Group Q & A
Hello everyone. And welcome back to another Street Smart Q&A where you’ve got lots of questions for this session. And I just wanted to jump right in to it. But first let me tell you a little bit about the economy and what’s happening right now. Some amazing things are happening if you just take a look at refinancing right now. What’s happening is truly amazing out there in the market. Refinancing’s have caught fire, low rates are fueling the refinancing boom. Mortgage lender’s phones are ringing off the hook as homeowners try and catch the lowest interest rate in years. Some Atlanta lenders are offering rates below five percent on a 30 year mortgages.
Now get what’s happened in November and December the rate was only about a thousand and now it’s gone up seven fold just since January 9, or just until January 9. And why? Because interest rates have dropped right now they’re being quoted at 4.5 percent, which is just truly an amazing number. And if you take a look at that it is historically low. That gives you a chance if you have rates that are say two to three or more points higher it really makes sense to do refinances right now. Now I want you to put your Street Smart hat on and also recognize that when you’re buying properties from people they can put mortgage on properties.
So, if they own a property free and clear and they want a bunch of cash, fine let them put a mortgage on the home that you want and then take subject to. And that new fixed rate mortgage let’s say four or four and one half percent, whatever’s in effect at the time, man that is truly an amazing number that we can all work with. And definitely be able to make cash flow. The swing between a four and one half and a six percent loan, depending on the size of the loan of course. That can bring in another one to two hundred dollars in month in cash flow for the average types of houses that we work with. So that interest rate does affect how much we are going to be able to get in cash flow, and definitely I want to pay attention to that as you are negotiating with folks. And maybe you want to look and some of your own mortgages and God forbid you go to the bank and qualify for a loan, but it’s so low it’s actually very enticing right now.
Another point I wanted to make this session is that Fannie Mae has now banned renter evictions. So, if a home is in foreclosure and it was a landlord’s home then they’re going to allow the tenants to not only remain in the home. But to actually a rental agreement with Fannie Mae, while and during the time that they’re going to be marketing the property for sale. So, that could impact your business if you’re depending on people that are being evicted from property. Although we don’t depend on that we do get some business off of that for sure.
Another thing that you want to be aware of is the home builder index as now fallen to a new low. They said that The National Association of Homebuilders, Wells Fargo housing market index dropped one point to a record eight in January. The index was at nine for the previous two months. The index readings higher than 50 indicate positive sentiment about the market, but the index has drifted below 50 May, 2006. And has been below 20 since April.
Now what does that mean for us? That means, my friends, houses are not being built, and houses won’t be built for a long time. Which is good news because houses and brand new houses were a big part of what absorbed our market and took people out of buying used properties or renting used properties, so this could be actually good for our business and dry up some of the supply. And we all understand the law of supply and demand, when there is low supply and high demand, guess what? Rents go up, so we want to be on the other end of this and definitely get some of this high demand stuff going. And be able to increase our rents as well. But even if we can’t recognize that because you are Street Smart and the way you have purchased your properties has led to an ability for you to be able to adjust with the market without having it affect and infect you. In fact we’re going to be talking about that again at MDM, Millionaire Deal Maker, in April. I believe its April 23rd-26th and you definitely want to mark your calendar and be part of the MDM event this year. Call into the office to get yourself registered and we will take payments and put you on a payment plan so that you can get that paid by the event. So call 1-800-578-8580.
Q: Which leads us to our first question looks like a deal structuring question from Giermo who says, “Lou, Happy New Year, I cannot tell you how valuable it has been always for me to listen to your Q&A sessions. There is always something very important I hear that helps my business go to the next level and not mentioning your view on the market is always gold, I can already not wait for the next Q&A.”
Well I appreciate that very much Giermo and thank you for being part of the program. Spread the word for me.
My question is I have noticed during the last month after talking with about seven potential sellers, Hispanic sellers something very particular. Let me explain because the way the house market and the economy are the Hispanics are really hurt. They do not have work at all and I mean at all, so I am starting to notice a pattern, they all want to go back to their countries, because they cannot afford to live here anymore. Therefore, they are all looking for a way to sell their houses, so here’s what happens. They all agree to let me take over their loan subject to, that part of the negotiation is not a problem. What happens is that don’t have much equity in their houses. Some have ten, others fifteen, up to twenty thousand, when I do the cost to sale worksheet they realize they will have to pay to sell the house. So, that is when my dilemma starts. They all want and need some money so they can move one to three thousand otherwise their plan is to live in the property for free for three or four months and then as soon as they get the foreclosure letter they will leave the country.
The fact is, they do not care if they lose the house, if they hurt their credit, they don’t care about anything. They all will prefer to live there as long as they can and then leave the house to the bank. It just does not fit in my head, how all these people will just let the bank take the house back if they all want to let me take the loan subject to. I just want to try and find a way to find some lemonade with these lemons. Some other facts you have to take into consideration are:
1. A lot of these loans are very good, six or seven percent fixed
2. Some of these individuals are already one or two months late.
3. If I ended up doing a deal with some of these people I can make sure that they will disappear to their countries and will not have a way to contact them in the future if I ever need to.
