Question:
Given the current State market conditions, which do not appear as favorable for sellers, what investing strategies, or techniques do you recommend to avoid getting stuck with properties?
Answer:
That’s exactly what I wanted to talk about. You see today’s market conditions are the reason that you need to totally focus on what your exit strategies are before you go in. I don’t want you to have one exit strategy. What many people think they’re going to do is buy a property and sell it. They have to realize that when you’re going out…when you’re buying out of a market like this, you’re also going into a market like this. So when you’re selling it you’re going right back into that same market that’s so rotten for all the other sellers out there. Unless you want to be one of the statistics we’ve got to have a much better and brighter way to sell the property. What I recommend is that you look at lease optioning the property or selling it on an agreement for deed. We can even auction the property off. There are many different exit strategies in addition to selling it for cash.
Obviously if you buy it at a great low price and you have a lot of equity in there then you can afford to discount it and give somebody else a great deal. So, for our deals that are short sales for example, where we have to come up with all cash to buy them, then we look at selling those things at a discount for all cash when we can sell. Of course, good deals will sell even in this market. People will come along with good financing for a good deal.
But of course, what we like to do is less deals, less work and more money. To fit with that philosophy I also want you to look at taking subject to the existing financing and then putting a lease option, an agreement for deed, and those types of exit strategies in there. We’ve got it all built in to the whole enchilada. All you need to do is pay attention.
When you look at a property, I want you to map out all the possible exit strategies so that you do not get stuck in the market that you’re talking about. Very great question.
Question:
I bought an assignment of a lease with purchase option. Now I wish to sell the property without having to buy it first. The lease purchase gives the right to assign or sell the property. My title company says I can’t do a simultaneous close. Is there any way to sell to a buyer and then buy from the seller? You were great in Orlando last weekend. Come back to Jacksonville soon.
Answer:
Well, Mike don’t wait that long to see me, come see me as soon as you can. Let me tell you about this dilemma that you’ve gotten yourself in. It is a challenge that typically a lender wants to see that there is some kind of seasoning on the loan before they’ll even give the new buyer the loan. That’s your customer, the new buyer. They’re seeing a chain of title in the name of the seller. You could transfer the seller’s interest into a trust; have the seller as the beneficiary of the land trust. After doing that they can do what is called an assignment and quick claim of beneficial interest. At the closing your title company can write the check to the trust that owns the property. Of course, since you have the assignment of the beneficial interest then you have control over that check. The check is made out to your trust and your trustee and your trustee is going to sign that over to you so that you can deposit it into your bank account. There are other things to say there, but it would take the whole call in answering that. Let me just say that that is one solution that you can have that is one that works quite a bit for us.
Question:
Next question is from Chuck B. from Illinois. Chuck says, in Volume 1: Buying, Disc 9, Track 1 – 12 minutes, you brought in a partner who qualified for a loan. How did you title it? How did the bank only have the partner’s name and partner’s qualifying so you and the partner are on the title but only the partner’s name is on the note?
Answer:
Well, Chuck, here’s how we do it. You always want to buy your property in trust if at all possible. Did you know that lenders actually will lend in trust? They don’t have any problem with that, but the problem is that when you go to them with that first idea, they don’t know that they can lend in trust. What you have to have them do is look it up. Look it up in their paperwork and they can actually find that they do have guidelines for lending in trust. That’s the first step. Have your qualifying borrower borrow with the purchase of the property being in trust. Of course, they as an individual are going to have to sign personally on the note, but the ownership or the title is going to be in the name of the trust. The trustee of the trust will sign the loan. In addition, the borrower will sign the loan and the note. The only thing that will be published on public record is the name of the trust.
All right, now how do you get yourself cut in? The way is, once the property is owned in trust, you’re going to name yourself as an X percent beneficiary of the trust, and your partner is gong to name themselves for Y benefit of the trust that owns the property. Two distinctions here: Number one – if for some reason you can’t get the lender to loan in trust, which they will do, but sometimes you don’t have the time or the energy to argue the point, you just go ahead and let it close in the name of your lender. In other words the person, who is going to qualify for the loan, your friend, is actually going to be the purchaser of the property and it will go into their name. The next day you are going to record a deed out of your friend’s name and into the trust name. At that point the mortgage will stay in place but the deed will not. The deed will transfer out of your friend’s name and into the trust name. Once it’s in the trust’s name, then you can name yourself as X beneficiary and your friend as Y percent of the beneficial interest of the trust. Hopefully, that made sense Chuck, and you can definitely do it the way I described.
