Hello everyone and welcome back to another Street Smart installment of our Group Q and A, and I’m very excited to report to you as we do a bimonthly basis what the market is doing and right now the market is tumbling. According to the Associated Press, Standard and Poor has reported that home prices tumbled by record amount. Yeah baby. This is good news. A wildly watched housing index released Tuesday showed home prices dropping by the sharpest rate ever in the second quarter. Standard and Poor’s Case US National Home Price Index tumbled a record 15.4% during the quarter from the same period a year ago. The monthly indexes also clocked in record declines. The 20 City Index fell by 15.9% in June compared with a year ago, the largest drop since its inception in 2000. The 10 City Index plunged 17%, its biggest decline in its 21 year history. No city in the Case 20 City Index saw year over year price gains in June, the third straight month that happened. However, the rate of single family home price declines slowed from May to June, a possible silver lining. The index creators said, “While this is no national turn around in residential real estate prices, it is possible that we are seeing some regions struggling to come back which has resulted in some moderation in price declines at the national level”, said David M. Blitzer, Chairman of the Index Committee at Standard and Poor’s.
Okay what does all this mean? Well actually this is all good news and the reason is that we don’t build our business built on pricing. We build our business built on our exit strategies. So therefore our exits are working in today’s market, working like they don’t work as well when the market is a seller’s market, right now it’s a buyer’s market. However, the buyers we work with can’t play that game. The buyers we work have some kind of credit issues, typically, and have some kind of lack in funding issues and we’re giving them an opportunity to someday own a home with our program. That’s why people are lining up for our program. That’s why our buyer’s list is bulging. That’s why we have multiple people excited about our houses, and that’s why just today my property manager called me and said, “Well I’m going to the bank now to meet with someone who already has the funds, she wants me to meet her at the bank and sign all the paperwork and it’s on a house that we have the rent paid until the 25th of the month. We already have now a buyer on the 26th of the month, taking the property and moving in. So we don’t even lose a day’s rent on that property” and ladies and gentleman that is exactly what’s happening throughout Street Smart. We’re hearing from all of our Platinum coaching students, our high level coaching students that we follow their business very closely, they’re either at 95% to 100% occupancy, and my friends that is exactly what our plan is. So don’t worry too much when you hear these things out there. Know that Lou said “Now is the right time to buy. Now is the right time to negotiate the very best deals you can because right now people will negotiate. Banks will negotiate. We had a phenomenal reading just two weeks ago from Vicki _____(3:54) saying that even though she’s done so many short sales in the past she just had one that’s the best ever and she was able to get a, I think it was $140,000 loan down to $56,000, and the second mortgage from a lot of money down to $1500 and the first mortgage lender paid for the second mortgage payoff of $1500. So recognize that banks are doing things today that they’ve never done before, and now you have to look at where your leads are coming from and hone your skills towards today’s market. Right now the skills need to be honed towards modification of existing loans. The deals need to be honed and the skills need to be honed towards the leads that we’re generating in today’s market. So when we can get sellers to carry back financing, when we can get sellers to allow us to take over their existing financing better yet create our equities by going back to the banks and renegotiating the loan that’s already on the property and then taking it over we’re in a much stronger position.
So I’m sharing all that to say that in October 23-26 we have the Millionaire Deal Maker and that’s where we’re going to focus on today’s market and exactly the skills you need today to be able to get the banks to do things they’ve never done before, and it’s all because of these kind of reports that I just read you at the beginning of the call, because just notice that the banks are reading this too, just notice that the banks are looking at the very equity they thought they had in the properties that they put mortgages on, some of them 95% and 100% mortgages, they’re now recognizing and realizing that they’re already off by 20% before they even take the property back, before they even pay a realtor, before they even have any repair costs, they’re already upside down by 20%. So we get to use that now in our buying strategies, and I want you to recognize that today’s buying strategies are different than they were a year ago and now we have to be in touch with those buying strategies.
All right our first question here is from Edwardo _____(6:15) who says “It was wonderful to see you recently in Columbus, Ohio. I really learned a lot from you and would like to attend more of your boot camps. Please don’t stop doing them, we need you.” Well thank you Edwardo. “I’m planning to sell a house on agreement for deed in Kansas City, Missouri and I’m looking for a company that can collect the payments and escrows for taxes and insurance. Please kindly provide me with contact info of a company that provides these services.”