4. Because of the low equity cash flow is about 100 to 150 dollars.
5. I already have a large buyer list for some of these houses, and I already have buyers so I will eliminate most of the closing cost.
I have in fact driven by the houses and when the seller allowed me to, I have shown the houses to my buyers. So, my questions are, would you consider giving some money to these people, even if there is not much equity, or if they are behind in their payments. What are your comments about this phenomenon when they all want to let the banks take over their houses and leave to their countries? And how you think we can get some advantage of this situation? Thanks for your help and support.
P.S. Coaching Rocks!
A: You are the man Giermo, thank you so much.
Well here’s the deal. One of the way’s we structure the deal when there’s not a lot of cash flow in the beginning is we look for other potential profit centers in the deal. So for example, since these people are leaving the country they don’t need their refrigerator. Maybe they don’t need their vehicle either. So now if you could incorporate any or all of the furnishings the refrigerator, stove, washer, and dryer, these become items that you can see to your new buyer on time. So basically, you sell the refrigerator to your new buyer for say 600 dollars that they can pay 50 dollars a month, 25 dollars a month, 20 dollars a month who cares as long as you get something out of it. And the same true for the washer and dryer, so here you’ve got good collateral that you can use to make good money.
And another thing is the vehicle, if they’re going to be leaving the country anyway maybe they can leave that vehicle with you and you can incorporate it to try to beef up the equity in the deal. And also the cash flow. And of course, just like you can sell a house on time, and just like you can sell a refrigerator and washer and dryer on time, you can also sell the vehicle on time which means that you would retain the title to the vehicle just like any lender would do. You would be named on the title as a lean holder, you let the driver drive the car or the truck, and now you pick up 200, 300 dollars, or more a month in income off that vehicle. Now suddenly you start to see that your cash flow is no longer 100 or 150 dollars a month, but in fact 250,350,450,550, so that’s one way you can look at it. What are the other things they can bring to the deal to increase the value? You’re right, subject to is a big deal right now and you’d being able to take over these houses is great.
Now another thing you can look at it is to improve your bottom line on it is do loan modifications. I agree and understand that these people don’t work, however since you’re going to making the payments couldn’t you represent that they are making much money so that you could then take over that payment. And here’s a possibility then with the loan modifications is that we are looking to lower the interest rate on these six and seven percent loans down to one or two percent on a loan modification. So, what that does is it allows the lender to be made whole in the process because you and I both know that you’re going to make the payments. It’s just that your current owner is not going to make the payments, but in working through the process you’re going to first go back to the lender and say I have a client who can make the payments but he can’t make the payments as much as they were. I am their financial advisor as I teach you, what I am asking you to do is change the payment amount down to X dollars. Which means that you would need to lower the interest rate by X percent or down to X percent, and this would now give you the payment that you need in order to make the cash flow that you need. Because you’re absolutely right, I don’t you really buying anything unless you can see a good 200-dollar cash flow in it. And I’d prefer even more than that 300, 400, or 500 dollars a month, that’s a good plan for these kind of deals.
I hope that helped you Giermo that sounds like a great deal. And keep me posted on that. I’m very excited about you approaching the Hispanic community. Another thing you may want to do is actually write your hand written signs about you buy houses in Spanish and put them in those neighborhoods. And another thing is to change your website, your Street Smart Websites so that the first language that comes up is Spanish. And they can always click in English you know and change it back to English if an English speaking shows up there. And that’s at the top of the website, so definitely take advantage of the fact that, number one you speak Spanish, number two you have a connection with the Hispanic community and now you can actually dictate and direct all of your marketing around that community. Both the buyers and the sellers and be able to attract them the way that you do. And of course the solutions that you’re going to offer are not matched by anyone else in the market, so you literally could own that market. And that’s going to be very, very powerful for you. I’m proud of you that’s excellent.
Q: All right our next question is from Barbara who says ” I have a house for sale in Charlotte, North Carolina presently having to repay to have a leak on the terrace from the upper to the lower fixed. It is not leaking inside but it is from upper to the lower along the chimney. I have a couple who want to lease to buy, and talk about him fixing the leak. I have not talked to the couple, as I really do not know how to set it up. I have two quotes and 20,000 to 40,000 dollars to fix the leak, and I will have a third quote from someone I was referred to and trust. I do not know the other contractors. One of them has worked on homes nearby. I have a couple who want to buy, but the leak is of course a problem. I will fix, however I would like to take the cost off the price of the house.”
I think you mean you would like to add it to the cost of the house.
They have not made an offer yet; by the county house market value is 125,000 dollars. I have for sale…
I guess that’s not 125,000, its 1,250,000, Barbara it looks like we need to add one more zero there, and you say I have it for sale for 1,000,000.
What do you recommend? I have had the house for three years. It was an investment and not anymore. Thank you.
