Question:
The first question is from Jean and Bob Clark they sent…they asked about louisbrown.com. We are just getting started how do we get into the member part of the web site.
Answer:
Well Jean and Bob you’ll go to…you’ll click on user name and insert the words student S-T-U-D-E-N-T and the password is the serial number on your computer forms disk. Your computer forms disk that came with your Whole Enchilada Junior has a serial number on it. That is your serial number so just insert that as your password without the dash in between. So, it says WJ and a series of numbers you’ll leave the dash out and that will open up the member’s only section of louisbrown.com. What’s interesting about that particular area of the web site is it has all the information about your States laws. Click on State laws then click on your State. Open up your State and you’ll find the landlord tenant laws for your State. The foreclosure laws for your State, a copy of a deed for your State, a copy of a mortgage for your State, and a copy of the details about notarization for your State. So, that’s a very important thing for all of you to do, which adapts my materials to information you need to know for your State.
Question:
All right the next question is a purchasing question from Montcure it’s a private money loan question actually. He says, “Hello Lou. I’m writing from Nantucket Massachusetts. I have a client who is looking for a rehab loan for a residential property. I am a real estate broker here. Our market is very expensive the property will have an after repaired value of 5.5 million dollars, in a neighborhood of comparable homes. There’s presently a two million dollar borrowed on the property, plus 500 thousand dollars cash equity. The rehab is going to cost $1,750,000.00 the owner and the contractor has some experience with rehabs of this type and should check out fine. I called Brookview Financial and initially they were interested in a four million dollar first position loan, but called back a few minutes later to say that with the market the way it is they were now only loaning up to a million dollars per deal. Do you have any suggestions where a person could go for a hard money deal in this area for this size? The rehab will take about five months. I am talking with two private lenders in the area, but the number is pretty large.
Answer:
Well Moncure you’re absolutely right that is a very large number and a very fickle market I might add. When you get into high-end properties and especially with 1.1 and three quarter million dollar rehabs it scares off a lot of lenders. So, you’ve got to be particularly cautious about how you lay out the transaction. First of all, the construction loan with a traditional lender is probably the best avenue for you. Traditional lenders understand and can loan, and I would just do it as a construction loan. I’d approach them like it’s almost a new construction with 1.750 I think they might. One I can suggest is Translan. They do construction loans. I’m not sure about this type of construction loan but why don’t you give them a try. With four and a quarter million on a five and a half million dollar property that leaves a nice cushion of a little over 80 percent for you know excuse me a 20 percent cushion for a lender to look at. They may require more than that and it may be necessary for your client to put even more cash into it to bring the number up to where you need to have it Montcure. Very good question.
Question:
All right the next question why don’t we do some trust questions. Everybody always asks a trust question and I always put them at the end of the call. But we’ll start off today with some trust questions.
Robert Young says I recently transferred title to one of our properties into a land trust with my wife and myself as trustees. Then we created a Florida Limited Liability Company naming me as manager and both of us as beneficiaries 100 percent. Taking our beneficial interest in the land trust we then assigned it to the LLC all this for asset protection and estate purposes. One my question is if we sell this property soon in a 1031 tax deferred exchange have we lost the one year and one day holding period?
Answer:
Very good question Robert I’d be concerned about that. First of all you’ve assigned…you’ve placed your property into land trust and you’ve assigned your beneficial interest to the LLC. It really depends on how the LLC is set up. Did you set it up as a partnership, or a corporation? You see an LLC has the option of being taxed as a partnership or a corporation. It’s highly unlikely that you made that election yet so you still don’t have a taxable challenge. However, if your plan is to exchange that property you may want to go ahead and leave that with yourself and your spouse as the beneficiaries. I think the real mistake you made here…well in fact in number two you say also was all of that necessary in your opinion. Thank you we really appreciate your help on these phone Q and A’s.
Okay well first of all, I don’t think that was the right way to do it. You put yourself and your wife as trustees it may have been better in your particular circumstance to have had the Florida LLC as the trustee and have yourselves as beneficiary. And that way you can do your 1031 tax deferred exchange and viola because you were beneficiaries then the IRS views our type of trusts as a flow through entity. As such when the trust sells the property and receives its gain you as the beneficiary who’s going to be filing the tax return will receive that gain. Also, you will have that right to use that gain to go into a 1031 tax deferred exchange and you personally would get all the tax benefits from that. So I think in your particular circumstance you should flip flop that whole transaction.
