My partner and I acquired a house under subject to the mortgage. We were going to fix it up and sell it before it went to the courthouse steps. It was taking of the records for a while for whatever reason.
I guess you mean taking a while to record the deed, maybe.
I was checking periodically to make sure it did not go to sale before we could refinance the home. I checked at the end of June and there were no court dates set for auction. I checked again last week and it had been sold back to the bank without us being notified. Is there anything I can do to get this back so we don’t lose the money we have put into this home.
Well, Doug, I would absolutely agree with you that you have had the wind taken out of your sails and you must do something quickly to get this thing taken care of.
First I want you to call the foreclosing attorney. I want you to talk to them and say, “Listen, we have purchased the property, apparently you didn’t find it on public record, but we own the property. We’ve put a lot of money into the renovation of the property, we want you to talk to your client, the lender and see what we can do to undo this foreclosure.”
I know that sounds strange, but yes, lenders with the cooperation of the attorney can undo and reverse a foreclosure when the property has been taken back by the lender. All they do, basically, is eradicate what they have created on the day of sale and they, basically, reverse the thing back to the original names that were on public record.
Now the challenge for you is you bought it subject to so obviously you are not the original borrower. The lender has no obligation to track down the current owner of the property. They only have an obligation to publish in public records, so they say there’s a county organ that they publish in and then they go ahead and publish the information there. Since they also probably mail to the property and, maybe even, it was diverted to the seller’s new address and therefore you weren’t notified because you didn’t get the mail.
These are the things that we have to be very cautious of on subject to because after all we need to have the lender change the address that they are mailing to and the same happens when there is a foreclosure, they would have notified the address that the lender had. So if you had done proper due diligence and gotten the lender to change that, then you would have known that you would have gotten notification. But as I said, likely they sent notification, but it got redirected to the seller’s new address. So, what we’ve got to do is beg and plead and see what they’ll do and it may be that the lender in some way will work with you.
The other thing you can do is threaten. I have had to do this in several occasions and I say, “Mr. Jones, I know you’re the attorney for the bank. I just wanted to advise you of what happened. We’re so challenged by this situation and obviously we have put significant cash into the property. Obviously, we are in a position now to lose and I just can’t imagine what the property is going to look like if that happens. We just want to alert you that we’re also going to file a temporary restraining order and we’re going to file with the courthouse records that we’re going to file a Lis Pendens on public record, so we would appreciate it if there is someway we can get this reversed so all that won’t be necessary. I’m sure that your client would much prefer to have a performing mortgage than they would to have another REO and especially one that obviously is going to be in great disrepair if we’re not able to get this thing taken care of.”
Then Doug, I would also be careful about telling them how much you’ve done in repairs. You can tell them that you’ve got the whole place torn up right now doing the repairs and you want to go ahead and get this thing handled so you can complete the repairs and sell the property and everybody can be taken care of.
Okay Doug, act quickly and keep me posted. We want to make sure that you get taken care of there.
Rosemary says that she wants to know what is the difference between a subject to and owner financing?
Well Rosemary there is quite a difference between it because number one, when you buy a property subject to, you are actually receiving the deed to the property recognizing that there is a mortgage in place. Understanding that if that mortgage is not paid, as Doug found, then the lender can and will eventually foreclose on that property and wipe out your deed. So, by the fact that you have a deed does not mean you have total control over the property. The lender still has control over the mortgage. So, what do you do to maintain control of the mortgage? You make the payment and you make sure that the lender is receiving the payment and you make sure that the lender is applying the payments. This is absolutely critical if you’re going to do subject to and you must study Section 4 of the Volume 4. Volume 4 is land trusts and Section 4 is all the details on doing subject to transactions safely. I have a checklist there. You can go down the checklist and it makes sure that you do everything that you’re supposed to do. Why is it in the trust book? Because you cannot do subject to successfully and safely without placing the property into trust. Therefore trust is a very critical piece of the overall process.
Now, owner financing on the other hand is a different animal. Owner financing is when the seller gives you the deed to the property and carries back a mortgage. Essentially that is when they take control of the mortgage and you have control of the deed.
