill lives in Alabama and Gerry lives in Georgia, we’re forming an LLC that is registered in Tennessee because our real estate is located in that state.  Therefore, our business UPS mailbox is located in Tennessee.  We are in the process of forming trusts for both our personal property, our personal homes, three houses in three states that are different than our business houses, and our rentals, six rentals with eight property units.”

Questions: About location:

(a) “Do we have to have a personal residence address in the state that we are forming the trust?”  The answer is: No.  You can elect to have the trust established under any states law, and in fact, in the affidavit of trust, it actually states that the trust is created under blank state law.  So, in the case that you are going to be investing and have already invested in, in Tennessee, than those trusts would be Tennessee trusts.  The property in Alabama, your home, can be an Alabama trust, and the Georgia property can be a Georgia trust.  So, you use just exactly my same paperwork.  The only thing you would change is the notarization and possibly the witness section of the documents to match what the requirements are for your state.  But, everything else remains the same.  So, first of all, each property would be in its own trust, and we would locate those trusts in the state in which the property is located.  That’s going to be the simplest and easiest way to set this up.

(b) “Do we need an address in the state under whose laws that trust operates?”  The answer is: No.  You will use an address, whatever address you choose, as the trust address to mail the documents to once they are recorded.  So, there does not have to be an address in the state in which the property is located in.  It can be mailed to anywhere.  Let’s say that a California bank is owning a property now as an REO in Georgia, and they sell it.  Then, they are going to mail the deed back to California.  They are not going to mail it to an address here in Georgia.  They are going to mail it to whatever address the bank gives them, which would be the California address, to mail it to.  Hopefully, that cleared that one up.

(c) “Can we form trusts in a different state than we live in?  For example, our business is in Tennessee, and we live in Alabama and Georgia.”  I think I’ve already answered that one.  That one is:  Absolutely, yes, you can.  Specific questions: “Our State Farm agent says that if we put our personal home in a trust then the trust must own a landlord policy for the home, and the personal property trust must own a renter’s property for the contents.  Is that correct, or are they suggesting something that has a better alternative?”  Well, I do not agree with your State Farm agent, and it’s likely that the underwriter wouldn’t agree too.  Here’s what you have to get across to the agent.  The beneficiaries of these individual trusts are also the occupants when we are talking about your personal residence.  So, you are going to be the one to actually qualify for the insurance.  You’re going to give them your social security number.  They are going to look up your credit.  They are going to say, “Oh, yes.  You are a wonderful person.  Yes.  We will go ahead and insure your property.  You’re a stable person.”

A: This is one of the reasons they look at credit because they want to make sure that this person is not just getting insurance in order to than file a claim and get a check.  So, they are careful and cautious, as they should be, about who they, essentially, are making a loan to, and they want to underwrite it smartly.  So, they are going to use you as the beneficiary of the trust to actually underwrite the policy even though the name of the property is actually going to be in a completely different name, which is the trust name.

Explain to your agent that even though you are moving it out of your name and into the trust name, you are not moving out, and that this is for estate planning purposes, and you want the policy to match the deed so that you won’t have any problems.  Some of you know that at the last event, was the MAS event, a pipe had burst.  This was about a month ago.  So, when we got home, a ¾” pipe had been pumping water for hours and hours and hours from the third floor all the way through to the basement here’s water everywhere and did all kinds of damage.  Well, the adjuster was quite surprised that they were talking to me but yet my name wasn’t on the policy.  I explained the trust, and if they needed to verify anything, just call my agent, and my agent would clear it up, which is exactly what they did.  One telephone call to the agent; the agent explained it that we’re the beneficiary of the trust, and we’re the ones to deal with, and that’s exactly what the insurance adjusters have done since then.  No more problems whatsoever, one telephone call.  So, that’s all you really have to set up, and that is a concern.

Whenever you have insurance, the biggest concern should be: Am I going to get paid on this insurance?  Am I putting myself at risk if I don’t have the policy right?  The answer is: Yes.  You are.  So, no, you are not a renter of your own personal residence; so, you don’t need renters insurance, and no, you don’t need a landlord policy on your own personal residence because you are not a landlord.

An entity that is a flow-through entity, it’s a simple trust, and it flows through to the beneficiary, and the beneficiary retains the control over the trust and the benefits and the avails and proceeds which may flow from the trust.  So, the only thing that you should really explain to your agent is that they’ve got a misunderstanding, and you’d be happy to talk to their underwriter and to explain it if necessary.  But, the fact is, you’re going to be the ones, the beneficiary of the trust, and they shouldn’t have any problem with that at all.

I highly doubt you are going to have any further problem once you explain this because many of our licensees use State Farm in trust, and they don’t have any problem at all.

Q: Your third question is: “In a personal property trust where you are placing your automobile in a trust, should or must the trustee live in the same state where the automobile is located?”

A: The answer is: You can use a trustee anywhere.  The trustee could even be in another country as long as the trustee is a United States citizen.  So, no, they don’t have to live in the same state.  “Our automobiles reside in Georgia and Alabama and are currently registered in those states.  We are insured with State Farm insurance.  They can only insure it in the state they are in.