Well now I know the next question is going to be well Lou how am I going to do that? It’s pretty simple Robert. You will create a new deed this time putting the word corrective at the top of the deed. Now unfortunately you may have exposed yourself on this transaction, because they’re going to wonder what happened. But all that’s going to appear is that you and your wife as trustees have deeded the property to this LLC. No one will know who the beneficiary of the LLC is, because that’s not recorded. Now, hopefully, when you set up your Florida LLC you used a registered agent and not yourselves on that Florida LLC. If you used yourselves than what you may want to do actually is to use a Wyoming LLC as the trustee. That way, because Florida does allow a corporation or LLC to act as a…oh and now that I’ve given myself a chance to think about that it’s likely it would have to be a Florida corporation or LLC to act as trustee in Florida. So, you’d need to either set up another LLC or if that LLC that you have set up in Florida does not expose you as the beneficiary…excuse me as the person who owns that LLC then you can use that one as the trustee. So, hopefully, that was clear to everyone on the call. I’m saying that you’re going to use yourself as beneficiary or another entity as beneficiary. You can use individuals as trustee, but if you are the beneficiary you should not use yourself as the trustee as well, because that creates something called a merger of interests. Okay Robert I hope that cleared it up for you. Remember that we do have the direct Q and A so if you have anything unclear about that just submit that on our direct Q and A program.
Question:
All right Kevin asks if a property has a lien on it can it still be put into a trust.
Answer:
Kevin the answer is yes. The trust would merely be taking title to the property in the condition that title is in the day it receives it. So, sometimes we receive a free and clear title, other times the trust receives a title with a lien already on it such as a mortgage. That would be the trust taking title subject to the existing loan the existing mortgage on the property.
You ask…let’s see oh if there is any other kind of lien on there it’s simply that the trust is “buying the property” subject to that lien as well, so it won’t go away it will remain attached to the property that the trust has taken title too. Very good question.
Question:
All right the next question is a trust question from Mark Bravo who asks could we put properties under a C corp. then a DBA instead of a different trust.
Answer:
Well Mark here’s the challenge I would not do that. You see the challenge is if you’re taking title to all your properties in the corporation’s name then you’re linking all the properties together under that umbrella. It’s far smarter to deed each property in its own trust and then have the beneficiary of that trust be a corporation or an LLC. That way you’ve kept the privacy of the entity that’s actually going to be the beneficiary. So, no one sees it doing any business.
Question:
Let’s see here’s another entity question from Leslie Sanders who says, “How can I obtain an operating agreement from an LLC other than paying hundreds of dollars through an attorney.
Answer:
Well Leslie brilliant of you to ask number one. Brilliant of you to be on this call number two, because I’m going to save you literally hundreds of dollars right now.
First of all your LLC if it’s a Wyoming LLC you can actually go to the Wyoming Secretary of State’s web site and get an operating agreement. One of the great things about using Wyoming and many of you know if you’ve been to my training at MAS which is Maximum Asset Shield our in depth training on entities and trust that I believe that the best types of LLC’s are located…or the best benefits of all LLC’s are located in Wyoming. So, what I recommend you do Leslie is go to soswy.state. S-T-A-T-E wy.us. That’s soswy.state.wy.us click on corporations which will be at the top, scroll down and on the left click on LLC’s and there you’ll find the articles of organization isn’t that a good thing. Okay and these are PDF forms that are fillable so you’d be actually able to fill it right there and download it and everything you need for your LLC. I hope that helped Leslie.
Question:
All right let’s see other trust questions my goodness lots and lots. Here’s Nancy C. Jones she says, “Instead of a realtor my first deal my very well be with a mortgage broker. I met her when she handled the refinance on my home last year. She and another friend of mine just looked at a very nice house that’s three blocks from a university that has seven bedrooms and the rooms could be rented to students. The only repairs are cosmetic. The current owner is facing foreclosure. According to the broker we would not have to invest any of our own money. Together we have credit scores strong enough to quality for a mortgage. If everything works out I’m not sure whether it would be best to form an LLC, a partnership, or a land trust. I’ve studied the material but up until now everything has been study, theory, and hope. Now I’m looking at what actually might turn into my first deal. Which of the three options would you suggest as the one that best protects and secures the interests of all three of us? I know you’re partial to incorporating in Wyoming and I’ve looked into that also. Please give your input. Thank you so much”.