Question:
A foreclosure question from Ernesto. Can you please suggest a grand opening that can be used when doing door to door knocking for people in foreclosure?
Answer:
I think what you’re saying is what’s a great way to open the conversation. Let me describe it, here’s what we say. Hi, do you know of any houses for sale in this area. I’m looking to buy a house in this neighborhood, do you know of any for sale. That opens the conversation without saying, I know that your house is on the foreclosure records and I know your house is in foreclosure and I know you’re about to lose your house. So, we first use that opening salvo just to get the door open. If they say they don’t know of any, the next thing you say is, well, I tell you what, if you hear of any for sale we buy houses and we’re willing to pay a referral fee to anyone who refers a house to us. I’m willing to pay up to $250 for any house, including yours, which might be for sale. Here is my name and telephone number. Is there anything else I can do for you today? Just kind of use that as the opening salvo. If they say no, absolutely not, then you can at least follow up with them.
Now the next step you want to make is, by the way, do you mind if I add you to my list of potential bird dogs. What is your name, what is your telephone number? Then you can get that information. Then after a few days you can call them up and say by the way I was over to your house the other day and, faith and bagora, I see you on the foreclosure list. You remember that we met; is there anything that I can do for you. Is there a way I can help you save your house or is there a way I can help you save your credit. That gets the door open. Hopefully, that works out for you Ernesto and everyone on the call because that’s a great way to do it.
Question:
All right, Mark McCall asked a question. I just recently bought your program and David’s at the program in Las Vegas. Oh, okay, so you bought the whole enchilada and our websites…our buying, selling and lending websites. Brilliant move Mark, I must say. As a matter of fact, I spoke to your son at length. You, of course, have a lot to be proud of. My question results from a long journey from the first I became aware of a property. Well, first of all, thank you for your comments about David; I really do appreciate that and yes, he does know a ton of stuff about our websites and he deals with our programmers on a daily basis so he is absolutely the one to talk to about those things.
You go on to say, it began with a foreclosure of a town home in the association I’m on the Board for. The owner passed away and the family has no interest in signing over the deed to me and is allowing it to go to sheriff’s sale. The first is $100,000 and the second is $25,000. The after repair value is only $115,000 minus $10,000 in repairs, that brings us down to $105,000. According to the attorney for the bank the BPO is $99,000. I already have a buyer willing to pay $118,000. Do you think I could get the bank Country Wide who has both notes to sell me the notes at a discount, maybe $75,000 to $80,000? If so, who do I speak to at the bank?
Answer:
Okay, let’s start with this. Since the property is already in foreclosure one thing you want to look at is it the first that has brought the foreclosure or the second that has brought foreclosure. If it’s the first, they’re going to wipe out the second and the second isn’t going to get a dime; or the second is going to be paid back by what’s called PMI which is Private Mortgage Insurance. The second sometimes doesn’t care; but, I would start by trying to discount that second of $25,000 down to $500 and I would settle on $1000. They’re about to get wiped out. It’s likely the first who is the one that’s foreclosing. Therefore, I would definitely focus on that.
Now then, let’s look at that $100,000 first. It might make sense for you to do a work out on that first. However, you can’t get the deed from the family. One thing to do is to go back to them and say if I can show you a way that this can be taken care of and won’t have to go to foreclosure would you be interested. If they absolutely won’t, just let it go on to foreclosure. Let it go on to foreclosure then on the day of foreclosure when the bank actually takes it back you call the foreclosing attorney and you tell them look, I would like to make an offer on that property. I’m going to fax over a contract, would you please fax it on to your contact at the bank. I’m interested in buying the property and here’s my offer. Boom. Then go ahead and just fax that contract to that foreclosing attorney and they have obviously a client, that the client might be interested in your offer. If so, the bank won’t have to list it, they won’t have all their expenses and all the other good stuff. That can be avoided. That is what I would recommend.