Well Edwardo we’re actually putting a Street Smart solution together for you for that very thing. It’s a company that can do that for you and actually send out and service your loans for you. In the mean time though, let me suggest something else that we’ve found as a Street Smart solution. You can go to let’s say that you’re with Bank of America, Wachovia, and so many other companies, what they will do is issue you separate ATM cards. These ATM cards have an account number on them. As far as the tenant is concerned, the tenant thinks that’s the account number for your bank account, however, it is not. It is an account number that the bank has used to link to your account. So what happens is, it’s a deposit only AMT card. Where your tenants can go like on this agreement for deed example, you’re mentioning a property in Kansas City your tenant can go to the bank using this deposit only ATM card, plug it in, make the deposit, and then you get notified from your lender that this account number received this much money and this account is attached to your account. Of course there’s accounting for that on your monthly statement and that is a great solution that costs absolutely nothing and you can set it up immediately with your tenant or your agreement for deed buyer.
Edwardo goes on to say “Also if I would ever want to cash out from an agreement for deed how would I go about it? Do you know anyone who buys agreement for deed for cash? If so please provide info and what percentage of the face value do they normally pay.”
Well yes Edwardo I do. Now recognize that the industry is in flux right now, so what was true a few months ago may not be true today. However our paper whiz and you all know that I believe in whizzes, we’ve got all kinds of whizzes out there and our paper whiz is Bob ______(8:56) and you can call our office at 1-800-578-8580 and Bob we can put you in touch with Bob’s company and what Paper Whiz does is basically take those kinds of things such as an agreement for deed and what they do up front is tell you exactly how to structure the deal. They tell you exactly up front what the numbers are going to be and what the deduction is going to be. The deduction is usually anywhere from 5% to 10% of the sale price of the property or another way of saying that is of the loan amount that is being made against the property. So yes it’s costly, however you get your money today and that could be the best way of going about it since it offers us such a bigger market to be able to sell the properties to not just one or two folks that can actually go to the bank and qualify for a loan today, but now it opens the door to a much bigger market, a broader market of folks that can’t go to the bank and can’t qualify for a loan today. However, they can get owner financing from you and so this is another way to be able to cash these things out when you want to, but again the best solution is to have structured it right in the beginning so you don’t take as big of a hit on the end.
He goes on to say “Also how can you get the new buyers to refi out of an agreement for deed in this market, if they have lousy credit, if they have been making payments say for six to 12 months?”
Well they may qualify for FHA but it is going to depend on the seasoning of this loan and the proof that they have been paying on time. So I want you to treat these payments very, very, very carefully and explain to the tenant that they can actually refinance at a lower rate if they maintain a timely payment plan. So you’re going to make your deposits as soon as you receive them, which proves that the payment was timely made. You’re going to make separate deposits of their payments so that you can prove not only here’s a copy of the check but here’s the deposit of the check to the bank account, so you’re showing the lender the copy of the check front and back, and you’re showing that it actually showed up in your account. This is very important because when we are looking at seasoning and especially qualifying someone that’s had lousy credit in the past as you say, then you’re going to have to show that this is a legitimate customer that has been making their mortgage payments at least on time and that what they’re applying for _____(11:45) not is new financing but instead refinancing of an existing loan, and by the way all of you on the call this is important to understand that agreement for deeds and lease option can be considered by the lending community as a refinance instead of a new loan, and that’s very critical when you’ve got someone with credit issues.
He goes on to say “Basically I’d like to know if my exit strategy is to cash out in six months, should I create a mortgage and sell the note instead of doing agreement for deed? Please elaborate on these issues as much as you can, can’t sleep without the right answers. Thank you.” Well I’m glad to help you sleep again, and he says, “Thank you Lou. What would we do without your guidance and wisdom? All the best, Edwardo”
Well Edwardo all I can say is you probably would make less and it would take you longer. So hopefully I am your path to be able to make more money quicker and my answer to you is I’m going to defer to the pros that are actually going to be the ones to buy the mortgage at the closing and advise you which is the best way to take your customer, and many of you have heard me teach this that instead of creating a program and trying to force the customer into the program, what we teach instead is to know the customer, to look at their finances to know exactly where they stand, and then what we do is knowing that we create the program for the customer and that opens the broadest range of abilities for you to be able to sell and exit the properties quickly. It works beautifully and that’s a large part of what we teach at MPI, which is Massive Passive Income and you absolutely don’t want to miss that one the next time it comes around.
Now Vicki Newell has a getting started question. She says “I’ve purchased your first five books but to be honest I can’t afford until I’m making some money to continue with seminars, purchases, and coaching. Help I want very much to learn your system but I need a poor woman’s approach.”