So, in subject to, think of it that the lender has control of the mortgage and in owner financing, think of it that the prior owner, the seller, has control of the mortgage.
In both instances, you would have control over the deed. It’s the mortgage that you wouldn’t have control of and they would be issued in two separate formats.
Now, Keith Kline says: What is the difference between a short sale and a foreclosure?
Okay Keith, what happens is when the lender has not been paid, that loan falls into default. When it falls into default, then the lender has got to do something about that to try to get their money. So, what they do is use a process that is outlined in the mortgage documentation. In the mortgage, it actually says how the foreclosure process works. It says, “listen, you’re the one who borrowed the money, if you don’t pay me, here’s what I can do. I’m going to publish this foreclosure in public records as called for under state law, I’m going to notify you. If you still don’t pay me, then I’m going to sell your house on the courthouse steps to the highest bidder. When the highest bidder gets the house, we’re going to give them our deed under power of sale. Where did I get that power of sale? We got it in the mortgage.”
You the borrower, grants the lender the power to foreclose on that property and sell it and record a deed, all because of the lovely words in the mortgage documentation. Therefore, you must be very careful when you buy properties like that and understand that that mortgage can be completely wiped out by the sale.
So, your question is, what is the difference between a short sale and a foreclosure. Well, it’s quite simple. A short sale is during the process, where the loan has fallen into default, typically and before the lender has foreclosed out their rights. So, during that period of time the lender can elect to accept less for their mortgage than they are owed. Therefore, that reduces the lender’s profit, but it also can reduce their cost because they are mitigating their losses prior to the foreclosure.
Once they have gone to the steps and foreclosed the property out and now own that property, that becomes REO or real estate owned. REO now has to be listed with a realtor and they have to sometimes fix up the property, it sometimes gets vandalized and there is a long process to getting it sold. Therefore, the lenders can estimate and anticipate what their costs are going to be when they are going to have to foreclose on a property.
So, in many cases they will actually give up all those costs or save all those cost while it is in the default process. That’s why the lender is willing to short the sale or short the amount the amount of money that they’re due because it’s just money that they would have spent anyway once they get the property back. They just pass it on to potential buyers and they say, ” look, we’re going to cut our losses now, so that we don’t have the pain and suffering of going through trying to sell it.”
Keith I hope that cleared it up for you because short sales and foreclosures are really going to be very, very common in today’s market. They already are and you better get very adept at short sales.
We have a kit for that. It is our short sale profits kit. It is all the forms you need to send to the bank to get the bank to do the short sale. It’s what we use in our own office. It’s how we were able to get a $1.7 deal recently because we used that very package. So, understand it’s not just learning the process of the short sale. It’s having the appropriate paperwork to do it with. So, we teach you that and, in fact, we have a training coming up in October called “Millionaire Deal Maker” and that’s where we teach you how the process of the short sale goes and how you can do it, but you can advance that or speed that up by going ahead and getting the short sale kit now. It’s $299.95 because it is an add on or a companion to our Basic Buying System Volume I.
The next one is from Mary J. It says, sub prime market is imploding, what is the best way to buy these properties? Mary is in Atlanta.
You’re absolutely right. The sub prime market is imploding, exploding our potential profits. What the challenge is these days, is the banks are taking back so many properties that they’ve got a process. But what it is typically is to take one property and list it with one realtor and put it on the market and wait and wait and wait and then try to get the property back or try to get it handled.
Well, in this case, because the property is actually being processed, then they are processing and foreclosing on so many of these that have to have listed properties and vacant properties all over the place. Buy insurance for it, they’ve got risk of exposure due to people finding out that it’s bank owned properties and them actually breaking in and squatting in the property, basically stealing the use of it from the bank. The other think that happens is once the bank has foreclosed on that property they also have the potential vandalism, even after they’ve spent money to fix it up. All those things.
So, what many banks are doing today is they are grouping all those properties together and they are selling them in bulk. They’re just selling off an entire package of 500 properties, 1000 properties at one time. They’re saying, bring me your $50 million and here, you can have all these properties at a discount.