Answer:
Fantastic question Nancy, first of all, what I would recommend is that the real estate itself go into a land trust. Now in that land trust you can have a beneficiary of multiple other entities. For example your interests could be held in a personal property trust. One of your friends could be in an LLC and the other friend could be in a limited partnership. It doesn’t matter because what I recommend that you do is create a joint venture of entities. So, in other words the beneficiaries are creating a joint venture relationship as beneficiaries of the trust, the land trust that is that owns the property. So, now there’s joint venture relationship will be outlined in a document called a Beneficiaries Agreement and that’s in your Volume Four “Land Trusts” book. Now what that means is that the Beneficiaries Agreement will outline the various entities, their percentages, and their role in this relationship, and who’s going to do what and what they’re going to be paid for that and what have you. Now when you look up that Beneficiaries Agreement I want you to remember that it’s a very skeletal type agreement. In other words you need to go in and beef up put meat on the bones so to speak related to your particular situation. Your particular deal and outline all the details of that relationship and good luck Nancy I hope you get that first deal.
Question:
Now actually Nancy’s was one of our questions. Some of the questions I’m reading today have actually been answered in our direct Q and A program, but I wanted you guys on the group Q and A to get some benefit from some of these questions because they’ve been very good lately. I want you to remember that you can get answers to your questions instantly with our direct Q and A program. Whereas with the group Q and A there’s no assurance that your question will be answered, or there’s no assurance when it will be answered based on the number of questions that we get. We do try to answer as many as we can on each call.
Okay now here’s another question from Jordan Duggan and Jordan says, “I have recently bought a new car. I wanted to buy it into a trust as you suggested in your materials. Before buying it I contacted Capital One my lender and they said that they wouldn’t allow me to finance the car in the name of the title…excuse me if the name on the title wasn’t the name they were loaning to. Ultimately I ended up not using a trust and buying it myself. Question one can they prevent me from buying it in trust by refusing to lend to me for the reason they stated”?
Answer:
Well Jordan the easy to that one is he who has the gold rules. So, in other words if you want money from them they can dictate any stipulations they want to in order for you to get that money. So, you will have to abide by their guidelines in order to get their money. But that doesn’t mean Jordan there’s not other people out there in the world who lend money and there’s plenty of them who will lend in trust. I’ve bought two vehicles in trust and they were financed and the lender didn’t have a problem with that.
Question:
Now the other question you have here is, now that I have the loan can I place the car into trust?
Answer:
Here’s similar good new Jordan yes you can. You can put that property in trust anytime you want to. You’ll need to contact the lender to get the title, because it’s likely the lender is holding that title as collateral for your repayment of the loan. So, they’re going to want to make sure that they get their money and they’ve held onto that title. So, what you’ll do is call them up and say, “For estate planning purposes I’m going to be transferring my property, my car into trust. Would you provide the title so that I can send it off to the State and they can retitle it in the name of the trust and they will send the title back to you? You will still have complete control, because you’ll still be listed as a lien holder on the new title, which will be in the trust’s name. I will still be obligated to pay the debt, because AI signed the note personally. The only thing is we’re putting the vehicle into trust for estate planning purposes so that if anything happened to me it would be able to be passed to my heirs without probate and that’s how this whole trust thing works and that should work for you just fine. Many of our other licensee’s have been able to put their properties into trust using that very same method. Very good Jordan.
Question:
Okay now let’s see. Entity for vending business, Joe Du Jesus, Joe asks, “I am starting a business with a partner. It is a vending machine business. We intend to put some machines in Massachusetts and some in Maine. What would be the best type of entity to put it under in order to protect ourselves the best? Would you refer me to what part of the WEJ would tell me exactly the correct procedure to do this for legal entity and trust etcetera”.
Answer:
Well first of all Joe vending machines are personal property. So, we would go to Volume Five “Personal Property Trust”. Now you’d set up a personal property trust and then as the asset of that trust it would be that one vending machine. I’d recommend that you put each vending machine in its own trust. Does that sound like a lot of work? I hope not, because basically once you have that forms disk that I created for you all you have to do is create one trust press print and you’ve got that trust. Then go in and do a search and replace changing the name to another name press print and you’ve got another trust and so on. Change the serial number of the vending machine in that new trust and so on and then you just keep creating trusts until you get all the vending machines taken care of.