A: Well Barbara, I will tell you I’m not a fan of luxury homes. And I’m not a fan of high-end houses, and you probably understand why at this point. They are difficult to sell, and the repairs are expensive, and you have to use top grade materials, you have to do everything jam up and use absolute professionals when you do repairs on the property. So you are going to need to pay attention to this repair, I would be surprised that it’s really that much, however it would be affected by how much rot has set in. If the leak has been going on a long time it’s very likely that the ceiling joist, the roof decking, and the insulation, etc. is rotted. And then there’s mildew, etc. that will have to be cut out and taken care of. And yes that can be expensive, although again I don’t think it would be that expensive. You will want to just continue shopping and if you’re a member of the local RIA there you may want to get some references from other investors.
Also when you have these contractors come tell them that you are in the business. This is a property in the rental portfolio, you are the manager, you have other properties, and you are looking for someone who will give you a good wholesale price. Because you’re going to use them again, and tell them up front say “look don’t give me retail prices that you’re going to give somebody that you’re never going to see again, you need to give me wholesale pricing if you want to see me again”. So, you set it up right in the beginning and you tend to get the right price in the end.
Now the other comment that you made, you have a customer for it which is great news, I think you have several different ways you can work with this. And when you say what do you recommend, I don’t know if you’re asking me about the roof or the repairs or if you’re asking me how sell the house. But if you are, I’ve taken care of the roof and repairs part, but if you’re asking me how to sale this house I would say that you’re going to have to get very creative with the financing. You can do a number of things, one high-end home that we’re marketing right now we are considering taking the owners home in exchange. Because there’s about 40,000 dollars equity in that property and then that would be the buyer’s home. They’re selling their home, or trying to sell it in order to buy ours, but we make actually go ahead and take theirs because it’s in a good school district and the property is right for the market.
And therefore, we get rid of a higher-end property that are very much slower in today’s market and be able to replace it with a property that we can move very quickly to someone on our buyers list. But these big properties are challenges so another idea Barbara is also to call the relocation offices of the big firms in town. And find out who the connections are there and actually tell them that you’ve got a property for sale and if they can send someone to you you’re happy to pay a referral fee to the person sitting at that desk. Not the company but the person who sends you someone who can qualify for the property or purchase the property. Also mention to them that you will be creative, that you will consider rent to own, you will consider owner finance, and you will consider situations based on their credit. Maybe they can get a brand new 80 percent loan and you can carry back, heck Barbara up to 20 percent, but whatever you can do to make the numbers work and get a customer in there is the real goal.
Now the other thing you want to be able to do is also take the property and call up other realtors. Call up every real estate company in town and ask them who their relocation specialist is. The relocation specialist are connected with market place and connected with Fortune 500 companies who are relocating people, so again put together a good package, a good detailed sheet on the property, and when you talk with these folks get always, always, always, always get a fax number and an e-mail address. No matter whom you talk to, build your own communications network, and build your own marketing list. And this way you can get the message to the market quickly and keep following up with it Barbara because that’s the other issue. Is that people forget about you and they lose your number, and they weren’t thinking about you today. So, you’ve got to keep presenting yourself, and of course of the other things that you’ve got to do is keep yourself into the market.
In terms of Craigslist, in fact we’ve got Postlet’s, p-o-s-t-l-e-t-s, postlets.com where you can fill out the information sheet there and it automatically post to multiple sites. I think it’s eight or nine internet sites for you, and then finally locally you have your local newspaper and now print is becoming old news so they’re probably online and they may even sell you online space at a cheaper price than the print space. So, you maybe able to keep an ad going until you get the property sold. This is very much a numbers game, and we must keep the property in front of the market that’s there. Whatever size market it is and granted it’s a smaller market today which means that you’ve got to absolutely do as much as you possibly can to get your message to the market. Hopefully that helped you Barbara. Keep me posted on that.
Q: Now we’ve got Joe Rosen who says, “I’ve been working with a couple to purchase their home subject to the current financing. Their goal is to purchase a new property about two hours away so that they can be closer to her brother, who is having health issues. The seller and I agreed on terms, contingent upon them getting into a new home, unfortunately I haven’t been able to find a lender that will give them a new loan without seeing that we’ve made 12 months of payments. I’ve taken Jim Williams advice and bought three lenders a purchase agreement, the deed in the new trust name, and a HUD One statement with the sales price online 203. All of them have said that because the loan has not been closed and because the seller would still be responsible for the loan if we default they are not able to help us unless they see 12 months of payments. Do you have any ideas to get them into that new home?”
A: I sure do Joe. Here’s the idea, I always go to the source. And I’ve done this numerous times, so what you really need is the cooperation of the seller of the property that they want to buy. It’s not an issue for you, you want to buy their property, and you’ve got those details worked out. All you have to do is take your negotiation skills, go back to that seller, and say look I don’t know if you noticed what this market is like, but let me tell you a few things. Nobody’s approving anybody right now, and they want to see 12 months of on time payments. Here’s how we could do this, and here’s how I could help you Mr. Seller structure the transaction so that your buyers can buy this house. And it is so important today that you understand that you have a bird in the hand, and I want to say that one more time you have a bird in the hand. If you let these people go, understand that you’re probably going to sit with this property another six to twelve months. So listen closely at what I’m about to tell you, because you can actually do exactly what I’m doing with them on the house that I’m buying from them.