In fact, we, at Streetsmart are working on that very strategy. We are going to be able to offer our Streetsmart licensees access to those kinds of pools because we’re going to be buying those pools and committing to those pools from the lenders and then we’re going to sublet those or expose those to our licensees. What better thing can you do than become a licensee of ours and have all the tools to be able to do this with? Because once I come to you and I say, look, I want you to buy five properties and you say yeah, I like these deals, I like this 65, 70 cents on the dollar stuff, I will buy those all day long, because you just took out my whole buying process. So I can cut that switch off, you’re bringing me the buying process right here and Lou that’s fantastic because I can resell these properties for 80 cents on the dollar, 90 cents on the dollar, even 100 cents on the dollar using all the exit strategies you’ve got built into your system. So, you’re absolutely right, that’s exactly what I want to do. I want you to use my system to exit out of these properties. If you do it right and you discount them right, you’re going to be able to move them very quickly and be ready for the next hunk of properties. Isn’t that an exciting thing?
So, that’s going to be one of the ways, Mary, that you can buy properties is through us. But of course, the other way is to just pick up the phone and just make outbound calls to all the real estate offices in town and ask who is the specialist in your office that deals with bank REOs. Ask who that person is, talk to them and say, I want to buy some of your bank owned properties. They will either fax or e-mail you a list or refer you to a website and you’ll be given an opportunity to see their list of properties that they got from that particular bank.
This is a great opportunity for you to be in this business because I have said several times, many of you have heard me say, this is absolutely, positively the best time in history you could be in this business, because you’re going to be able to buy at incredible discounts over the next few years. In fact, they’re saying now that the sub prime losses could hit $100 billion. Just take a look. Federal chair Bernancky said that the sub prime losses could hit the $100 billion, that’s where that came from. GE Capital, it’s selling its units specifically due to the sub prime market. They are getting out of that market. Burns has shut down its sub prime unit. Two hedge funds that owned sub prime paper have closed down. Isn’t this the perfect time to be in the business? Lenders are taking huge discounts, as we know on our short sales, through like 10% on the dollar on short sales on second or junior liens. It just gets better from there. The realtors are just coming around and they are cutting deals all over the place because they can’t get any business right now. The traditional business for them has dried up, so they’re looking to be a facilitator to get these deals processed and sold, and you can use them. You haven’t seen opportunities like this since 1985 during the Resolution Trust Corporation and I’m just letting you all in on this secret because it’s really, really wonderful.
Two years ago, if you just get into this business now, don’t worry about two years ago. Don’t worry about five years ago. Don’t worry about 20 years ago. Just say right now is the best time for me to be in this business and I’m going to just forget about the past, forget about losses from the past, we’re going to do this business right now.
Now William asks: How and do you think it would be a good idea to try to approach REO department with a group of people to take 20 or so properties off their books at bulk discounts.
Well William, just as I got through explaining, I want you to understand that 20 does not impress the bank these days. It will be hundreds of properties that’s going to impress them. They are looking for people that can literally come in and take all of the properties and deal with them themselves. So, you would be able to come to us, as an affiliate licensee and you would be able to access our properties with your friends and redistribute them through your down line network. That would be just fine with us because we’re going to have 500 to liquidate, so it’s not going to be a big deal at all if you come and take a hunk of those.
In fact, all of you on this call, I want you to be lining up your potential friends, your potential buyers of the properties, because once you get your fingers on them, then you can redistribute them to them for a few pennies markup on the deal and pass it on to them. Of course I mean a few pennies on the dollar, where you can make some really good profits.
Now Judith Filbert asks: Lou I saw you at the event last week and bought your system. I am a beginner. Can you discuss a subject to transaction when one would use it? Would it be for houses with no equity? We seem to be running into people with no equity who want to sell and buyers who can’t qualify. How can we put the two pieces together? Would a subject to transaction work here? Thank you Judith Filbert, Lincoln, Nebraska.