I remember hearing a story long ago before I knew about trusts about a taxicab company in New York that had 200 taxicabs and each cab was a different corporation and it was Yellow Cab. They had done that for asset protection purposes. Essentially that’s exactly what you’re doing. You’re putting each vending machine in its own trust and as a result it has its own entity. If anything ever happens they would have to sue the owner of the vending machine and it’s that one trust that has that one vending machine as its asset. Hopefully, that helped you and some others to understand about how trusts work. That’s good cookies.
Question:
All right now let’s see another…I think I saw one more trust question. Product money, business management, entities, my wife, and I…Herve Devos say, “My wife and I want to put our property into a land trust. The last remaining question is whether there is a problem with using our LLC we are the only two partners as the trustee. There is no one we can think of who can serve as the trustee. Are there any serious disadvantages”?
Answer:
Well Herve I would say that one of my concerns is that if you’re in a State that allows the LLC to act as trustee there’s only 15 States throughout the country that allow corporations or LLC’s to act as trustee unless they’re approved by the Banking and Finance Department. As generally banks and attorney’s are the ones who act as trustees so when they see an entity act as trustee they presume that it’s a bank acting that way. So, we want to be careful about that. We want to make sure your State allows that. If you…one of the other challenges is that if you are the one who owns the LLC, if you’re the one who manages and operates the LLC and God forbid something happens to you then there’s no way that asset could be passed to your heirs without going through probate. Because there’s no one to sign on behalf of the LLC to pass the deed onto our heirs. That’s one of the great benefits of trust is taking advantage of trusts to use them to avoid probate. Trusts avoid probate. So, therefore Herve I like people and surely you can find someone that you can say, “Look I would be honored if you would act as my trustee for this property. And you would pass this asset on to my heirs”. Maybe your mother in her maiden name, maybe your mother-in-law, maybe your father-in-law, maybe your sister in her married name, maybe your brother-in-law, maybe a cousin in her married name, maybe a child in her married name. You know you can see there’s lots of different people a son-in-law and so on within your circle of influence within your family that could act as trustee. But let me give you another little hint. You could not only use someone within the family, but you could use someone outside the family and just record an affidavit of interest in the property like you were going to buy the property. Therefore you could literally use a wino as trustee.
Question:
Now I know I’ve covered a lot of ground tonight on LLC’s and corporations, and I’ve got another one here from Anita Chachetoe and she says, “Hi Lou, we are trying to start this business and started by creating an LLC. But I’m not sure we have done it right. After reading your materials it sounds like we need to have two persons on the LLC. My husband Daniel went to our accountant and he did it for us, but told us to do only on Daniel’s name. Is that correct”?
Answer:
Well let me stop there. First of all it could be correct. Many States allow for a single person LLC so I’m not sure without your telling me what State. Oh you do tell me you’re in Connecticut. Single person LLC and I just now saw that so I didn’t have a chance to look that up before the call. But if you’re a member of our direct Q and A just send that back in and we’ll look it up for you. If a single member or single person LLC is allowed in your State then it’s just fine and yes you could use just one name to set up that LLC.
Now you go on to say, “We were supposed to do it in both of our names”? That is the same answer to that one.
Question:
Then the next question is it sounds like if we have an LLC only in one person’s name we pay more in taxes.
Answer:
No that’s not necessarily so Anita. It’s really going to depend on what happens inside that LLC and who the beneficiaries are of the shares of the LLC. Because even if it’s one a single member LLC it will come down to that person and whom ever they’ve assigned their shares to.
Question:
Now let’s see here. Should we change it into both of our names? If we do it what percentage should each of us own? Explain this so that we are not both liable in the same amount.
Answer:
Well Anita again as I answered earlier to other folks I would recommend that you set up each house going into its own individual land trust and then you have a single LLC as beneficiary of a bunch of different land trusts. Then as you grow I will help you grow your entities. You see one of the challenges everyone on this call I want you to listen to this. The challenge that happens is when you get into this business people start rattling the cage and making you very concerned about things, and then all of a sudden you’ve over entitied yourself. You’ve set up all these different requirements for yourself and made all this additional work for yourself when in fact you didn’t need to do that. So, I want you to be careful about over entitling yourself and make sure that you just basically have the real estate go into the land trust. Then we’ll worry about all the other entities when you come to the in depth training at MAS, which is Maximum Asset Shield.