Question:
By the way, I have spoken to the attorney handling the foreclosure for the bank in the past. Would he be a good person to go through this process for me?
Answer:
I would use him for what I just described.
Question:
Of course, proceeding with the foreclosure process, I know you think this is a lot of effort for the time and money. I’m new and my closing attorney thinks I’m maybe putting too much time into this. I feel the experience both in estate foreclosure and learning how to buy a note could be invaluable learning experience for me even if I don’t get the deal. Sincerely yours – Mark McCall.
Answer:
Yeah, baby, okay. All right Mark there are a couple of things I want to say here. First of all, if we can get this number down to a viable number, then no, it’s not too much energy. However, I do not believe you’re going to be able to buy the note. The reason being is that this is probably in a what’s called a loan pool, or a mortgage pool, and it’s been sold on Wall Street to nice investors and teachers’ retirement accounts and things like that. They can’t dip into the pool and take out one note. They can’t do it and they won’t do it. The only way you can really get in this deal is the money from the foreclosure or the sale goes back to the pool and then that gets calculated into the overall return on the investor’s money. I would follow my suggestions here. Another thing Mark, be sure to get yourself to Millionaire Deal Maker in March, because that’s exactly what we’re going to focus on, is all kinds of different ways to structure deals. Not one or two, but many, many ways to structure deals.
All right, and everybody on that call by the way, this is the most important you can do, because that’s where we make our money. We make our money when we buy. We may not realize it when we buy, but we make it when we buy so you’ve got to have multiple different strategies and multiple different ways to structure the transactions. I can’t teach you anything more important than this at this stage especially when you’re just developing and building your portfolio. This is a skill that is learned. It is not innate, it is not inborn, and most of you only know one or two ways to structure a deal. I want you to know 35 different ways and you’re actually going to bring deals to class. Just like this one Mark, bring it to class. And dead deals; any kind of deals, any kind of leads that you have, bring those to class because we’re going to work them right there in class. Don’t miss that kind of training.
Question:
All right the next question is a deal structuring question from Caudry who is an attendee to many of our events. Hello, Caudry. I’ve got a detached condo, two bedroom two bath, vacant. Market value is $194,000; mortgage balance is $189,000; monthly payment is $1,183, which does not include taxes and insurance payment. The current interest rate is 6% fixed for two years. Loan taken out July of 2005. Ready to sell for what she owes. The Homeowner Association dues are $160 a month; rent in the area is $1200 to $1400. Is this a good deal considering the $160 a month Homeowner Association dues?
Answer:
The answer is, no it is not. This is going to have too much negative cash flow. You know that I’m adverse to negative cash flow and I know that you’re in California, but I want you to be careful about things like this. This could put you in a bad situation and then have you pay somewhere around $300 a month negative cash flow, which I’m not into at all.
Instead, let’s take this and go back to the lender. You said the mortgage balance is $189,000. I’ll bet we can get a discount, a significant discount at least 20% off of that. Now once you do that that will start to make the numbers work. Yes, you will have to come to the table with a new loan, but that’s about the only way that this one would make sense.
There is one more alternative. You could go back to the lender and try to recast the loan adding any arrearage they have to the back end of the loan and then recasting it from an adjustable rate loan to a fixed rate loan. If they will recast it at say 5% for the life of the loan, then you might be able to make the numbers work just because you’ve got such a nice pay down on a 6% loan. Let’s be careful about how we structure this though. I’d need to talk to you more on that one, but it has to be made a good deal, otherwise, we need to pass on that one and focus on another one.
Question:
Brian Mussa has a question. Hey Lou here’s a deal structuring question. I made an $80,000 short sale offer using your package and the bank rejected it saying it wasn’t enough. I then said, what would be enough. They said $145,000. Fixed up the house is worth $260,000 with repair costs estimate at $78,000. Should I counter offer and if so, what would you recommend?