For our automobiles, is it okay to form a personal property trust in Tennessee with a Tennessee address?”  Well, I would suggest a form for the Georgia vehicle, form a Georgia trust and have the vehicle registered in the name of the trust in the state in which the vehicle is located.  That should be the cleanest and easiest way to do this.  Truthfully, you could have the vehicle registered in a trust in another state, but eventually it could cause you problems if you’re looking for residency or looking to meet residency requirements within a state; having a vehicle in that state helps you meet the residency requirements and that kind of thing.  So, that should make it easier for you to just set it up and operate it.  I think that takes care of that one.

Q: Four: “We are forming a personal property trust for our automobiles.  Is the trustee and the beneficiary of the second trust me?  Is that correct?”

A: The answer is: Yes.  You’re absolutely right.  “With Bruce’s info sheet, there is a place for power of attorney.  It appears that I am to have the trustee of the first personal property trust give me the power of attorney to do their job.

The personal property trust power of attorney is given to the third person.  Is that correct?”  Yes.  The trustee of trust number one, which actually holds title to the vehicle, is merely signing a power of attorney to you so that you can do anything you need to do without bothering the trustee.  You rarely need a power of attorney over the second trustee because you don’t really need them for anything.

The second trustee is the one that would pass it on to your heirs at death, but you’re really not going to need the second trustee because they are not recorded on public record anywhere, and they don’t really do anything out in the public.  So, the primary trustee is the one that we want to have control over.  When I say the primary trustee, I mean the trustee of trust number one.

Q: Five: and I don’t normally go this many questions with one client, but we had a light number of questions this week; so, I am giving more time to get these taken care of for our new platinum members, Bill Green and Gerry Lenderman.  And by the way, welcome aboard, gentleman.  It’s going to be a fun ride.  Let me assure you; it’s going to be a fun ride.  “Will we be forced to register the vehicle that we use in our business as a commercial vehicle in Tennessee and Georgia?”

A: No.  You can register it as a personal vehicle.  It’s just that it’s going to be held in the name of a trust.  So, if you ever have to explain this to yourself or others, the way you want to think about it is this is no different than a living trust.  And when people transfer their ownership of their vehicles, their stocks, bonds, mutual funds, their personal residence into the name of the living trust, then everything changes over with that as well.  What we’re doing that is a shift from that is we’ve got multiple trusts in multiple different names with even possibly multiple trustees that kind of gives us the benefits of privacy of ownership and also gives us the ability to operate and use those assets.  So, no, it doesn’t have to be a commercial vehicle, if that helps to clear that up.

Q: And then six: “We assume that the personal property location is our address in another state if we formed the trust in another state other than the one that we live in?”

A: Personal property location is our address in another state, not sure I understand this question.  But, I think what you’re saying is the personal property trust is the beneficiary of the land trust; where would the ______(46:29) of the personal property trust be?  And yes, it can be in the state in which you are located in.  Again, that can be another strategy to benefit you, is that the trust is in another location all together, and they would have to serve the trustee in that location.

Wow!  Lots of great questions here.  I’ll tell you; I know that the trust process can be quite confusing and quite daunting, but if you just stick with it and keep chipping away at it, you will definitely get it and get those fantastic 30+ benefits of trust that we go over at MAS, maximum asset shielding.

You never want to miss that opportunity to attend that event.  It will probably be repeating it again sometime later in the year.  So, you definitely want to get yourself registered for that.  We schedule the events when we have enough votes registered for them.  We get into depth about how to create the land trust, the personal property trust, the living trust, all the goodies, the profit centers, the protections, all the stuff that comes with using a land trust.

Q: Now, we have a business management question from John Jerman who says, “I need a closing attorney and an accountant that understands the Street Smart strategies like land trusts and _____(48:14).  Any consultant references for Chattanooga?  Lou, thanks for all your help and sharing your wealth of knowledge.”

A: JJ, here’s what I would recommend.  We have the arc, and when you come to the maximum asset shielding, the MAS event, you actually meet some of their folks as they come out and meet with folks on an individual basis and give them a roadmap for their future and their financial future as it relates to entities, corporations, LLC’s, all that sort of thing.

And yes, they provide CPA services with folks that completely understand the Street Smart system and have many, many of our clients as their clients as well.  So, I would highly recommend you get involved with their system.  They will do an evaluation of your situation, and it actually looks at your entire financial picture, then makes recommendations as to deductions and even gives you the IRS sightings, the IRS statutes, the codes, everything to support additional write-offs that your CPA is probably not taking.

So, they do this nice report after you fill out the questionnaire, and then they meet with you over the phone to actually go through the report and show you where you can save so much more money, and they provide CPA services where they actually do your tax returns for you, lots of goodies like that.

Q: Here’s a land trust question from Joe Gerard.  “When a property is sold that is in a land trust, will there be any problem with getting title insurance for the new owner because of the chain of title?”