By the way if you haven’t yet been to MAS or if it’s time to repeat MAS be sure and yourself registered the last one for 2007 is August 23rd through the 26th in Atlanta Georgia. August 23rd through the 26th, which is a four-day event now I’ll spend three days on land trusts, personal property trust, and living trust. We’ll actually be doing them right there in class. You will actually bring a deed with you. You will bring your title with you. You will get yourself set up while you’re sitting in your seat filling out your papers as I go through a classroom example on the board. So, together we will actually make sure that yours gets filled out, and yours gets filled out according to the terms of what we want you to understand.
Now the other thing you’re going to learn is about 30 different benefits of trust that are not available in any other entity. Not a corporation, not an LLC, not a limited partnership. So, you’re going to understand more reasons why you want to do land trusts, personal property trusts.
Then finally we’re going to do a living trust in class and this is like the bottom layer of your asset protection and your estate-planning ladder. It’s a very important step and very important to your future. So, you definitely want to make sure that you do that and get yourself registered for that right away. There is a special deal going on right now so call into the office at 1-800-578-8580 to get yourself registered on that. Don’t miss this opportunity because again that’s the last time this year it will be given and right now, because it’s early you can actually do it on a payment plan and still get the bonuses all the bonuses that come with it.
Okay lots of great entity questions tonight.
Question:
All right let me go to a rental question. Susan Brown says, “Lou we have a rental occupied by a tenant on a year lease that is expiring this month. Our intention is to sell the property in April. Do you recommend we put the tenant on a month to month lease, or if we just let the lease run out would that be okay”?
Answer:
Well first of all I think that’s…of course this was answered before on one of our direct questions so this was actually answered about a month ago and one of my concerns is this. First of all, did you use my paperwork? If you used my paperwork if the tenant is holding over and refuses to sign a new agreement or what you want then that…my agreement has a holding over clause in it that jacks up the rent by 50 percent. So, that’s a thousand dollars a month, suddenly the rent goes to $1,500.00 a month simply by their staying over past the term in which the property was rented to them. So, that’s a really important one. Now if it is not my lease then you’re going to have to look at the holding over clause in the lease that you’ve go and see how it addresses anyone who holds over. A month to month should work, but again if you’re selling the property you want to be very careful that when you sell that property you’re going to have these folks out in time for your new customer to move in. So, they have to be very cognizant and understanding that they are on a month to month basis and that you have to give them X amount of notice as per your States law and X amount of notice for them to move out and as per that agreement. Now again you’re going to want to look at the State law when you go to louisbrown.com for your State and see what’s actually required for your State.
Okay took a little sip there.
Question:
Now we have a lease option question from Gary Bates who says, “Dear Lou, I purchased a house subject to and $45,000.00 purchase price”. Oh I guess you mean and $45,000.00 cash. All right so this looks like, “I purchased a house subject to plus $45,000.00. Purchase price $202,000.00. We have been offered $224,000.00 asking price with $10,000.00 option fee and $1,500.00 per month, which will cover PITI for 12 months with an option for 12 more months. They need a…to sell a home in New York before buying this one. This property needs extensive rehab and they are going to start their repairs. Is this plan worth it since it ties up $45,000.00 cash? Should we shorten the period to six months and raise the price for extension? See you in Texas”.
Answer:
Okay should we shorten the period to six months and raise the price for extensions. Well getting them to agree to six months might be the first issue Gary. I would definitely take a look at that and make sure that that’s going to work. The thing that may work better on this particular situation is for you to put an equity line of credit on the property. So, that would access your 45 thousand until they finally do buy. I would be very concerned since you’re taking I would presume a light amount down for them to move in. I would be very concerned as to when this is actually going to close. I think it’s a great thing when we can do work for equity as you know I have a full program on that. That teaches exactly how to do work for equity with all the appropriate paperwork and paperwork is absolutely positively essential in this transaction. You must, you must cover your bases with this work for equity situation, because I can you that if they get in there and they start tearing up things or they don’t do things to your satisfaction, or they do a poor job, or they can get you turned into the housing code. You want to be able to show that you have agreements with them to do that work. You see in my work for equity program I’ve actually got an independent contractor agreement. I’ve got a promissory note, I’ve got a lease option, and I’ve got a rental agreement all specific to work for equity where all the property disclosures and details are in there. And anyone listening to this I want you to understand that that’s one of my favorite, favorite, favorite ways to do lease options is to first put it out on the work for equity program. So, if you don’t have that it’s $299.00 and you can get it by calling the office at 1-800-578-9580, because that is the way to sell houses. That is absolutely the way to get your property moved without having to go through a lot of pain and suffering on doing repairs.