I’m going to take over their existing financing and I’m going to make payments on their loan. They can do exactly the same thing with your house and your loan. They can take over that house, that loan and those payments, and therefore I would like you to consider what you’ve got. You’ve got a ready, willing, and able buyer who can take the property as is, and I’m going to be responsible for their payments so 12 months from now when they can show 12 months of on time payments on your loan then they will be able to refinance. Now let me explain further, what your going to do is you’re going to sell them the property. They’re actually going to receive the deed to the property in trust so that the lender will not call the loan due.
And in fact I’ve got all the paper work for that and I can help you move your property into your trust for estate planning purposes, and then they can become the beneficiary’s of that trust after we get everything transferred over and the deed recorded. And then while property is in that new trust with them as the beneficiaries then over time their going to be to show that they made those payments and they made them on time. Recognizing still that it’s your loan, in your name, and it will remain your loan in your name, however their going to be able to show a prove of payments through cancelled checks, etc. to the lender 12 months from now and then they would be able to purchase your home. What I would suggest is that we set this up on a three plan because who knows what the economy is going to be 12 months from now. But at least that would give you an understanding that number one, you’ve got your property sold, number two you’ve got ready, willing, and able buyers, number three they don’t have the issues that any other buyer that was interested in your house would have.
In other words they would have to sell their house in today’s market in order to buy your house. These folks already have their house sold to me, and they’re willing to buy your house. Now Joe you ought to make that rock, absolutely rock. Because of your skills in knowing exactly, I believe this is Dick Rosen actually. But because of what I taught you at MDM and by the way be sure and come back. Write that on your calendar for continuing education, that you absolutely positively need to be at MDM the next time. Because each and every class is different and I teach it different based on that market that we are in at that time. And I focus on the types of deals and the types of structures that are going to make the most money in that market. So definitely come back and in the mean time keep me posted on getting this property. Because what I told you absolutely, positively will work in today’s market. Forget about getting them qualified for a loan, just go use the loan that’s already in place.
Now understanding that maybe the house that they’re buying is free and clear or maybe it has a huge equity in there, fine. Use my agreement for deed paperwork on the buying side and have that seller sell the house to your buyer and carry back the financing. Even interest accruing with no payments until the house sells. So, there’s all kinds of ways that you can structure this to make it work for your buyer. Hopefully you enjoyed that Joe and everybody else on the call as well.
Q: All right we’ve got Milan Chulupa, could you give me please the first few sentences when asking for private money, your elevator speech, so-called. Thank you Lou.
A: Well Milan what you want to do is when you start chatting with a stranger you say “Hi, my name is Milan, and what I do is buy and sell and renovate houses, and I work with people from their IRA’s, 401-K’s, and things like that to fund some of the deals I do. Tell me do you have and IRA or 401-K.” And then they say, “yes.” And you say, “tell me are you disappointed in what the IRA has earned over the last few years”? And they’ll say “yes”, and then say “well if you have a few minutes sometime I would love to go over my program with you and show you how I can give you six percent, fixed rate, above bank rate, interest rates right now in today’s market, would you like to know more?” Then boom and then they get your card and you get their information and set up a time that’s convenient to them for you to be able to set down.
Now what you want to be able to do also, is to say “by the way, go to my website that I’ve got set up for lenders just like you that explains a lot of my programming and what we do. Then once you’ve seen the website, give me a call and we will set up a time for me sit down and go into further detail with you.” Then of course Milan you also get their name and telephone number and you follow up in a couple of days and ask have you had a chance to go to the website. Oh good, oh you haven’t had a chance yet? Are you near a computer right now? Okay could you open up your computer let’s just go through it together? Boom and then you set them down in front of their computer; you’re in front of yours. And you go through and do a little tour of your website, and then you set up a time for them to be able to meet with you.
Now what you want to do at the meeting is go through your full lender presentation kit. The LPK, by the way if anyone on the call does not have the Lender Presentation Kit; you have made a big mistake. You need to go ahead and call in to the office and order it. It’s 79.00 dollars and 95 cents, and basically it is a presentation kit of exactly what you need to say and how you need to say it to a potential lender that goes through all the details of your program. And it explains a lot of things to them, hopefully all of you got that and just sit in front of a mirror and practice that a few times, it’s amazing what will come from it.
Q: We’ve got a renovation question from Dorothy Belcher who says, “Hi there Lou, a new question. Whenever you have subcontractors do the work for you, do you have them fill out W-9’s? Why or why not?
A: Well Dorothy when we hire a contractor we have them sign an independent contractor services agreement. And that’s in your renovations systems volume 11, and then there they go ahead and sign on and agree that they are and independent contractor, and therefore they are responsible for all their taxes, etc. Now what you can issue to them is 1099’s and a 1099 form is basically a form showing the world that you paid these people this much money, and that becomes a deduction for your company. For them they have to report that as income.