Well Judith, here’s great news. First of all, many loans that are out there today have first and second mortgages. If you take that second mortgage, you will be able to reduce it, just like I was saying earlier to about 10 cents on the dollar. So if they have a $30,000 loan, I don’t want you to start with $3000, I want you to start with like $1000 and know that your top number is $3000 that you’ll pay to wipe out that second mortgage of $30,000. Now if there is still loss past the second mortgage, then you can go down to the first mortgage and ask for a discount there as well. So, we can short sale the first, we can short sale the second.
But here’s a strategy I want you to understand. If the first mortgage has a good interest rate and good terms, why would we not just keep it in place? Essentially, we have already gone to the bank, we’ve already borrowed the loan. We’ve already borrowed the money. It’s the seller’s money. When they went to the bank, they qualified for the loan. It is attached to the property that we’re buying we just leave the loan in place and make the payment. If you make the payment and keep your nose clean, the lender won’t be concerned about the property having been transferred. But there is a process by which you must do it. You must follow my trust system.
As I mentioned earlier, that’s Volume 4, Section 4 where we go into detail about how to do subject to safely. It’s critical. It’s critical for your success. By the way, if there is anyone on this call that doesn’t own Volumes 4 and 5, which is land trusts and personal property trust, by all means, you need to call the office, 1-800-578-8580 and get your system updated to include the trust elements in there. Because it is so critical that you do this and you do this right. In fact, you know, Pennsylvania, people say you can’t do trust in Pennsylvania, people say you can’t do trusts in Arizona. Amazingly, our licensees do them every single day there. So, you’ve got to understand, that if you want to know what the law is, you read the law and if you manage the situation where you are in compliance with the law, you’re in fine standing and you can do things that other people say you cannot do. So, this is absolutely critical when you are going through the process of learning how to do this.
So, as I was saying Judith, if you look at the second mortgage and look to short sale that, you might be able to keep the first mortgage subject to. If instead, you’re dealing with a first mortgage that if full to the max of the value of the property, you’re going to have to turn that deal into a short sale, which Judith, unfortunately, that means you’re going to have to raise capital to get that property. You’re going to have to either go to the bank and qualify for a loan for that particular property or you’re going to have to use personal funds or someone’s IRA account or someone else’s personal funds. Whatever source of funds you can find to be able to buy the property. Because when you put a property under contract, that’s only half the battle, now we’ve got to go find the money. I even teach you how to do that.
Many of you just graduated our millionaire jumpstart in Philadelphia. We’ll be doing our next one in Orlando and the next one after that in Las Vegas. We do them every other month, so you definitely want to get that training if you haven’t been already because we go into a great amount of detail on how to do this business and how to do it right. So, if you’ll follow the system the way I’m saying, you should not have any problem at all and in the system it teaches you how to discount the property. In fact, let me just tie this in with another question here.
Coudry Agbeamy. Coudry says: Hi Louis, I am referring to the example we treated at the last MJS in Philadelphia where there is a first of $103,000 and the second was $30,000. Going through the cost of sale, it showed $19,000 negative which necessitated the short sale for the second. Assuming the seller handled that by giving you a check for $19,000.
No, Coudry, that’s not what happened. What happened was the cost of sale worksheet, which many of you understand is a significant and key factor in our system, the cost of sale actually lays out what the negative is. So, it accounts for all of the costs in order to sell that property, including the existing mortgage. So, once all of that is deducted from the current value of the property, then it shows whether there is a positive or a negative equity in the property.
In the example we covered in Philadelphia, there was a $19,000 negative which means that either the bank, the seller or me, is going to have to pay that $19,000. Now, I’m not planning to buy property and pay $19,000 negative. I’m planning to make a profit, so it isn’t going to be me that’s going to pay that. So, the next place we can go is to the seller. We say to the seller, can you handle that? The seller says no I can’t handle that. Then you say, how much of that can you handle and the seller says whatever they say. In the example I gave in Philadelphia, the seller could handle $2000 of it. So, the rest of it was going to be a negative to me if I didn’t go to yet someone else to cover that. So, I was able to go to the bank and the bank took a huge discount down to that $105,000. Actually, that was owed on the mortgage and they were able to also grant us a work out on the first mortgage.