A: Okay, let me answer that one first.  Here’s what happens, Joe.  They do a title search on the old owner.  The old owner deeded it to the trust, and now, let’s say that you’re selling the property; you’re deeding it to a third party.  The affidavit of trust that I had you record at the time you recorded the deed, which originally went from the original seller into trust, shows that there’s all kind of explanations of the trust.  And the affidavit of trust is actually the key element to solving chain of title problems later when you go to sell the property.  So, that’s why I say it is just imperative that when you record the deed, you also record my affidavit of land trust as an Exhibit A to make things very, very clear, on public record, exactly what this trust was all about so that you’re not going to have any problems later when you go to sell the property.  And that’s exactly why, Joe, why that document was created on purpose.

Q: Second question:  “What happens when I have been filing tax returns and paying taxes, and I now open these trusts and no longer have income; what does the IRS do?  Please elaborate on this.”

A: Okay.  So, let’s say that you have been filing tax returns, paying taxes, and you now create these trusts.  I did not say that you stop the process of doing exactly what you were doing before.  I’ve never said that.  What happens is you deed the property into the trust name, but it is a simple entity, and it flows through to the tax return of the beneficiary.

So, previously, when the property was in your name, you were paying the taxes.  Now that the property is in trust, you pay the taxes, nothing changes.  You will still file your 1040, and you’ll merely attach a schedule to it that is explanatory of the process of what you’ve done, and all of that is in your volume four land trusts under “what about taxes.”  It actually gives you the documentation, the forms, and the schedule that you’ll attach to your regular 1040 tax return that explains exactly how to do it.

Q: Ann Williams has another trust question.  She says, “After purchase and several “refies,” 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?”

A: Ann, nothing to worry about, the fact that you used to own it means nothing.  That could be a bit of a trail for someone, but that is merely a trail.  It doesn’t mean anything.  If they ask you questions that you don’t want to answer, you don’t have to answer those questions.  The fact that you used to own something is just merely a fact.  It doesn’t have anything to do with current ownership.  If there was a lawsuit, they would have to sue the party in title.  The party in title would be the trust and they trustee.  If you are not in title, guess what, they don’t get you.  So, you’ve got a good situation right there, Ann.

As far as cracking the land trust, it is one of the reasons that I have you have a secondary trust, which is the personal property trust, as beneficiary of the land trust.  If anyone ever was—through interrogatories, depositions, anything like that—being able to get through the land trust, they would find another trust, which is the personal property trust.  Hopefully, that cleared it up for you, Ann.

Q: I have a purchasing property question here from Jim Felton.  “What’s the best method to find free and clear homes where the seller is the bank?”

A: Well, Jim, it really depends how much time you’ve got because there’s two ways to do this.  There is the do it yourself method which is cheap but not really because it takes so much time and energy to do it, and it’s not repetitive.

In other words, once you send out the mailing, then you have to do it all over again.  If you don’t do it all over again, it doesn’t get done.  If it doesn’t get done, you don’t get any leads.  So, what I recommend is the second method which is the Mail Wiz.  Our Mail Wiz actually obtains the list, already has the postcard created, already has the copy written, already has everything done, and all they have to do is take the list, narrow it down for the areas that you’re looking to buy houses in, such as zip codes, and then they find that list and mail it for you.  Now, what they do with you is council with you in the beginning.

Let’s say that they find 3,000 leads in your market, but you’re trying to maintain your budget, and you only want to spend $1,000 a month for marketing.  Okay, good, then they can split up that list and mail it over time, mailing, say, 1,000 this month, 1,000 next month, and 1,000 a month after that.  In fact, they’ve got a special going right now.  They are giving two campaigns, and I think the price per postcard, mailed, without you touching it and with the sellers name applied to it, their address and everything, is .69 cents per card.  Everything is done for you.

I want to emphasize a point here that you may be able to find other mailing services out there, but they do not have the tested copy.  The copy that these folks use has been tested all across the country, and they’ve got phenomenal results.  In fact, you’ll be able to track your own results.  When you open an account with them, they actually give you pass code access; you’ll have your own back office where you manage your mailing campaign.  When you do that, it actually shows exactly what your results are.  When you mail, they put an 800 number on there that is not your number; it’s the one that they have obtained for you.  Then, it links to your number, whatever number you want that call to be forwarded to.  But, what they do for you is give you a report of all the leads that have come in off of that number, and that really benefits you a great deal because you know now exactly what’s happened as a result of your mailing.  Then, of course, your job is going to be follow up with those sellers and sit down with them and use the Lou Brown way to get the seller to be the bank.  It’s absolutely magic.

My property acquisition specialist went out on one of our leads today.  The person has called numerous times over the last few months, and they are finally ready to do business.  So, the challenge with free and clear deals is they typically take longer, and you get lower results from your mailings than you do, to say, foreclosure leads or 60 day, 90 day late leads.  You’re going to get a lower response rate, but look what you’re getting.  You’re getting people with free and clear properties who could be the bank for you.  You don’t have to go to the bank.  You don’t have to qualify for loans.  You don’t have to pay high closing costs.  You don’t have to pay loan origination fees, and you can get the seller to carry back at, potentially, zero interest, which is all some of my favorite ways to buy properties.  I’m going to be emphasizing that at our million-dollar dealmaker.

Folks, we have come to the end of another fact filled, information filled, group Q & A, and I really appreciate your involvement in this program.