Question:
Let’s see while we’re talking about selling we’ve got a selling property question from Miriam Moore. Miriam says, “What contract do I use to sell a mobile home on a lot with no land attached”?
Answer:
So, in other words what Miriam has is a mobile home and Miriam is going to sell it to someone but they’re going to continue to pay a lot rent to whomever owns the land. Well Miriam you like so many of the others on tonight’s call. You came to the right place. I’ve got your answer and good news you already own this piece likely if you own the Whole Enchilada Junior you own the trust segment Volume Four “Land Trust”, Volume Five “Personal Property Trust. Well a mobile home is personal property. A mobile home has a title to it, so you will need to transfer the title to the new buyer. You can do that by taking the title and turning it over and it usually gives instructions right there of exactly how to transfer that title. You can do it right on the title, but I agree with you. You need a purchase and sale agreement, and you need a bill of sale. Both of those are in your selling…both of those are in your Personal Property Guidebook,
Which is Volume Five and in fact the form which is form number 3003 there is a purchase and sale agreement for personal property. And that’s on page 23 of your Volume Five “Personal Property Trust. Now what you’ll do is take that contract and in there it outlines what the asset is that’s being sold. So, you will put the serial number and the description of the mobile home that you’re selling. So, for example if it’s a Plantation 1973 14 by 70 serial XYZ44223344 whatever it is you’ll describe that right on that contract and you’ll be able to outline exactly who’s paying who, what, when and then when that payment occurs you’ll go ahead and transfer that title, but not a minute before you actually received good funds. All right very good question Miriam.
Question:
All right now let’s see here short sales oh boy we’ve got a lot of short sales questions. By the way that was a big, big, big conversation at our event this past weekend. Lots of questions about short sales there and there should be, because short sales are a big part of our business these days. You’re all going to have to become a lot more proficient in doing short sales, because there’s going to be so much opportunity for it with so many people going upside down on their mortgages.
All right so let’s start with Craig Barry. Craig says, “Can short sale acquisition techniques and practices be applied when dealing with REO departments on loans that are portfolio based as opposed to mortgage backed securities once they are taken back and title conveyed back to the bank? Craig Barry Columbus Ohio.
Answer:
Craig here’s the deal the property itself is not an REO when it’s in loss mitigation. REO stands for Real Estate Owned by the bank. It’s not REO yet. It’s in loss mitigation and in loss mitigation they’re still working with the borrower to see if something can be done, and in fact the bank doesn’t have any control over that loan or that mortgage except for the foreclosure while it’s in that process. It is not until they actually foreclose on the Courthouse steps that they actually receive the deed back to the property. Unless the borrower gives them what’s called the deed in lieu of foreclosure, which means a deed to avoid the foreclosure process. Now that is something that banks are doing these days, but again nothing will work until you actually get that property back to the bank. Now once it becomes back to the bank then the bank goes ahead and sells it. When they sell it all of the money goes to the mortgage back securities pool, which is used to pay back all the investors in that mortgage back security pool. So, in other words all the various investors that invested on Wall Street they take all their money, they pool it together. They take that big pile of money, they buy a whole big stack of mortgages and that’s what a mortgage backed security is. The security is the backing of all those mortgages. So, when that money come into the pool it goes back to the investors and, hopefully, if the investors got a big pile of good performing mortgages in that little bit won’t undermine their returns on that pool. But if there’s a lot of them in there then there’s going to be a big problem for those investors. Very good question and I hope everyone on the call now understands a little bit more about mortgage backed securities and the foreclosure process. Because really the banks that we’re dealing with are not truly lenders they’re most of them are just servicers of loans.
Question:
Okay here’s one from Mark Bravo and he says, “Does your program teach short sales”?
Answer:
Well Mark good question. Actually the buying system talks about working with banks and getting discounts from banks, but it doesn’t go specifically into the short sale process. I actually do that at the Millionaire Jumpstart Training. So, when you come to Jumpstart I go through my process of working with the banks. I use an interesting approach. I don’t go to the banks as a lender I go to the banks as a financial advisor working with the bank to get their situation taken care of. Now good news we have a system called Short Sale Profit and it is my system that I send to the banks. You see the way we do it Mark is that we do not as the bank for their package we send the bank our package. Our package has been designed to get the lender to give the discount. In many cases the lender wouldn’t give the discount if you asked for their package is designed, basically, not to give the discount, but my package is designed to give the discount. So, I definitely want you to get that. By the way that’s $299.95 I believe and you can get that by calling the office at 1-800-576-8580 it includes an example from start to finish. It includes all the paperwork. It includes a HUD1 closing statement, and it includes a complete electronic version on disk that you’ll actually be able to pull up on your computer and do this yourself. You don’t…you know a lot of these short sales you really can get them done if you provide them with the right paperwork, and you commit yourself to the right amount of follow up. Because that’s the problem that most folks do not follow up, and you must be prepared to follow up on a daily basis to be able to get the short sale that you want. Very good questions on short sales.