Now what’s better is the person you are hiring is actually a company, a corporation, or an LLC, now you’ve got a better position. Because your checks would be made payable to a company and you don’t have to do 1099’s and W-9’s and all that stuff on companies. And you and I both know how easy it is since you’re a graduate of the MAS training that you understand that you can even give them the details of how to set up an LLC themselves online very easily, quickly, and cheaply so that you can then pay a company rather than them personally. And what that does is of course again take you out of the realm of having to be the reporting agent for them and to the IRS. They would be totally responsible for their own taxes and dealing with their own taxes.
Q: Now we’ve got Hollis Keen who has a trust question, he says, “Lou, I want to set up a trust bank account. What are the steps?
A: Well Hollis that’s a great question. And the folks that were just with me this past weekend at MAS, which is Maximum As a Shield were presented with something very valuable and that was a form and details that could fax to Bank of America. We have set up a relationship with BOA where they have been pre-framed and pre-trained on our trust system. And they have absolutely no problem in setting up the trust bank account. That’s the good news.
Now you will need to do in advance some steps. You could go to any local BOA by the way, but if you do understand that they don’t have the deal that I’ve put together for you with BOA. So we’ve set up and trained a particular branch, particular operation, regardless of anybody in all 50 states can fax and set up there bank account at this particular branch which has been trained.
Now what they will do for you is give you an essentially free account, actually three of them. They’ll give you two checking accounts, one savings account. The two checking accounts are a sweep account where as soon as you deposit into one account that’s like the one out in public, it sweeps to a hidden account that’s private only to you. You know that number and no one else does, and that way if anyone hacks or breaks into your primary account they won’t be able to get any cash out of it. It all goes to the other account, and then also it’s attached to a savings account, so that you can put some money in there for overdraft protection, and that kind of thing.
So, what I wanted to lay out for you is an opportunity to set this up the right way. Get all the paper work done the right way. And we have done all that with BOA, so it’s going to be very simple. Once you do a few steps to do that, now what you will want to do is go to volume five, personal property trust, go to the section that relates to getting your on Federal ID number, your own EIN number. And with all of our systems what you do is always open the guidebook and you go to the table of contents. The table of contents has been designed as a guide, don’t just go flipping through the book; go to the table of contents because it really tells you exactly where to go and what to do. And one of the things you are going to need is an affidavit of personal property trust, which is on page 68 of the guidebook on personal property trust. You will also need to get an ID number from the IRS, so the form that you’re going to need for that is the SS4 form and that’s on page 139. And we also have information so that you can go online and be able to fill out your EIN number fill out the form online as well.
So, that should give you some guidance on that process. There is a filled in version of the EIN form so that you’ll know how to create the form in order to get the IRS to give you a number. Why don’t we just use your social security for this bank account, because it will not give you the privacy and has a protection that using a completely separate number would do for you. So, this is going to benefit you to go ahead and take the steps, obtain the number before you even approach Bank of America. Now if you need those forms to be able to open the BOA account and get Street Smart Deal with the free checking then call our office, 1-800-578-8580. And we can fax you over all the forms necessary to set up that BOA account. Now here’s the good news Hollis you can do this very quickly by going ahead and obtaining your ID number under the name of a trust. Now remember this trust you are going to create, the only asset of this trust will be this bank account. So, I want you to be cautious and careful that we’re going to get this number, but we’re only going to use it for one purpose and that is to open this bank account.
And there’s a lot more to the story, and of course I want you to come to MAS the next time we have it. Be sure to get yourself registered for it now and you can even set up a payment plan, so by the time the event comes up you will be paid up on it and you’ll get the lowest possible price. Because of pre-registration at this point, so call the office at 1-800-578-8580, speak with Helga and she will get you taken care of.
Q: The next question we have is from Bruce Barrett. Lou I know you are big on trust, but in Tennessee they are not recognized by the state. I’ve asked three different attorneys and all recommend LLC’s holding one to three properties over a trust. What gives with Tennessee law?
A: Well Bruce, what you’ve been told is not accurate. Trusts are recognized in Tennessee. What you may have asked, or they may have anticipated in your question are land trust recognized in Tennessee. Now what you have to understand is how law works. So there are only seven states in the entire United States that have statutes specifically outlining details regarding the specific type of trust called a land trust. Other states when there is not statute related to land trust then the question reverts to the overall statute regarding trust in general. And I guarantee you positively that there is trust statutes in Tennessee.
In fact Tennessee has more requirements than any other state in the United States regarding trust. And in fact, when I was doing the original research in laying out designing our trust and our trust strategy we used Tennessee as a baseline. And by that I mean that the law in Tennessee because of it’s restrictions we included and incorporated all those things in our trust, therefore our trust is actually stronger than it has to be in other states. But it definitely is set up to deal with Tennessee. So don’t worry about those issues. They are recognized in Tennessee.
So let’s go further and say all right then. Why don’t we just skip past trust? And why don’t we just use LLC’S? Well the thing attorney’s really don’t say that perhaps even they haven’t’ even thought of. Is that when an LLC or Corporation holds property, then you are protected, however the property if fully at risk. The property is in the LLC or the Corporation, therefore if anything happens, whatsoever and there is a lawsuit, it’s against the owner, which in this case is an LLC or a Corporation, and if they were to win then the property is lost, you maybe save. Now let’s contrast that, let’s say in your example you say three properties in one LLC. What if we had each of those properties in a separate trust, and then one of the trust is sued say by a tenant then that trust is at risk and the property inside that trust is at risk. But guess what the other two properties are not at risk, unless they found that the owner was somehow doing something wrong or was liable, okay.