Answer:
Well, let’s do the numbers here. $145,000 that they said they would accept plus the $78,000 that you would have to spend would bring it down to $223,000. That would be a pretty good number that’s workable because you said it’s worth $260,000. The only thing is it needs a significant amount of repairs, so I would want a further discount from that $145,000. Go back to them and counter offer. Brian I think you have our Comp-Wiz program. Just go into Comp-Wiz and get all the comps that you can. Show the bank the ones that you want them to see. The good thing about Comp-Wiz is that you can place those on a word document and then you can print that out and send that to the bank. You just highlight the ones you like, cut and paste that onto a word document and then print that out. We also send the bank the toxic waste dump report, the flood zone report, the landslide report, the liquefaction report; all those things that cast the house in the worst light, we want to include that with the follow up. Go back to them and tell them that you have a buyer, but unfortunately because of the significant amount of repairs that are necessary they just cannot pay what the bank is asking; but here is what they will pay.
Let me give you a few details here, and that’s what you tell the bank. You give them the details about the comps, and you give them the details about the amount of repairs that are necessary. You do want to use my “get it done” list of repairs and fill that out completely when you include this to the bank. That should also estimate to the bank exactly where they stand. The other thing is I would include your own broker’s price opinion to show the condition of the property after taking into account all of the repairs that are necessary, what the final numbers should be. I believe you can get that $145,000 down to at least $110,000 which is more like what I would like to see you buy this at. Okay, Brian, keep me posted on that one, let me know how that goes.
Question:
All right, Mike Oliver asks the question – Mike from San Antonio, Texas. I attended your MJS Training earlier this month. The fact that you never went to the bank to qualify for a mortgage was pretty inspiring to my wife and I. Yeah, Baby. At that time we had a deal in the works. A 2 – 1 on an acre that was scheduled to close about two weeks after MJS, which is tomorrow, the 28th. When we got back I called the seller and we negotiated a zero interest loan on his property. I’m already getting it at .50 on the dollar. Yeah baby, I’m loving it! It seems to me that you took some notes while you were at MJS, because that is exactly what I’ve taught you to do. I’ll be putting $3,000 down and it needs about $7,000 in repairs. The problem is I have just enough to cover the repairs which are the proceeds from my first wholesale deal. This is money that I intended to use for marketing and incorporating our business, etc. My question is what would you do in this situation? Do I use all the money that I have and put it into repairs?
Answer:
Let’s start with that one, Mike. The answer is no. What I want you to do and I’m not sure if you got this Mike, but you should and it’s called my “Work for Equity Program” for $299.95. You call the office and get that program. I want you to offer this property off, out immediately, like maybe in the next two days, on my “Work for Equity” which is our come fix me up program. The phone will ring off the hook. You will be shocked what happens. People will come from everywhere and they will be interested in taking the property as is. They will spend their own money to fix it up. What I’d like to do then is give them some credit toward the purchase of the home for the work they do. Remember to discount the work. If it would cost you to get somebody else to do it $7,000 you may only give them maybe a $3,000 credit toward the purchase, and they’re going to love you for it, because they’re not going to have to come up with that money. Now, you have to tie all the loose ends together to do this right.
Number 1: We’ve got to get them under contract on the Standard Rental Agreement. Then we have got to get them under contract on Option to Purchase Agreement. Also, you need the Independent Contractor’s Agreement and then we also need the Promissory Note. I explain the whole thing and I give you the forms and everything in the package. I just wanted you to know that there are a lot of steps we have to take in order to protect you and do it right on the Work for Equity program, but once you do this, you will never look back. Everyone on this call I just want you to understand this is a very vital way that we exit out of our properties. We first offer them on the Work for Equity so we don’t have to do the work and it works out beautifully.
You go on to say, I have a Substitution of Collateral clause in our agreement. I thought about using my own money to fix it, sell it, and move the loan to another house. Well, first Mike you have to have another house to move it to, and there has got to be plenty of equity there, because you’ve just told me that you have gotten him to agree to…well, I don’t know how much the loan is, all it says is .50 on the dollar. But you’ve got to have at least that much equity in another property in order to do the Substitution of Collateral.
You go on to say, I thought about using my own money to fix it, sell it and move the loan to another house – what would you do in my shoes?
As I said, I want you to be sure that you have got equity to move it to.