Well Vicki the good news is that there’s 28 hours of CDs for you to listen to there, that is going to give you a jump start, is going to give you guidance and is going to give you the abilities and contained in your five volumes is loaded with the guidance of the details on for example your buying contract and exactly how to put the buying contract together, a filled in version, a blank version, a cover sheet that explains it, who gets an original, who gets a duplicate, does it get recorded, where does it get recorded. All of that is in your guidebooks and now with the coaching over the phone that we’re doing right now you get the extra added benefit of asking any questions that confuse you. Step one Vicki is to get leads. By all means get leads. Now poor woman’s approach is to open the newspaper and start making outbound calls and let’s start with the for rent adds and lets call these landlords and find out if we can find some burned out landlords that would love to be rid of their property, love to be rid of their headache if they possibly could. That’s a great thing and you’ve got the ability to do that right there in your own town, right there with the newspaper. Costs you fifty cents, you’re in business Vicki. You’ve got everything you need in your hands. Now the truth is the in depth trainings accelerates that process. The coach accelerates that process, but everything you need is in your fingers and I just want you to apply it and use it, create those leads, get a realtor on your team. Another poor approach is to, it’s not a poor approach it’s a great approach but it’s a let’s say a thrifty approach to being in the business, is to call up and find these realtors that are absolutely begging for anyone to do some business with today because nobody is buying houses the traditional way. Well what we do is use them to be our arms and legs and face and contacts to look on the ______(16:10), get the hot sheets, find the latest and greatest deals that are coming up today. Go look at those properties, find if they fit within our criteria, then make offers for us and actually be able to put the thing together. Right now I have such a realtor who’s on my team and we’re working 14 deals, 14 deals right now that he has gone and looked at. He has found what is wrong with them, what needs to be repaired. He’s done the repair reports. He’s brought all this detail to me along with the comps to prove that the price that it’s listed at is below market and then we offer way below that, and we’re getting the deals. We’re getting the deals right now, and guess what Vicki, that didn’t cost me a dime. Now of course it’s costing me when we buy the property or when we sell the property because I’m cutting him in on the deal. The good news is that you don’t have to spend any more money on your buying side. However, as soon as you do make money Vicki, I want you to understand this continuing education is critical and when I look to the most successful people that I’m coaching and mentoring right now, it’s the ones that have gone through the entire certification program. It’s the ones who have built a business. It’s the ones who didn’t stop with the first segment that they’ve actually gone through, and they’ve got the tools, the training, the technology, and the team to support them throughout their entire program. So that is exactly the way I want you to set up your business plan. Is that the plan is to continue your education; your plan is to continue down the certification program because that’s where we’re seeing the acceleration in the business. Good luck Vicki. Keep me posted on what you’re doing. I think you helped a lot of people on the call right there.
Here’s a deal structuring question from Dick who says “Deal structuring seems to be my weak spot. I’m sure you’ll have more questions but can you help me structure a deal. Nice house, nice area should rent for $1400. Home owners are moving overseas to do mission work and the only thing holding them back is this house. They need or want nothing but to move on. First mortgage $119,000, 5-1/8%, 7 year ARM, 1-year-old and the second is an equity line $17,000, 6.5% variable rate. Currently listed at $148,900, subject to has been discussed and not a problem.”
Well Dick first of all what you want to do is sit down with that cost to sale worksheet. It’s absolute magic. The cost to sale worksheet is in your Buying Volume 1 and it’s also on your disk for your seller presentation kit, and I want you to get really proficient at making the presentation on this. In fact we get down and dirty on this thing at the Millionaire Deal Maker I mentioned earlier because it is so critical that you learn the skills of presentation and reasoning with sellers in a way that has the seller see that what you have to offer makes perfect sense to them and so adding your $119,000 plus $17,000 you didn’t tell me what the property is worth, you only told me what it was listed for and of course your comp whiz will help with that process. So when you add the $119,000 and the $17,000 together that’s $136,000 versus a listing of $148,000. Well you just take that listing and already take off 6% or 7% for the realtors commission, and then on top of that typical buyer these days on a used home is going to come in and say you’re going to have to pay my closing costs on a new loan so that’s another 3%. Then they’re also not offering full ask price, so that’s another 3%. So as you can see quickly it adds up and by the time you’re through with your cost to sale worksheet you’re going to have significantly impacted the $148,000 even if that is today’s value on the property because you’re going to be able to show these folks exactly what their numbers and exactly what you can offer them based on the cost to sale worksheet.
So Dick I want you to brush that puppy off and go through the process, fill it out at home first, add up all your numbers, know what your numbers are, then when you go sit down with the folks I want you to give them a blank one and say “Before I can make you an offer on your property, I first have to calculate what it’s going to cost us to sell your home and if we were to buy it today what it would cost us to sell your home because obviously we have to take that off of the top before we can make you an offer for your property.” And quickly you’ll see that this number adds up very significantly and it’s all legitimate numbers, and then at the bottom I want you to turn to them and say “Would you agree that these are your numbers as well. When you go to sell your home you’re going to be faced with these same expenses either now or later and we’re going to go ahead and count for them now. Why? Because we’re buying today, if we can come to a number that’s agreeable with you, we are buying your home today.” And you may find Dick that they’re going to have to pay you to buy their house, which happens to be a big part of our strategy. Today folks who have taken out these second equity lines well obviously Dick they got that money that $17,000, they got that money. So now they may have to pay you and they may have to raise money from third party sources. Either way take it out of their bank, raise money or even make you monthly payments, there is some way they can pay you to buy that house if it makes sense, and I like the fact that you told me it’s a nice house in a nice area, and you told me what it would rent for. You did not tell me what the monthly payments were.