So let’s take that further. In the trust scenario that we lay out there is a beneficiary. That beneficiary can be you, it can be another trust for example, or it could be an LLC or Corporation. So, in our layered trust strategy what I recommend is that you put the piece of real estate in a land trust. Then you have the beneficiary be a personal property trust to hold the personal property beneficial interest of the land trust, then the beneficiary of that could be an LLC or Corporation.
Now what you’ve just done is you’ve brought your entity, your protective entity layers deep. Which means that their going to have to sue, their going to have serve, their going to have to find trustees, their going to have to find beneficiary’s, their going to have to do interrogatories, their going to have to do depositions, there’s going to all kinds of expense regarding all these various layers. And that my friend is exactly why most folks don’t go that deep, and it’s much better for them if they can find a piece of property owned by and individual and it’s even better for them if they find multiple pieces of property owned by one single individual. Because they know if they sue and they win they get a judgment, if they get a judgment they can collect. And they can collect on everything that person owns, however if alternatively that person had absolutely nothing in their name, and when they are looked up on public record and they find that they own nothing. Not for the attorney, I might add, but its good news for the individual who in the first place put their properties in the individual trust.
So, what I’m saying to you is if anything happened on a particular piece of property that trust alone would be involved. And here’s the other good news. Let’s say there was involvement in that particular property what would happen is that opposing counsel would file what’s called a lien Lis Pendence and that means lawsuit pending. And there’s a lawsuit pending against the owner of that property, which is that one trust.
Now what happens is while they are going through the motions of the depositions and the interrogatories, court all that sort of thing. All the other properties are still available to be sold. They are all owned by different entities who can sell that asset anytime it wants to, collect the money, and deposit the money. Whereas in the case of a lien Lis Pendence it goes against, let’s say if you had three properties in one LLC that lien Lis Pendence would attach to the LLC, therefore making it difficult and perhaps even impossible for the LLC to sell any of its assets, in order to defend its position and to defend against the lawsuit. So now you know the rest of the story. There are reasons that we do things for estate planning purposes, and for asset protection, we don’t merely do these trusts Willie-Nillie. And when you go to MAS you’re going to find that there’s 30 different benefits of trust that we cover on day one in the first session. And we teach those to you and train you on the fact most of those you cannot get with any other entity. Not a Corporation, not an LLC, not a Limited Partnership, you can only get them with trust. Then while we’re together in class going through all the other elements of putting the trust together, you also learn other ways, and other benefits of trust that other folks have no idea of.
So it’s like peeling and onion, that you’ve essentially put your house squarely in the middle of the onion, and you just begin peeling it back and it’s layer, after layer, after layer, after layer until you finally get down to the house. And those various layers are really another way of saying various benefits, so many different things can happen in the ownership property over time. And many of those things are covered by merely adding the strategy of taking title and trust. So, I encourage you to really embrace this idea.
And one last thought on that there is trusts that I am familiar with in Tennessee that have brought property, sold property, and had absolutely no problem doing so. So hopefully Bruce that gives you and the rest of you that are listening to this recording that are from other states should have absolutely nothing to worry about, because you are getting all of these benefits as well in your state, and you can see why I absolutely love trust. Even though others detest them and can have absolutely no idea why you would possibly go through all of this pain and suffering of putting together these trusts, when you could do that wonderful thing called and LLC or Corporation.
Now I will tell you one more secret as we talk about this is that attorney’s want you to do things that make their jobs easier. So when they do title searches, they find what they’re looking for, with a trust they’re looking kind of like at a bag and they have absolutely no idea what’s inside the bag or how many layers deep that bag might go. So you’ll learn more about this when you come to MAS, again get yourself registered for that if you haven’t been there before, because it’s going to be worth your while.
Q: Now we’ve got some purchasing properties questions from Ann who says, “How can structure the purchase of a hotel without the owner subordination and sale price is close to the current appraisal but below market and under producing.”
A: Well when you say without owner subordination, I think what you’re saying Ann is that the owner has an existing mortgage on there, and the existing mortgage would have to be subordinate to new financing. That means that a new lender would come in, in first position, in other words the most secure position against the real estate and have the existing owner take a back seat in second position. Well that’s going to be very hard to do Ann. Another thing that does not work in commercial property is subject to, so when we talk about buying residential properties subject to the existing financing.
That’s a wonderful way to buy property, but one of the challenges is when you do subject on a commercial property there are not the protections and exemptions in the _____________ (48.14) Act on commercial properties. So, what do you do if you want to do subject to on a commercial property, you approach the bank. You tell them exactly what you want to do and you get their consent approval and blessings to do that. It’s amazing that they’ll do it. I was able to do it on an apartment building where I went to the lender and I said here’s exactly what we want to do. You’ve got a loan in place and it’s going to take a while for the property to be worth a lot more than what you’re owed because there’s a lot of work that needs to be done. So, what we’re asking you to do is we’re asking you to go ahead and allow us to take over payments on your loan, long term, and then during the rehab period and all that sort of thing you’re going to get the benefit of the income. And they said okeydokey; well our greed glands are going off so we want to get paid for that. So they didn’t get a new loan, they just got some points out of it. And we wrote them a check on the day of closing, and they left the loan in place. But with us as the payor rather than the third party.