So, Coudry, that’s how we handled that situation and the second became a very good deal because they reduced the balance from a little over $30,000 to just $2000 and we were able to take over that existing first mortgage with a great 7 1/2 % interest rate. We were able to that over subject to and even the seller paid to get rid of that second mortgage that was the $2000 that the seller gave us it paid off that second mortgage. We kept the first mortgage, we turned right around and sold the property for $159,900 using our exit strategies, which include lease options, agreement for deed, owner financing, promissory notes, trades, auctions and so many different variations.
We have a great process that allows you to actually identify exactly how you can get the property sold. We even have a form for that to. It’s called the profit optimizer when you’re selling the property and we really want you to take advantage of that form because that’s a great thing. It helps you to identify exactly what the hidden costs are going to be and what your entire exit strategy is going to be in order to get out of it and create a marketing budget to get out of that property once you’ve purchased it. That’s all in your system. So folks, it is critical.
We have an in-depth training called “Massive Passive Income” and that’s a four-day event where all we do is focus on the holding and the selling and the managing side of our businesses to really train you in how to do this and how to do this right. Now, the buying in-depth training is our “Millionaire Deal Maker” where we’re teaching you how to buy right. We even split up into groups and we give you an opportunity to learn from one another on how to buy a property after I have trained you on how to buy it. We also have another in-depth training called “Maximum Asset Shield.” That’s the trust training. It’s absolutely critical that you get that kind of training because that’s what’s going to protect everything you own and it’s important to get all your real estate in separate land trusts and it’s important to get your vehicles in personal property trusts and get your bank in personal property trusts and so on and so on and so on. Once I teach you how to do this at the in-depth training, we actually give you auto fill disks. So you can fill out one page of that disk and boom, it auto populates the entire data base of forms, so you’re able to press print and actually print out all your documents once you’ve filled out that first cover sheet. So, it really makes it an absolute no-brainer to use land trusts, personal property trusts or any of the other strategies we teach because they are so built in to your system and it makes it so easy for you to be able to follow and just duplicate exactly what I’ve already done. All you’ve got to do is step in and do that thing.
Next we have Pamela Popa, welcome back Pamela. There are a couple of bank owned properties very near me. How do I approach a bank, especially when I do not have the cash or credit to purchase in my name?
Well, number one Pamela, they’re not going to even talk to you if you’re only going to buy one or two properties. That’s going to go through the realtors. So, again, you’re going to need to pick up the phone book and call outbound all the realtors in the book and find out if they have someone who specializes in REO. You’re going to find that person’s name and then you’re going to be able to make the direct connection between them and the bank on the onsie-twosie deal.
We’re going to hope to give you a lot more than that with our system and a lot faster. It’s going to be a web-based solution, we’re going to have all kinds of technology in there that’s going to make it a lot easier for you to buy these properties, including even negotiating the properties. Including all the paperwork for the properties, including holding them in trust and so much more. So, we have definitely designed this to make it easy.
Now, the second part of your question, Pamela, was so how do I get the money to buy this thing. You’re absolutely right, if you do a short sale, the short sale in and of itself requires you to bring new money to the table and pay off any existing financing that you may have had. So, that makes it very difficult to be in the holding side of the business where we rent the properties out, when you’re using up all your capital to own that one property. So, what I recommend you do is contact someone that has an IRA account, contact anybody in your family, at work, at church. There’s lots of people out there that have IRAs, but they don’t have stacks and stacks of money to be able to make the real money off of there money, so it just kind of hangs out at 1 or 1 ½ percent. What we do is go to people like that, and ask them, would you be willing to work with us. We’ve got some solutions to your problem and we can work with you to get rid of your properties and we’ve got that done for you. So, this gives you some ideas. When I said get rid of your properties, I meant get rid of your money I should have said, because you’re working with them, they have money in the bank and you can just come in and borrow that money from them at greatly reduced interest rates.