Question:
Let’s see here oh here’s an insurance question. From Jeff Landsus, and Jeff asks, “Lou I’m putting the MPI to work”.
Answer:
Now let me explain what MPI is. MPI is one of our in depth trainings. It stands for Massive Passive Income and that training handles the holding and selling side of the business. In fact the next one is June 7th through 10th. June 7th through 10th here in Atlanta, so you definitely want to do the MPI training to learn where the true wealth is in this business. It is in the holding part of the business and in the selling part of the business.
See one of the challenges is most people don’t understand that it’s easy to buy, its touch to sell at the prices that you need to sell at. So, what we do is actually train you on my methodology to do that. Let me take another swig.
Question:
Now Jeff says I am putting the MPI to work. I bought a home for $240,000.00 with bank financing. It’s appraised at $350,000.00 and I’ve got a buyer with an agreement…on an agreement for deed with $369,000.00.
Answer:
Yay yeah baby all right first of all let me explain something. An agreement for deed is the same as a land contract, a contract for deed, or a bond for deed. It’s all the same thing and my terminology for it is agreement for deed, because that’s actually what it is. It’s an agreement for the deed. In other words the new buyer has an agreement with you to get the deed once they pay you off. But in the mean time you keep the deed until they pay you off. Translated you keep control until they pay you off. It’s a very important part of my overall strategy. So, Jeff now has got himself a complete home run, because this is a $240,000.00 house that the buyer has agreed to pay $369,000.00 for on his agreement for deed.
Question:
He says big question, “I’ve got insurance in my name for the bank loan. How do I do the insurance? What happens if there is a fire, major damage, who gets paid etcetera, etcetera, etcetera? Can you give me detail on exactly how to handle the insurance?
Answer:
Well Jeff yes I can. Here’s what I recommend first of all if your loan has a due on sale clause in it, then what we want to do is leave your insurance alone. Just leave it just like it is and now let’s turn around and put your other property excuse me…your agreement for deed let’s get your buyer to get a homeowners insurance policy. This time they’re going to name you or your trust or whatever entity is holding title to this property, they’re going to name that as the mortgagee on their policy. Now they are going to be paying for their policy. You are going to be paying for your policy. You when you set up your agreement for deed are going to have principal and interest that’s going to be paid to you as well as an escrow for taxes and insurance. This will be paid by your new buyer and you will use that insurance portion of the escrow to pay for his policy a year from now when it comes up for renewal. But the first policy your buyer will be paying for in cash up front and naming you or your entity as the mortgagee on that policy and you will keep yours in place.
If there’s a loss you will be paid from his company. Your mortgagee will be paid from your insurance. Does that make…I hope that’s clear. So, in other words there’s no double dipping here. You’re going to be paid and then your insurance will pay, but it will only be to cover any differential that didn’t come to you. Hopefully, that made sense and that’s a very good in depth question for our good MPI players Massive Passive Income players.
Question:
All right Jeff also asks the question on agreement for deed. He says, “On the agreement for deed owner financing are you taxed on the ten percent down payment? When do you pay the taxes on the money coming in for an agreement for deed”?
Answer:
Well Jeff you’re going to pay the taxes when you declare them. I typically if you sell it this year you’ll be declaring it April 15th of next year plus extensions. So, when you declare that you will be taxed on the ten percent. Now the question becomes what part of the ten percent is profit. Because some of that will equate to capital gains on the property and some of that will equate to ordinary income on the…depending on the split up of the amount of capital gain that you got from that property. So, all of it could be construed as capital gains depending on how your tax situation is on that particular property. You will pay taxes in the year of course that the taxes were due on it and with the division between capital gains and ordinary income the other good piece of news is you can use depreciation and other losses to wipe out the gain that you’re receiving from this transaction.