I will make this point as well. We did not qualify for the loan at all. We did not go through all the underwriting guidelines, the performance guidelines, anything like that because the seller was willing to remain liable. The seller knowingly, willingly, and with all understanding remained liable for that loan, so in case we didn’t make the payments they would be able to step in take over payments, take over the property and move on with it. There was a substantial down payment involved, so that made the seller feel comfortable that likely we would not come back, and give the property back to them.
Q: Now we have a question from Bill who says, “What general percent does Lou aim to buy at”?
A: I guess Bill you mean below market. And the answer is as much as we can possibly get. Below market is a good thing, obviously because you’re able to earn your profit going in. So absolutely, positively we look for those discounts. And my answer is it depends. It depends on a number of variables.
One of the factors that we look at is the quality of property. How old is it? Where is it located? What is the neighborhood like? What are the schools like? What is the salability of that property? I call it the salability factor, the attraction factor for the market place. Is there going to be a lot of people that are going to raise their hand and say yes I want that property if I can get the right price. If they say yes then we’ve got not only a willing buyer but we’ve actually got a buyers list. And if I’ve got plenty of folks on my buyers list that would be attracted to that property then quite honestly I’m willing pay more.
Now another way of looking at it, is what is the financing on the property? That’s another large variable for me. When I’m evaluating property I look at the cost of funds, and if I’m able to get the cost of funds down and my preference is zero cost of funds, that’s zero interest that is. Then I’m in the best position I can possibly be in, and then we step up from there. So, the favorite of all times is zero payments and zero interest…so merely that the seller gets a balloon when we sale the property. And I have zero costs of funds in that case, because I have no holding cost during the time period. But let’s say the next step up from there is zero interest, however I have to make payments. Now the question becomes is it an annual payment, semi-annual payment, quarterly payment, or monthly payment.
Then the next question beyond that is how much of a payment is that? Then the question beyond that is how much cash flow can I get off of these properties. So you see what I’ve just laid out for you, is part of the overall training that occurs and MDM. Because each one of these elements, each one of these variables that I just shared with you on one aspect of buying has many different profit centers, and cost centers. And each one of these has a relational percentage of value to the over all deal. So it really depends out of the whole smorgasbord that I just laid out for you, how many of those am I going to be able to get. And if I get them all under what circumstances did I get them. Such as, do I have a monthly payment I have to allow for on the deal? And if so, how much is that? And if so, how much cash flow is that going to yield beyond that payment. And if so, when do payments begin? Can we get that to start three months from now, six months from now? And if so, that’s worth money to me you see, so all of the factors taken into consideration such as I don’t have to go to the bank, and I don’t have to qualify for a loan.
What does that mean to me? That means that I have no closing cost, or very little. I have no origination fees and all the other fees that lenders charge on the loan. I have none of those costs, now that’s worth money to me you see. So, what that means is to boil it down to what you actually asked. Is what is the percentage that I’m willing to pay, and again let me word it a different way. I am willing to pay 100 percent of retail.
So let me give you an example, let’s say that someone comes to us, and they’ve got a free, and clear property that’s worth 150,000 dollars. They want 150,000 dollars, we set down with the cost to sale work sheet, we show them everything it’s going to cost them to sell the home. And they say that’s nice, and I want 150,000 dollars and they’re not willing to budge. Guess what Lou Brown is still willing to buy that property, and here’s why. Because it would be the payment that I want to make, under the terms that I want to make it, what that means is that I could extend the first payment. Maybe I don’t start the first payment for three to six months that’s worth money to me, because I can move in a customer fairly quickly and get an income stream off the property. Also if I use my I’m able to pick up some cash off that as well, either in savings on the repairs of the property, or an income when the people pay money down to move into the property. So each one of these is a real benefit to me, so back to my point, I will pay up to a 100 percent.
Let’s use an example. I’ve got a lady right now we’re working with and that’s a live example 150,000 dollars. She won’t take a penny less. We’re in negotiations back and forth and we’re trying to work her down from the 150 to merely give us a discount for the real estate commission, that she would have to pay, and the closing cost that she would have to pay on a new contract. So, if I can get her down nine or ten percent on her asking price, that will bring us down to say 135,000 dollars. Now I’ll pay her that 135,000 dollars at 500.00 a month until paid. What that means to me is I’ve made about 300 grand on that deal. Why? Because I didn’t put in long term bank financing with interest, what I did was make payments that would yield a cash flow for us. So by the time you allow for her principle only 500.00 per month payment plus taxes, insurance plus repairs. I’m still going to be able to make a 300 dollar a month cash flow on top of the 500.00 dollar a month principle payment that we are making out. So, that’s the way I want you to look at situations. This is not a percentage driven business. This is a variables business, and what you have to learn to all the variables that are available in a deal. And I’ve just spent time going over one scenario which was owner financing.