So you see even in your own process of, even telling me what the deal is, you didn’t even tell me how I could structure the deal or help you. There were a few things missing. Number one you told me what it would rent for but you didn’t tell me what the underlying payments are existing. You didn’t tell me what the property was worth. These are all things that you’re going to have to determine before you can even look at a deal yourself. So by all means get out your seller questionnaire because that is your script that helps guide you through the process, and Dick I’m going to say that absolutely you need to be at Millionaire Jump Start if you haven’t already been there, you need to go again. We’re going to have the next one in Orlando, October 4 and 5. That’s Orlando, October 4 and 5 for everyone the call if you haven’t been to jump start yet pick up the phone, call the office 1-800 578-8580 and get yourself registered for that because critical to the front side and beginning side of your business, and it comes with you package too. Comes with your base package, so it’s important to get that training.
Now we’ve got Cathy Henderson who says “Lou with a short sale if the owner has a second you’d like to get a short sale on but you’d like to keep the first in place, how do you do that? Doesn’t the second lender know you aren’t going to short sale the first? If so what is their motive for writing off the second? Or do you say the first has agreed to do a short sale? Don’t they check to see if that sold that way? Thanks. You had said you all were planning a jump start in Atlanta possibly in late November, is that going to happen?”
Cathy yes it is. We are going to do a Jump Start in November. I believe it is Atlanta, I don’t know the dates in front of me, but you can call the office and find out what those dates are and get yourself scheduled for that. So your answer Cathy is absolutely the lenders will do exactly what you want them to and you think that they’re going to pick up the phone and call the first, they’re not. They’re just too busy. They have their own criteria that they’re working from. They have their own approvals that they’re working from, and they simply don’t have time to chase rabbit trails. What they’re looking for is a solution to their problem today and if your seller has not been making payments, they are prime candidate for a short sale. The second mortgage lenders know that they have a problem and they know that they’re going to be wiped out by the first if it goes to foreclosure. What they don’t know is where the first is in the process. They don’t know if the first has actually started the foreclosure process and they might even be within days of getting completely wiped out. They don’t know. So what we do is say look and I teach you this in particularly at MDM, I teach you that we work the second first and the first second.
So the second we’re going to go to and try to work them down to $500 to $1000, if we get that done then yes absolutely you can reinstate the first but I want to also teach you how to modify that first mortgage and even and heres another little secret that we’re teaching at MDM this year, is forgiveness of debt. Not rolling it to the back of the loan but actually getting it forgiven, and I want to teach you that little technique too, bu the bottom line is that they, the lenders, will do amazing things today and so you short the second, modify the first, reinstate the first, take over payments, and begin making payments that you like, payments that make sense on this deal. If before you could get a $1000 rent and the payment is $1000 that’s not going to work. We need to modify that loan down to $800, $700, and we do that through the interest rate. We get the interest rate reduced from let’s say 9% down to even 4% and 5%. I just had one of my platinum’s get one reduced down to 3.9% and I had another one get his own personal home loan reduced down to 5% for two years and then they raise it to 6% at a fixed rate for the duration thereafter, and that’s Cathy exactly how you do it and I want to hear back from you when you do it.
All right now we’ve got Janice who was there at this past weekend’s MAS. Hi Janice, oh by the way Janice stepped up to the plate and became a Platinum Mastermind and I’m so proud of her at the MAS, and many of you are familiar with Janice because she has a question almost every time which I’m proud of.
She says “Hi Lou, here is what I hope is a simple question. A friend inherited a home. There are two loans on the home. She was not able to get a loan herself so she continues to pay the mortgage loans that come addressed to her from Countrywide for the estate of. Can you do a subject to on a home in this situation? If so I suspect you would do the usual land trust, personal property trust transaction. Thanks so much, Janice”
Absolutely Janice, here’s a little surprise and secret that most people don’t know. When that house is in probate the lender is looking at that situation from an entirely different view point. Imagine this you’re a lender, you’ve got tens of thousands even millions of loans out there, what kind of image do you think it gives you if you foreclose on families homes. It doesn’t, it’s not a good thing. It’s not a good thing. So they, when they find out that their borrower has died they get very motivated to work with the family, and they usually help the family to give them time even sometimes loan moratorium, which means a moratorium on payments meaning no payments are due and no foreclosure action will be taken, during the time that it’s in that space. However, these lenders are very familiar that sometimes family members come in and just resume the payments or continue the payments until the property is sold. They don’t say a thing and you’re absolutely right, the way we would do it is through the land trust or personal property trust.