Thanks – p.s. – the owner financed $1,000 of the down payment for one year and if I get a personal loan for the repairs, I will have negative cash flow for the first year should I decide to rent it.
Well, no I don’t want you to have negative cash flow and you shouldn’t because the way we’re going to structure this is that your buyer is going to do all those repairs and it’s not going to come out of your pocket and you’re not going to have to get a loan to do it. Okay, Mike, hopefully that helped.
All these great deal structuring questions, be sure to get yourself to the MDM. It’s going to change how you make offers. It’s going to change how you buy properties and it’s going to add a whole bunch more to your bottom line.
Question:
All right, Milton Harris has a subject two question. When the property has been deeded into a trust by the seller and we want the mortgage transferred into the trust’s name, the lender forms are submitted from Volume 4 to the lender. How prompt are lenders in making this transfer and what is the original seller’s obligation towards the mortgage once transferred to a subject to sale.
Answer:
All right, I think what you’re asking me here Milton is how is this going to land with the lender? The answer is, they’re not going to move the mortgage. You are going to move the deed. You are going to move the deed out of the seller’s name and into the trust name. The mortgage stays right where it is. The mortgage stays in the seller’s name and it is secured by that property.
You go on to say, what is the original seller’s obligation toward the mortgage once transferred in a subject to sale? The truth is Milton they have still full obligation towards that mortgage. They still owe it however you are going to pay it. That means that they are responsible for it if you don’t pay it. However, the property itself stands as the collateral for the property, therefore, they are going to first – the lender that is – is first going to come after the property and if there’s anything left over they then can come after the seller. First of all, they have to find them and then they have to come after them, which is rare indeed that they do.
There is an advanced answer to this as well, Milton. The mortgage can even get moved off of the property and there are some steps that have to be taken in order to get the mortgage moved…not off the property but out of the seller’s name and off of the seller’s credit report. That is advance training, again it would take me an hour to answer that one, but we do that advanced training at the Maximum Asset Shield which is a four day event where I teach you all about trusts, land trusts, personal property trusts, and living trusts. But it can end up that it shows on the seller’s credit report transferred to a third party and it completely goes out of the purview of any lender when they go to borrow to buy a new property.
Question:
All right Neil Mohahn asks how lenient is the Navy Federal Credit Union in calling a loan due on sale. I have just made an offer on a Florida property subject to an existing first at the NFCU.
Answer:
The answer is Neil is it depends how that mortgage is written. If it is a traditional Fannie Mae/Freddie Mac, FHA or VA loan, and those documents were used then you’re not going to have a problem and the lender is not going to be able to call the loan due. Just follow the steps that I’ve laid out for you carefully in Volume 4; Section 4, that actually takes you through the due on sale process and that should take you through without a hitch. Don’t skip any of the forms. Every one of them is there for a reason. That should get things transferred.
What happens is that when you contact the credit union you merely have them mailing the information to you at a different address. I’m sure they’re used to that since many of their borrowers are in the Navy so they’re going to have to…I’m sure they’re used to sending it to a care/of or a different address. We’re going to need to be sure that the statement on a monthly basis and the annual statement does come to us and that should not trigger anything.
Question:
Brian Mussa has a question on subject-to. I own a house that I bought subject-to and have recently received a letter from the mortgage company stating the previous owners who are still the mortgagors may qualify for a loan modification. The letter goes on to request a letter outlining their circumstances, copies of the two most recent pay stubs, a completed financial form, etc. What should I do?
Answer:
Brian, I would recommend that you get in touch with the sellers immediately and you tell them that you need some added help; that the lender has requested some added information that you need to submit to them. I would go for the modification. I would go for a work out. If there is still an outstanding balance that has to be paid in terms of arrearage try to have that added to the loan, get the bank to recast the loan and get the bank to set…if it’s an adjustable rate loan…get them to set it as a fixed rate loan. We just did that on a $760,000 loan. We got the bank to take over $30,000 in arrearage, recast the loan and take an adjustable rate loan and make it a fixed rate loan at, watch this, 5 1/8 %. I want to teach all of you exactly how to do that. That’s part of our short sale work out combo, where we short sale the second and work out the first.