So, Jeff if you don’t have depreciation let’s get some right away, let’s start buying some properties with this great windfall that you’re getting on this $369,000.00. Because it sounds like you’re about to receive about $36,900.00 cash when those people come in and pay you your ten percent down what a great deal. And then that $36,900.00 can be parlayed into multiple subject to’s and purchases where you’ll be able to take the depreciation on the entire value of the property, or the entire purchase price of the property. Now here’s the other good piece of news is you can componentize that purchase into segments and pieces thereby giving you an additional discount on your taxes, because you’re going to increase your depreciation and there’s a program for that too. You can call my office and we can turn you on to the right program that explains that whole componentization process. The IRS codes and the statutes and everything you can use to componetize a house rather than just depreciate the entire amount you can write off a house parts of it over five years. Parts of it over ten years, parts of it over 15 years and the balance over 27 and a half years. Yeah baby that’s a good thing isn’t it?
Question:
All right let’s see here let me see if I can cram one more in. Lou bought a foreclosure property with bank financing my plan before your agreement for deed understanding was to list it with a realtor and sell it. I had to agree not to use this property as a rental but as a second home. Now I want to use it…now I want to excuse me…sell it using your agreement for deed. In fact I have a buyer whom I’m meeting tonight. How do I structure the whole thing? Will the lender call an agreement for deed a rental and get tough. The agreement for deed sale price…let’s see minus the loan and all that sort of thing can they call the loan due. I will do very well with this on an agreement for deed but don’t want to get burnt.
Answer:
You say insurance wise but I think what you mean is bank wise. I think you’re concerned that the bank can call the loan due. So, what we want to do is be very careful about that and the good news here is the bank is not going to know that you’ve sold your property. The reason they’re not going to know is because we’re not going to tell them and they’re not going to see a transfer on public record. That’s another good thing about agreement for deed, because on these little puppies no body knows that there’s actually been a transfer on the property because there hasn’t been. You are actually still sitting on that deed and in fact if it’s not in trust you need to transfer it out of your name and into the trust name and the bank can’t do a thing about that. The bank can’t stop you from transferring your property into your trust. So, you’ll go ahead and transfer it into trust, the trust will give the agreement for deed with you as agent. The bank won’t know that you’ve given an agreement deed until you actually sell the property. When you sell the property the bank will be paid off and they will be happy, happy, happy.
Wow we’ve come to the end of another incredible group Q and A and I think here we answered oh my goodness just bunches and bunches. I think I’m up to about 35 questions so far. We answered a whole bunch of questions on this call. So, just want you to know that this is a typical group Q and A. Keep those cards and letters coming. You can fax or e-mail questions anytime during the month that will be answered one of the two calls during that month. So, these calls typically happen on Tuesday nights and they are the second and the fourth Tuesday night of the month typically and we do upload them to the Internet the next day. You can download them to the MP3 and in fact you’ll be reminded of this by receiving an e-mail from us tomorrow that will tell you exactly how to download it and you can actually download it to your MP3.
Oh by the way we have just created a new product. It is an iPod of all of 2006 calls. So, in other words there’s 24 calls or 24 hours worth of calls loaded with information. A lot of it not what we covered tonight and those are available from my office by calling 1-800-578-8580 you can actually get it for free if…well I’m not going to tell you the rest of the story you need to call the office to find out how you can get it for free. You just call the office and say, “How do I get the MP3, how do I get the iPod for free preloaded with 24 hours of Lou’s group Q and A”. Speak to Helga or Robin to find out and call 1-800-578-8580.
Now if those of you who didn’t get your questions tonight listen. I want to remind you that we do have the direct Q and A so anytime during the month you have a question you can send that in and get a quick answer to that by one or our staff or if it’s what they call a Lou question they’ll hold it for me to answer. That assures you that you’re not going to go without your questions answered.
Now I want you to know that we also have the one on one coaching that’s me as your mentor as your coach, looking at your business working with you do to design your business. I’ve done a bunch of calls today. I’ll be doing more tomorrow and the next day with folks that have stepped up to the plate and said, “You know what I couldn’t do any better than to have a mentor and a coach who has 30 years experience in buying, selling, and holding property. And that would be a very wise decision for me to make”. So, if you’re interested in that do contact the office and they will tell you more about our coaching program.
Well it’s been very pleasant to be with you guys. I want to wish you the very best in the next two weeks. Good health, good luck, good profits, and may God bless. Talk to you soon being street smart.