The only problem is that this property that you’re describing may not have been through probate yet and you see probate is a process by which the judge takes the property from the dead person’s hands and gives it to the rightful living heirs and gives them the ability to sign deeds. So it’s important that you don’t write any checks until you have control over that deed. Now that doesn’t mean that you can’t help in the process, and actually work with the lender to put the loan on moratorium of payment while you are helping the seller to get through the probate process so that they get the letters of administration from the court giving them the authority to sign the deed and sell the home and yes indeed again it can be done subject to the existing loan. We’ll be talking more about that at MDM in October.
All right we’ve got a partnership question, how to structure and this is Janice. “I am working on my first deal. My brother-in-law Mark is doing the rehab and we have agreed to split the profits after taking into account all out of pocket expenses, materials, holding costs, etc. Here are the details; the property is in my trust name.” Yeah baby good news. “My property trust is the beneficiary; I mean personal property trust is the beneficiary.” So far so good. “The loan remains in the seller’s name.” Yea. “I plan to sell this on agreement for deed and/or lease option” Yea. “I anticipate the down payment will cover our out of pocket expenses.” Yea. “Our profit will be earned over time and/or sometime in the future when the buyer cashes out.” True. “All right, Mark has his own LLC set up. I intend to set up a note payable to Mark or his LLC on my books, referencing this property so that I can track amounts due to him. I also plan to set him up as a 50% successor beneficiary on the property trust should something happen to me. Mark is open minded and trusts me to set up the numbers end of things fairly. I would like your thoughts on the above. Is there a more tax advantage way to set this up? I would prefer to keep ownership under my LLC and trust. As always, thank you for your input.”
Well Janice here’s the thing. It really depends on how tight you want that 50% ownership to be. You could actually get the benefit of 100% of the depreciation on the property to you and give Mark a 50% interest in the profits from the property. So in other words you could keep the tax benefits and he could share in the profits at the end or he could share in 50% of the tax benefits and you could share in 50% of the tax benefits. The way that you set up the beneficial interest with you having 50% and him having 50% indicates that it would be split 50/50, however, tax benefits can be considered separately in a deal and it’s recognized by the IRS that way. So that’s a good thing, isn’t it? That you could actually change how this is done and have it look on your books as yourself owning this property, yet sharing the profits on the backside, and again the repairs and things like that can be paid out of your down payment money when that new money comes in from your new buyer. So that’s not the same thing though, and what you’re real question was, is there a more tax advantageous way to set this up and I just described that to you. So that’s a good one for all of you to learn from. Very good.
All right Laurie _____(33:35) has a selling property question; by the way Laurie also joined us at the MAS and became a new Platinum mastermind. Congratulations Laurie. In fact she just had her first Platinum call with me today.
“I recently lost two buyers for the same property because of inspectors. The first one was a structural engineer that came up with a laundry list of over designed changes that for the most part were unnecessary. That killed the first deal. The second one hired a very inexperienced building inspector that came up with 72 items including a weed he warned was poison ivy to possible black mold in the crawl space. The wife with a 3-month-old baby ran like her hair was on fire. The house built in 1955 was completely renovated by me with a licensed contractor and inspected and approved by town officials. After further consultation both issues were exaggerated and were easily rectified, too late. Two buyers terminated. What do I do differently next time? Buyers at this price range $350,000 to $400,000 are often knowledgeable enough to be dangerous and a built in inspection is always a contingency.”
Well Laurie I agree with you there, but here’s the process that I use when we’re selling a property. You must set expectations. We talk with our buyer and explain to them, let me explain when you get your building inspection, let me explain exactly what’s going to happen. First of all this building inspector is someone you are paying, therefore they feel a responsibility and an obligation to point out every possibility of something that might happen. Why? Because they’re earning a fee and if they came back with a clean report you wouldn’t feel like you got anything that day. So they’re going to come back Mr. and Mrs. Jones, they’re going to come back with all kinds of things that I’m going to let you know right now have absolutely nothing to do with anything. However they’re going to do that and I want you to be prepared for that.
Now of course we’re going to take care of any legitimate concerns. We’re going, let’s just take that off the table now. If it’s legitimate then we’ll definitely take care of it, but on the other hand we’re not going to take care of things that are ridiculous and depending on the experience level of your realtor, sometimes realtors know this, sometimes they don’t know this, sometimes realtors know to set expectations with their buyers, other times they don’t know. That’s why you have to get involved in this process. When that contract comes in with the inspection _____(36:30), you say “Wait a while. Let’s chat. I need to either talk to your buyer, I need to talk to you and tell you that you need to set expectations. Because understand this is a 50-year-old house we’re talking about here. This is not a brand new house. Understand the perfect house is yet to be built and this house is definitely not perfect and it’s got things because of its age and you need to set their expectations too that they’re going to find things wrong with this house period and that they’re going to find things wrong with any 50-year-old house and by the way they’re going to find them wrong with a brand new house too, and let’s make sure that they understand this going in and also it’s behooving on you Sally Agent to make sure that no matter what they understand this going in and that you set their expectations. Otherwise you’re going to lose your buyer too, and that is the best way to handle that situation Laurie.