Question:
Chuck B. has a question. He’s from Illinois and he also buys and closing land trusts. He says subject-to – what is the best way to find out what the actual loan details are without tipping on to trigger the due-on sale? You’re buying Volume 1, page 141 – Estoppels Facts looks good, but does it trigger lender suspicion of a transfer? The goal is to have solid bank answers especially for anything added to the rear which does not appear on monthly statements, loan modifications, etc., and for the adjustable parameters.
Answer:
Exactly right Chuck, you must get all the details from the bank, otherwise, you don’t know what you’ve bought. We ask for two things from the bank. We ask for reinstatement letter if the people are in arrears and we ask for a pay off letter. The easiest way to do this is through your title company. Just have the title company contact the lender as if they’re setting up a closing. They tell the lender that they’re setting up a closing and they need these details. That obviously tips off the bank that there might be a closing, however, we all know that deals fall through all the time, so lenders usually don’t pay much attention to this if the check never comes in. They don’t get their pay off, they just continue to get payments, and that’s the end of that story. You don’t have to worry too much about tipping them off, but you definitely need that information.
I want everyone on the call to write that down. You need to get both a reinstatement letter and a pay off letter so that shows exactly where the loan is at the time that you take ownership of it.
Question:
Chuck goes on to ask, how do you handle property insurance? How does this not trigger lender suspicion? What are the endorsements, named parties, etc. that we should instruct the insurer to include to have the bank accept a modified or new policy?
Answer:
What I recommend Chuck is that you actually cancel the old policy for several reasons. One is that it’s a Homeowner’s coverage right now and we’re going to move a tenant in there so we’re going to need a landlord-tenant policy. Therefore, we cancel the old policy and we put a new policy on there. You’re going to do that through your insurance company so that you have control over that as well.
Question:
1.C – how do you keep the seller’s existing insurance policy? In buying Volume 1, page 161, you will be receiving a corrected insurance policy showing the above named management and loss payee. What does this doe for us?
Answer:
Well, that particular document that we send to them, you’re just going to go ahead and get a new insurance policy and you’re going to send it off to the lender. That…you’re not going to send it off, in fact, the insurance company is. It is going to name the lender and the nice person who opens the mail at the lender’s office is going to say, oh okay, we had a policy, it’s been canceled and here is the new policy right here in hand. Lovely, we’re taken care of now. That should solve the problem Chuck.
Let’s see; do we tell a seller not to cancel his property insurance? No, we cancel it and then we have any unused premium go back to the escrow account that’s already attached to this loan. So, the escrow account then receives a refund and then it also receives a bill from the new insurance carrier and it pays it out of that account.
It’s critical Chuck that you get the MDM because we go into great detail on these things so that as you say, the devil is in the details. It’s important that you get all this stuff done.
Okay, let’s go to selling property for a minute.
Question:
Ron Brown asks; I’d like to sell my home. My neighbor sold the identical home last year for $255,000. My home needs less than $20,000 in repairs. It had termite damage. My neighbor’s lot is 50 by 100. Mine is 75 by 135 – so yours is much bigger. It is on a corner lot and was a real estate office 20 years ago. I would like to lease-option it, but I own it free and clear. I’d like to pull out my equity before renting it out. It’s a small two bedroom house. A Sears-kit home, that was purchased, from a catalogue 50 years ago. It is made of tongue and groove Norwegian cedar. What are the best exit strategies?
Answer:
Well, Ron, what I would recommend is that you first get a home equity line of credit; it’s also known as a HELOC. Get that HELOC. There are two ways you could do this; you could put a big fat loan on there, then you’d get the money but then you’d have to put it in the bank and earn 1 or 1 ½ % on it, while in the meantime paying a much higher interest rate. Instead I like the HELOC loan because that means that you’re not going to have to pay interest until you actually use the money. Now in that case, you’re going to receive a loan. I was just on the phone with some of our coaching students, some of our one-on-one coaching students today, and one of them was telling me, I had given this advice to them and I said go to Wachovia and Bank of America because they’re cutting each other’s throats these days. He told me they didn’t charge him a dime in closing costs and it was so easy it was like slicked grease. He was saying how easy it was to get that loan; you can do the same thing.