But there’s many more such as, subject to, such as loan modifications, short sales, workouts with the bank, delayed payments. There are all kinds of variables in an opportunity. Each one of those needs to be given a factor, and when you give that factor that is what affects the percentage that you’re willing to pay. In some situations we’re able to take subject to the first mortgage and get a short sale on the second mortgage. You see that also has a variable in there. In that there’s some cash usually involved in it and that’s a cost. And when there’s a cost factor that’s a variable as well. Each one of these is what we address at MDM so you know how to look at a deal, how to structure it, and how to really be able to evaluate what the discounts are. Bottom line 50 percent off is a good day. Okay Bill hopefully that was valuable to you and everyone else on the session today.
Q: So, Jim asks, “How can we purchase an REO without qualifying?”
A: Well Jim it’s going to be pretty tough. Unless you have plenty of money in the bank, if you’ve already got cash in the bank, you don’t have to qualify for anything. You can just merely write a check and every thing’s fine. But when you buy REO’s you will have to pay cash because there are few lenders these days that are offering financing on their REO’s now. We might see that in the near future, but right now they’re not doing that. They just want the cash. They want it off their books, so what do you have to do. You have to get proficient at borrowing money from real people, from the IRA’s to the 401K’s. There personal funds out of their bank account where they lend to you at good safe bank rates. And one of the things that I shared with you at the beginning of this session is that bank rates have dropped right through the floor from six percent to five percent and now their four and one and half percent. And wouldn’t it be great if you can go to a nice person who has an IRA or 401K and say I’m willing to pay you bank rates and you don’t have marble on the floor, and you don’t have columns and drive through windows, and tellers or anything like that. And I’m willing to pay you exactly what those guys will all of that overhead. I’m willing to pay you that too.
And look here’s a clip right from the newspaper. Here’s what the bank’s getting right now four and one half percent, I’ll pay you the same thing. And of course if they hold out, if they say no I’ve got to have more. Say how much more than that do you have to have, he said, “Well I’ve got to have at least five and one half percent”. Okay you’ve got me you’ve got me. That’s gee you are killing me, you want above market rates, gee you are killing me. But of course you and I know you won big. Why? You saved closing cost, origination fees, and all the other cost that go with borrowing money. Not only that you probably saved your credit report because it’s very unlikely they looked and not only that this loan is not going to show up on your credit report. Now friends what is that worth? Isn’t it worth it even if they insisted on six and one half or seven and one half percent might it being worth it.
Well you better look at your cash flows and see, but I encourage to get extremely proficient in borrowing money and we teach you that at MDM as well. Get down and dirty with the Millionaire Deal Maker, because that’s exactly where we teach you how to play the buying and deal structuring side of this business. It’s coming up at the end of April be sure to call in and get yourself registered at 1-800-578-8580.
I encourage you to get involved, get involved in out coaching program. That’s where we’re seeing the success at Street Smart. The folks that are involved, they’re connected, they’re asking questions, they’re getting answers, they’re being able to move forward. It’s amazing how often people get frozen in fear, and frozen in moving forward only because they didn’t have the answer to a single question. I want to make that you have all of your answers when you need them. And that’s what we do everyday under our coaching program. We’ve got the Group Q&A, the Direct Q&A, the One on One Program, and The Platinum Program.
Well folks we have come to the end of another Group Q&A, and we’ve got a lot of information loaded into this one. You can see the value of this coaching. It’s very important; the folks that have been with us that have grown their business that have grown their business dramatically in a very short period of time have done so because of coaching. What I’ve provided to you right here is merely an example of what we provide.
We have a Direct Q&A; you don’t even have to wait two weeks to get an answer to your question. You can fax or e-mail it in at any time and get your answers back. We want to make sure that you get supported if you’re on our direct program directly with the answer. You still get included in our group Q&A twice a month as well so that’s another two hours of coaching that you receive from us to support you in understanding, learning, and doing our system.
But we don’t stop there we also have our One on One Program where you are actually mentored by us here and we look at your business. How many leads you’ve got over the last month, what you did with those leads, how much those leads cost, where did you place those ads, what kind of responses did you get, what did you do with those leads, how did you craft and create the deals, what are your problems, how do you raise money? All those issues, we do that on you once a month one on one call for a half and hour. Now we don’t stop there, we have our Platinum program where we’re able to get together three times a year and together as a master mind analyze and support one another in our businesses. Napoleon Hill said, “it is the most important thing in business to have a business master mind, and this is absolutely critical.” He’s the one who wrote think and grow rich and this is exactly what we’re helping you to do, “Think and Grow Rich” by being totally connected and supported in your business, allowing you to focus on it regularly, and grow in it.
So call our office 1-800-578-8580, and get enrolled into our coaching and let us help you, let us support you, let us make a difference in your life. Folks it’s been a real pleasure for me to teach you, train you, and coach you on this call and I look forward to seeing you very soon. Good luck, good health, good profits, and may God Bless.