Okay we’ve got a trust question here from _____(37:33), who’s from California who says “Hi Lou, I need to buy some bulk REO from the bank involving about 10 properties.” Yea. “And I want to buy them all or place them all in trust. After signing the purchase and sale agreement with the banks listing agent, do I obtain 10 different TIN numbers” and for everyone on the call that means Taxpayer Identification Number”, for each of the properties in order to place them in trust or get just one TIN number for all the 10 properties. I now I’m going to get one TIN number for the personal property trust as the beneficiary of the 10 properties. Please guide me about it all. _____(38:16) from California.”
Okay _____(38:17) listen all you’re going to get is one TIN number or also known as EIN number, Employer Identification Number, from the IRS. That number is going to be used for all of your real estate transactions. You’re going to obtain it and that number is going to link back to you, as far as the IRS is concerned. Now you’re going to obtain another number from the IRS and this is going to be for your bank account, the trust bank account that you’re going to set up and that trust bank account is going to take care of all of the things it does but you’re never going to use that number for anything else except that bank account, and your other properties you’re going to use one number for all of your land trusts. That way you’ve got everything handled. Good work and good luck and good profits with the 10 properties from the bank. I think that’s a phenomenal opportunity for you.
Okay we’ve got another one from _____(39:19), who says “Just made an offer to the bank direct two hours after it was repossessed by the lender today on 08/11, my name was on the purchase and sale agreement short form with the verbiage and/or signs after my name. If I get my offer accepted by the lender and I execute the assignment of real estate purchase and sale agreement rights, because I want to buy it in my trust, do you think the bank will be willing to sign on my trust paperwork as the seller/grantor, after signing the original purchase and sale contract? I want to know in advance so I do not get stuck with this deal.”
All right here’s the answer ______(39:39), that lender doesn’t care who the buyer is. That bank has no care in the world who the buyer is, so what they’re going to sign is the deed itself, deeding the property from them to the trust. As far as signing any other paperwork they’re not going to do it, and by the way you’re not going to offer it to them. So your appointment of trustee, appointment of successor trustee, declaration of trust and land trust agreement, and your affidavit of trust is all going to be signed by other parties, not by the seller. So again the seller is only going to sign the deed itself.
All right Evelyn _____(40:41) says “Hi Lou, we have money in CDs that are paying very little. We are taught not to use our own money when buying houses.” Well first of all let me say I didn’t teach you that but let me go on and read. “What do you suggest doing to earn a higher rate of return on our own money? I don’t think I want to loan it out to someone else to use when buying their properties or put it in the stock market or commodities market, these being very, very risky. What is your opinion? Please don’t tell me to ask a financial advisor, I trust your opinion far more than theirs.”
Well thank you Evelyn, I appreciate that and you’re absolutely right. I would not tell you to put it in the risky Stock Market and in fact I got out of the stock market years ago when I recognized and realized that I could not control anything that happened in the stock market. I couldn’t control when the managers of the company chose to spend the money ridiculously like $2 million parties, like the president of Tyco did, and I can’t control when the president of the company is going to tell a lie like Martha Stewart did. So all of a sudden I’m the one paying the price for things that the managers do and I said wait a minute, if I’m going to pay the price I’d rather be the manager. I’d rather make my own mistakes than to put things in other people’s hands and have that risk.
So instead I recommend that indeed you do spend your money on your properties. Why not? The returns that I’ve shown you that you can get in real estate are vastly superior to anything else you could be putting your money in and I’m talking about 30%, 50%, and even infinite returns that we can get in real estate. I mean what is the return when you can get the seller to pay you to buy their house and you can put a tenant in there who pays you to move in and you never have to pay them back, and you get a monthly cash flow but let’s face it Evelyn not every deal is like that and some deals and some leads do require cash. Some subject to transactions where you take over the existing financing do require that the loan be reinstated. Well Evelyn you could use your money to do that and not only that the repairs to the property, if won’t qualify for my work for equity program then you can use that money for that and what better bank to put your money into than a house bank where you’ve got a customer who lives in, who sends you a check every month.