Just walk into your bank tomorrow and ask them for a home equity line of credit on that house. Then you’ve got a checkbook and you can write a check for your upcoming deals right out of that checkbook any time you want to. Then turn right around and put somebody in on either a lease-option or an agreement for deed. You can run two separate ads, one in the for-rent section of the newspaper, and one in the for-sale section of the newspaper. In the for-rent section you could get about 3 to 5% down and in the for-sale section you can ask for 10% down. Yes, I want to teach you all those different strategies and the ads, because it’s just so important to get these things moved as quickly as possible and you’ve got as broad of a market as you can.
Now the other thing we have worked out with a sign company is we have specially designed banners, signs, all kinds of unique things that we put in the yard. Just imagine this, a 3 by 8 yellow banner with black letters that says, special financing and then it has your web address and your telephone number. We direct them to our websites because there we’ve got interior and exterior shots of the property. We’ve got up to 12 pictures you can have there and then you’ve got all kinds of information about the property. If they don’t like that property they can click on the questionnaire and then fill that out and now you start to build your buyer’s data base. You always want to include your web address in all your marketing to drive people to your website. Those are the exit strategies Ron that I expect you to use and let me know how that goes.
Question:
Okay, here is a lease-option question from Greg Vining. Greg says, hey Lou, great time this weekend at MJS. One question I had on lease-options in Texas. You said to charge them a security deposit. Just to bring everyone up to date on the call, Texas has made the foolish move of passing a law against lease-options. They don’t say you can’t do it there, but they limit the lease-option to just six months. Of course our strategy is to have a three year lease-option, so that really puts a kibosh on what we want to do in Texas. Well, I came up with an idea that says…what Texas law says is that you must do the option and the lease simultaneously contemporaneously. That means at the same time. So, what I recommended to Greg and all the people from Texas that were there is that they should go ahead and charge a security deposit of about what they would have charged for an option fee and that is a fully refundable security deposit.
Now Greg is asking here, he says – you said to charge them a security deposit and when they make their first month’s rent on time it will become their non-refundable option fee. But I heard you say on your CDs, if there is a conflict some judges might confuse the option fee for a security deposit and make you give it back. Is that going to be a problem in this situation and if so, how do we get around it?
Answer:
Here is what I recommend Greg, when you meet with them a month later because they did make their payments on time and they did do what they were supposed to do then you’re going to actually give them a refund. You’re going to have them sign the check on the back and that becomes their non-refundable option consideration. You actually write it up that they have been refunded their full deposit and now you give them a new agreement which is their Option to Purchase Agreement reflecting that exact same amount of money as their non-refundable option consideration. Greg, I hope that cleared it up for you.
Question:
All right, Rodney Hatton has a question. Lou I bought a house that I am almost through renovating and I’m going to sell on lease-option the Lou way. A yo-yo house would be okay in this situation since I am getting my own mortgage after the renovations are complete. Is 3% of the purchase price still the best? Could you make a few comments on this? Thanks a million.
Answer:
Well, first of all, yes I would do exactly what you’re saying, offer it on a lease-option and on an Agreement for Deed as I was answering to Ron earlier. I think that’s the best way to go ahead and approach this. Put one ad in the for-rent section, which outlines what your program is through your option, you know, describe the property, and tell them how much money you’re looking for. The other ad would say your credit is approved. No bank qualifying; owner financing with $10,000 down let’s say if it was a $100,000 house. We expect to get $3,000 to $5,000 on a lease option. We expect to get about $10,000 down on an Agreement for Deed Owner Financing and that’s exactly how you’re going to market this. Again, I recommend that you get the banner that we have the 3 by 8 banner – oh I forgot to give you our contact information on that.
That would be…what is that Bruce? Bruce is in the room here with me and he’s going to help me find that. Here we go; Lou Brown’s recommended Marketing Tools. Go to www.wesellsigns.com/streetsmart.html . I think they have on the left hand column maybe a thing there that says promotions and then you click on promotions and click Brown, or type in Brown, and you get an extra discount – I think it’s at least 5% off of what you’re buying. So be sure and use the Brown code and get the extra discount from what you would be paying.