By the way, we have a presentation it’s called “The Lender Presentation Kit.” It’s absolutely critical for you to get The Lender Presentation Kit and that’s $79.95 because that gives you the opportunity to open the door and start talking to some real people about their personal funds and their IRA funds that you can come in and borrow. Isn’t that a great thing? All you’ve got to do is have the tools to do it with.
Now, we’ve got Leon McKlindon who asks the question: I’m in the midst of my first deal here in Chicago. I am going to close on a property within the next two weeks. I am taking it subject to the existing $100,000 loan. I am paying the owner $3500. I want to wholesale this deal to another investor. The after repair value is $165,000 to $170,000. It needs about $15,000 in repairs if retailing. A little less if you’re just renting it out. The current owner is a young, burned out landlord who no longer wants to make the $1000 a month payment. He had a Section 8 tenant whom he evicted and now wants to be rid of the place. The loan is fixed at 6%. I just signed the purchase and sale agreement yesterday. So, I have not yet checked the title to confirm the numbers. The house is 3 bedroom, 1 bath, 1588 square feet, and 2 stories. The monthly is $1000 includes taxes and insurance. Included in the contract I wrote is that the owner wants the property out of his name in three years from the closing date. I am familiar with the maximum allowable offer of 78% minus repairs, minus wholesale fees, but since I am taking this subject to, how do I determine what I can wholesale it for? I don’t want to leave any money on the table for my investor/ buyer to wholesale it to someone else.
Well, Leon, what difference would that make to you? It doesn’t matter what they do with it, what matters is what you do with it. You’re absolutely right that you need to use the formula in order to determine what the real numbers are. So, again we want to use the cost to sell, but the cost to sell is a tool we use when we are sitting in front of sellers. It’s one of our trade secrets that buys us the huge discounts that we get on our properties, $20, $30, $50, $100, $200, $500 thousand discounts all by using that magical paperwork.
Now, what we need to pay attention to is that once that property is in play and right now you have taken the deed it sounds like, you’ve got it under contract, you have not taken the deed. So what you’re concerned about is what are the numbers? Well, you’re going to be able to use my PAW, its Property Acquisition Worksheet, PAW, you use that, that’s an internal form. So, this other form I was mentioning, cost of sale, is an external form. That’s a form that we use when we visit with sellers to show them the numbers, but internally we need to calculate different numbers. Because the traditional cost to sell revolves around if you put the property on the market and wait for it to sell for retail. But our internal Property Acquisition Worksheet instead calculates what it’s going to cost to sell the house quickly using all the exit strategies that I mentioned to you earlier that we use in the Streetsmart system, including lease options and owner financing. This form, the Property Acquisition Worksheet allows you to actually figure what all the costs are going to be and it allows you to figure exactly where your profits are going to be. Then you can go back to the seller, the bank and you can offer anything you want to because you know your numbers.
Now this is critical for you to learn. Number one you want to go to MDM to learn this, Millionaire Deal Maker. Number two, of course the platinum training, where we do things like this. Number three, the coaching, which is what you did, you sent this question in on the coaching, and we can actually coach you through a deal right at my office because we understand the technology. So, all these things are element of a successful business owner. You’ve got all the elements, so all you have to do is do what I ask you to do, plug yourself in to the system and all of the sudden, it makes perfect sense to you. So, we want to do lots of that in your business and help you to get it.
So, Leon, you’re going to go through the Property Acquisition Worksheet. You’re going to determine exactly what the numbers are and you’re going to use your comp whiz that’s on the backside of your website. Your buying and selling websites have a backside, that’s where all of your Lou Brown paperwork is stored, right there online and also our comp whiz tool that allows those of you who take advantage of it, to be able to comp the properties right there in order to value it. In fact, this Property Acquisition Worksheet I just outlined is actually posted right there on the backside of the website. It’s all there so you can quickly analyze your deal and the Property Acquisition Worksheet even calculates for you once you put in your data. So, this is all critical to the overall strategy of owning property and having the right tools to get you there a lot quicker than most folks do.