It’s like you have your own bank that sends you a dividend check every month and it’s called a tenant and it’s the different between what your underlying mortgage is and what the tenant is paying in rent. That’s your dividend and what better place to put your money and all of you, you didn’t hear it from Lou that you don’t invest your own money. I think in fact Evelyn that the best place you can invest your own money is to capitalize your business and that means that’s how you and where you hire staff and the staff comes in and they start to do things for you in your business and they start to generate leads and manage leads and call people back and follow up on leads and go make presentations for you and show your properties and sell your properties and rent them out and put the signs out for you and all the other things that go with owning property. All of a sudden somebody else can do that and you’ve created a business out of the cash that you’ve got to work with.
All right now we’ve got an IRA question from Janice who says “Hi Lou just finished listening to your borrowing CDs, here’s my question. If investor A owns LLC A and has an IRA A, and investor B owns LLC B and has an IRA B can investor A’s IRA lend $10,000 to LLC B while investor B’s IRA lends $10,000 to LLC A?” That’s a question. “This would allow both investors to borrow funds. If you assume the same amount of loan, same rate and terms effectively each borrower would be borrowing money from their IRA and paying themselves interest. Is this legal? If you keep the money flow separate? A pays back B, B pays back A. Can investor A be a family relation of investor B? I imagine this will provide tax write-offs for each LLC and each IRA can earn interest tax free. Your thoughts. Thanks so much, Janice”
Janice you have broken the code. That is exactly what you can do and why do I say you can do this because it’s a third party transaction. Now then you put the little element in there about family member. Now let me clarify. You can go side to side, in other words you can do business with a brother or sister but you cannot do business up or down. In other words you cannot do business with your husband, your husband’s IRA, it’s in the family, and as far as the IRS is concerned they look at married people as one from a tax standpoint. They’re looking at you as one tax payer collectively. Also you cannot do business with your children because again that’s a linear transaction. So you can do side to side but you cannot do linear within the family. You can’t do IRA business with your parents for example, but again you can do it with your brothers or sisters because that’s considered a different lineage and a different tax concern. Now you absolutely have it correct that the one IRA could lend to a third party and then that third party receives the money and then decides that that third party wants to lend to you. T
That’s the way it would work. So let’s say it’s Janice, that’s you, or let’s call it your IRA, and let’s say that your third party is your friend named Joe and so Joe comes to Janice and says “Janice have you got any money to lend today?” And Janice says “I don’t but my IRA does.” And so Joe says “I’d love to borrow it.” Janice says “How much do you want?” Joe says “$10,000.” Janice says “I’ll do that but I’d love to be able to borrow about $10,000 too.” So Joe borrows $10,000 from Janice’s IRA. Joe signs a note. Joe’s responsible for it. If Joe doesn’t pay it back Joe has to pay it back. Joe is personally liable for that debt. Now that Janice personally comes along and says to Joe “Hey Joe listen I need some money say about $10,000.” And Joe says “Well I happen to have about $10,000 today.” And Janice says “Wonderful, how do we do this?” And Joe says “Well sign a promissory note and I’ll give you the $10,000.” And that makes Janice personally liable for the $10,000 she just borrowed from Joe and because Janice borrowed that money from Joe now Janice is personally liable for that if Janice doesn’t pay it back to Joe, Joe can sue Janice for that debt. In the mean time Janice’s IRA could sue Joe for not paying back her debt and you see now that is a way and actually expanding on your question, that is a way that money can be gotten out of IRAs and used for needs that an individual would have while still maintaining all the benefits of the IRA.
So as you said any interest could actually be paid to the IRA on a monthly basis but even better you could do an interest accruing loan and allow the interest to just accrue during the life of that particular investment and then when it does sell or get refinanced and the money comes back in then that plus the interest can be paid to Joe. Joe then pays off the loan to Janice’s IRA. Isn’t that a wonderful thing? And you can really be able to expand your business so much quicker and so much better if you do that. Wow, so much good stuff here.
Jean has a question “I love your system, but mine is a 2000 set I don’t have buying Volume 1 and 2, I do have Property Management and Renovations System. Mine is the VHS and cassettes. Is it the same? How do they compare?”
Well Jean it’s time for an update. We have updated a lot of that and there’s a lot of new forms, new formats, new information and definitely you need to get yourself to the training. So just call the off 1-800-578-8580 and they can help you get an update and also get you upgraded so that you can get to the Millionaire Jump Start in Orlando.
Joe says “I own homes in a college neighborhood and crime is our number one problem. Do you have any ideas for stopping the crime issues?”
Joe I have a lot of ideas, since I cut my teeth on low-income properties and I’m very familiar with that process. Number one you want to get in touch with the police precinct officers, the people that run it and become friends. You want to tell them the problems that you’ve got, and you want to tell them that you’re there to help and you can offer a unit for a police officer to actually live there or you can offer them a unit to use as a stakeout so that they can stakeout and find where the crime is coming from and go after it. Because one bad apple can spoil a whole bunch and we know that if we can get rid of that apple wherever it is, then all of a sudden the neighborhood can literally change overnight. So you want to be paying close attention to that.
You don’t be the one who deals with it, but help the people who do deal with it and many times because they don’t get the support of the neighborhood or the landlords that they just don’t go for it. I’ve seen, witnessed it myself, where the police cars go straight down the street and nobody ever gets out of the car. I’ve seen at other times where they call and they never come. So they sort of like get the call and say “Oh I’m busy right now” and they never got to those neighborhoods. So you want to be able to just have the other side of the coin be friends with them and again offering a uniform discount whether they be police, firefighters, all these people have to go through background checks so you know when you’re moving somebody in like that that you’re moving in somebody, hopefully, that’s good but more than that the neighborhood sees it too. When they see that police officer come home in their uniform or they see them drive by and check out their property while they’re working they know that somebody’s keeping an eye on things and that changes everything, changes the character of the neighborhood and the whole bit. So Joe I encourage you to get involved in that it will change everything and hopefully that was a good idea.
Okay Anne has a work for equity question. She says “What if the buyers aren’t contractors?”
So to brief this what Anne is referring to is one of our exit strategies is to have a new buyer who is moving in accept the property in its current as is condition and then earn credits towards purchase of the home if they take on doing the work. So what we do is give them the opportunity to earn those credits by giving them the list of what there is to be done and then working out a plan with them, working out an amount of credit that we’ll give them towards purchase of the home, if they do this work. So first of all you’ve got to start with the work itself. Many times work is very cosmetic, anyone, just about can put paint on walls and now whether they’re going to do a good job or not is another question.
So you’ve got to interview them and find out what they’re going to do, but putting you know explaining you put tape on the doors and you wrap the hinges and you make sure that there’s tape on the wood work and things like that so that they don’t put paint on the woodwork if it’s not supposed to be painted and so on, is part of the guidance process and also part of the intelligence process of whether they actually know what they’re doing or not. So you can interview them, find out if they know how to do things like that, have them describe to you how they’re planning to do it and then you find out if they know what they’re talking about, but now heavy things such as roofs, plumbing, electrical you want to make sure you have licensed people who know what they’re doing or have someone in their family or someone a friend or somebody else who’s going to help them out, who’s going to do those things for them that’s what you’re looking for there. So the basics can be handled by the potential homeowner, anything more than that they have to show you who is going to be doing that. As I said that you’re going to have the list, then the next step in the process is how you’re going to pay them and credit them and that’s shown on the payment draw schedule.
All these forms are in the work for equity kit that we have available through Street Smart. It’s $299.95 and it’s all the forms that are necessary in order to work for equity except for the scope of work. Scope of work is found in Volume 11, which is Renovations and that’s our whole renovation system. Where we’ve got scope of work for each one of the trades plumbing, heating and air conditioning, electrical, roofing, carpentry, general, and painting so those six different scope of works are broken down room by room and item by item exactly what needs to be paid attention to for that particular trade and that particular contractor. What I recommend is you go through the house first, do your own inspection, put together your own scope of work, then when you market the property you actually see if you’re on the same page as the potential buyer. You let them go through, make their own list and then see if it compares to yours and if it doesn’t show them your list and then together come up with a plan and then the credits that they’re going to earn towards the plan because they did it your way. How’s that Anne?
We’ve got so many different success stories with this work for equity process and I really highly encourage you, it’s one of our great exit strategies here because imagine you’ve got a property you don’t have to fix, you don’t have to clean, you don’t have to paint, you don’t have to do anything to because you’re giving someone else help down life’s road and an opportunity to someday own that house. Well that’s exactly what we did with a nurse. She came in and said “I can do it. I can do it. I can do it.” The house needed all kinds of things. Someone had painted the outside of the house with an oil-based paint. They had painted latex paint over the oil based paint and it was all peeling off, looked terrible. We said well really the best thing to do is just put vinyl siding over the eaves that have all this. It was a brick home but the wooden eaves that were painted with the wrong paint it was all peeling off and just cover the whole thing up with vinyl was our suggestion and then inside the house the hardwood floors needed to be refinished. The kitchen needed an update, upgrade, needed all kinds of things and recently the nurse brought us pictures of what she’s done to it and it was amazing. She had put in tiled back splash, plantation shutters, upgraded handles and fixtures, on her pantry door she put a french door on the pantry door, you know just everything looked jazzy and looked really sharp, and so she was house proud. She was proud of what she was creating and she was spending more than we would have ever spent for the same things that she was putting into her house and that’s one of the great things that you get from Work for Equity too is the upgrades that the customers put into it because in their mind they’re buying the house and of course we’re giving them every opportunity to own that house if they do what they say they’re going to do.
Oh my goodness we’ve come to the end of another fun call.