Now, Cotty Abdul-Hemid asks: In wholesaling, we normally tell the seller that we will be able to close in seven days and get the contract signed. After that, we try to post the property in the wholesale buyer’s website and expect to get it sold to a wholesale buyer for an assignment fee. What do you tell the seller and what will happen to the contract if we are not able to sell it quickly?
Well, lets answer that one first Cotty because that’s a very important piece of the whole process. You’re going to have to tie up the property long enough in order to protect yourself and you just tell the sellers, look I don’t know how long this process is going to take, I’m going to need a year. Now, as long as you’re not having to make the mortgage payments, that’s not painful. If you had to make the mortgage payments, you’d be very upset. The seller is going to feel exactly the same way. If they are already behind on their payments, they can continue to be behind in their payments if you don’t have the cash to be able to purchase that property today. So, that gives you an opportunity to go ahead and get the property marketed if you control the property, so that’s one of the ways we do it. Is to get the deed to the property from the seller, control the property, then start to market it. The seller can’t renege or come back on us because we’re going to use full disclosure and we’re going to tell them, look, we’re going to market this property, we’re going to do everything we can do, but there are no guarantees that we’re going to get the property sold and we get them to sign off on that.
Then you go on to say, how much earnest money do we need to give the seller at the time of getting the contract.
Well, Cotty, you need to come back to Millionaire Jumpstart because we go over that there when we go over the purchase and sale agreement, the buying purchase, and sale agreement. There you’ll find that the earnest money is $10. If anybody ever argues with you about that, you just say, listen, I have people tie up property all the time and then not close, so we’re looking for people that are players, that want to get the property sold quickly and that’s who we’re interested in dealing with. How much do you have to work with, Boom and you’re able to buy that property or sell that property because you’ve identified your market right there.
Lou, how to deal houses wholesale without being labeled a dealer by the IRS. Should I sell through a corporate entity, a C-Corporation or an S-Corporation?
Well, good news Bill, you’re not going to have to do that. Why? Because you can establish yourself as a long term hold strategist and that your overall strategy for being in the real estate business is to hold long term, which means that your gains become long-term capital gains and you’re not subject to being pegged as a wholesaler. The way you do that is that you operate all your business through one tax return. So, if that’s you and occasionally you sell properties, then you can say to the IRS, well, somebody came along and bought one or bought two. That does not make you a dealer. What makes you a dealer is doing business exclusively that way. But with our Streetsmart system, you’re protected because we do things several different ways to make sure that you don’t get in trouble.
Robert Baxter who says: I live on a single property with two houses on it. I live in one house and rent the other. Can I put this property into a land trust because this is both a rental and my residence? Is there anything special I need to do?
Let’s start with the first question. Can you put the property into a land trust? You absolutely can Robert. What you’re going to do is get out that legal description that you’ve got, you’re going to dust that off, we’re going to make a copy of that and that’s going to become exhibit B to your land trust.
So, as we went over this past weekend at Millionaire Jumpstart, you will actually be able to create all the documentation to get the property transferred from your name into the trust name. ou’re going to have this wonderful benefit of trust, that I haven’t even gone into this weekend, but I will at the in-depth training coming up in August, August 23-26. We’re going to go into a lot of detail about trusts. You’re actually going to do your own land trusts in class, you’re going to do your own personal property trust in class. You’re going to learn how to move vehicles to class you’re going to learn how to open a bank account in class. We’re actually going to do a subject to workshop in class. You’re going to learn how living trusts work and we’re actually going to give you all the paperwork to do it with and even give you an auto fill disk once you graduate the event. You’re going to absolutely love that. Those of you who have not yet registered for MAS, it is always filled, we limit the seating at this event, you must get registered for that before all the seats are gone. It is I think, close to filled. I think Helga was telling me today it is close to filled to capacity, so call the office 1-800-578-8580 to get yourself registered for the trust event.
As I was saying to Robert, he will be able to take the legal description that is on the property deed that he has now and he will transfer that property from his name into the trust name. He’s going to use that legal description as the exhibit to that trust showing exactly what property has been placed in the trust and that is that legal description of your house and in fact, both properties, because it’s really the land that it’s describing, not the houses. It’s the land.
Now, one thing I’m going to mention to you Robert, is that if you the luxury of being able to transfer this property and split it up. There is sufficient room between the property to meet the zoning restrictions in your state or your county, then you want to go ahead and split that property up before you sell it or rent it, because it gives you so many more options to do with the property.
Now, you go on to say, is there anything special I need to do? Robert, like I said, the special thing would be to split the property up if it’s possible for you to do that. Because that would be the best thing. Now, since you’re going to be the ultimate beneficiary of this trust we just created, guess what, Uncle Sam, since you’re the one that’s going to be filing the tax return on this. They have no problem with you both renting a property and owning a property and in fact it is very, very common in the United States to do that.
Now, Neil Mohan asks: I just established two land trusts, one house in each trust and three personal property trusts, two bank accounts and one car trust. Am I required to notify the IRS or anybody else about these or their associated Tax ID numbers?
Well Neil, in order for you to get the ID number, you had to go through the IRS and through that application process, that’s how the IRS actually connects the dots, so to speak, of the number you’ve just obtained from them to the trust itself and all the paperwork. So, the good new here, is you can protect yourself by just going ahead and putting that in there and you’re going to be really, really pleased that you did that someday because if anybody comes after you, good news, your property is in trust and they can’t see it.
You go on to say you are in Florida. Good news Neil, you can absolutely do it in Florida with absolutely no problems at all.
Now Mitch says: Why should I transfer my property from my name to my LLC using a trust when I can transfer title directly?
Yes, you’re absolutely right, you can transfer your property from your name to your LLC directly. What I’m recommending you do though, and one of the great benefits of trusts is, that you can hold just one property in each trust. You say, well Lou, I could do that with LLCs too. You know what, Mitch, you are absolutely right you can do that. However, let me explain what would happen. In many states, there is a fee for each entity, but they do not charge the fee on trusts. So, lets say for the sake of argument, you’ve got 10 properties, 10 legal descriptions. That means you can set up ten trusts for free. Once you set up those 10 trusts and record the deeds, they are recorded on public record, now it is no longer owned by you, it is owned by the trust. You say, yeah, but I could have done that with LLC, I just set up a separate LLC for each of the 10 properties. No, Mitch, that would be a terrible mistake in certain states, such as California, which you mention. California charges a franchise tax. So if you have 10 properties in California, guess what the franchise tax is? $800 per entity. If you placed each property into an LLC, guess what, you just had an $8000 tax bill and that’s before property taxes and that’s before any of your costs associated with your business. That’s each and every year. But with a trust, that’s not true. Once you place your property in trust for state planning purposes, it stays there and you don’t have any entity fee.
Now you go on to say: And in California, there’s no transfer tax for this process when the property owner is the same as the LLC owner. Well, guess what Mitch that also applies to trust. There is no transfer tax when you deed it from your name to your trust name.
Now, here’s our strategy, we want the LLC to be the beneficiary of the 10 different trusts. I just saved you $8000 on this call. Mitch, I hope you appreciate it and I hope you’ll use just a fraction of that to come to the MAS class because that’s going to teach you a whole lot of other things you didn’t know about trusts too and really get you indoctrinated on how to do this and how to do it right.
Now Rich Halavaty says: How is title insurance and the changing of property from your name personally to the trust affected? Any advise?
Well, the title insurance and the changing of property from your name personally to a trust will not effect and here’s why Rich. The title insurance that you have is for the title or the deed that you have up to the time of your ownership, not after you owned it, up to the time of your ownership. So, what does that mean? That means that you are actually insured forever, up to the time that you bought it. Isn’t that a good thing? Isn’t that a great thing? Very, very critical pieces of setting up your entity and setting up your structure is right there Rich, because you are protected even by taking it from your name into the trust name, you still can use the title insurance you already have. So, when the trust goes to sell the property to someone else and they find a title flaw from before when you owned it, guess what? You can still use the title insurance that’s already on the property and it won’t cost you a dime to use that title insurance.