What you’re going to see there is some specially designed bandit signs or street signs also directional signs, car magnets, post-it notes, door hangers, business cards, and these are all with our StreetSmart logo and StreetSmart design. You’ll also find banners there and you’ll see flyers there, post cards. They even do free layouts. They do all kinds of stuff and it’s already pre-designed and done for you to make your life easier. Those of you who have been to MJS have seen it at the event. Those of you who haven’t been to MJS yet, you definitely need to get yourself there because…now remember, Millionaire Jump Start, is different from Millionaire Deal Maker. Millionaire Jump Start is the overview of the five volumes; the overview of the Buying, the Selling and Holding, the Land Trusts and the Personal Property Trusts. The Millionaire Deal Maker is advanced training. That’s in depth training, so we actually…it’s immersion, focus solely on structuring deals and structuring transactions so that you can make the most money out of every single lead that you get in. You know when to hold’em and know when to fold’em. You know what to do when the seller won’t do what they’re supposed to do. Those are the kinds of things I can get into in the four day in-depth trainings, which I cannot get into at the two day trainings. I wanted to make that distinction because some people get confused because Millionaire is in both names; it’s Millionaire Jump Start and Millionaire Deal Maker. But Deal Maker is the much more advanced training from Jump Start.
Okay, so that’s what I would recommend for you Rodney, is that we are going to do a marketing campaign to get that thing sold. The other thing I would recommend is that you contact all the neighbors, and we have a letters to the neighbor campaign that we offer any neighbor in the neighborhood that brings you a buyer, we offer them a $250 referral fee for bringing those to us. Those marketing materials I mentioned, mentions the referral fee as well. Anything you see that doesn’t, hey add that to it because you definitely always want to offer to pay a referral fee.
Question:
All right, Greg Pappas has a 1031 Exchange question. Lou, great to have you in Chicago at the local real estate meeting last week. My question is that I was told by my accountant that I no longer can do 1031 Exchanges due to the size of my investment portfolio. Is that true? Can I structure a way around this so-called limitation?
Answer:
Greg, good news, you’re not going to have to do a thing. It’s not necessary. In fact, you’re not going to have a problem in this world doing your 1031 Exchange, because there is no limit to the number of properties you can own for a 1031.
I have a recommendation for you. There is a group out of San Diego, California called 1031 Exchange Advantage Inc. and you can go to them, www.1031exchangeadvance.com or you can call them 1-866-944-1031, and you can speak with any of their people there. But they do have a special deal for StreetSmart clients. So, as a StreetSmart client they’re not going to charge you the normal fees that they would normally charge to set up the account. They do have a 1031 Exchange Advantage road map guide, but be sure and tell them that you’re with StreetSmart so that you can get the extra discounts that I can’t go into on the call. They will tell you about it over the phone and it’s some really good stuff that you guys are going to like.
This is a new affiliation for us as I continue my quest to solve all of your real estate problems we found somebody that could really do that quickly and they know what they’re doing. Greg, hope that helped you.
Question:
All right, Faradoon has a rental question for me. Hi, Lou this is Faradoon again. As I mentioned in an earlier email I have 15 fourplexes in Nevada. One more question; I want to go ahead and charge each tenant around $40 per month for water, sewer, trash and outside lighting. Now I am paying this and $40 per month per unit is my cost. The rule in my area is that I have to give 45 days before any increase. Any comments on this. Do you have any clause on your contracts that you recommend?
Answer:
Here is what I would recommend. If these people are under contract with you, if they have signed a lease with you, you don’t have 45 days to change it, you have to wait until the end of the lease. You don’t have a right to change the lease during the lease term unless your lease allows you to do so. If your lease is for a particular term you really don’t have a right to do anything. Here is my recommendation. If they are not on my rental agreement now, it’s a good idea to go ahead and change them.
Number 1 – let’s transfer each one of these properties into trust and you can do this with your Volume 4 Land Trusts. Number 2 – you’re going to find the letter in there that says I know longer own the property. However, I’m going to remain on as the manager for an indefinite period of time. The new owners have some new paperwork they want me to go over with you, and then you come to the new paperwork. The new paperwork is our standard rental agreement and in there you can simply say this is the new paperwork from the new owner. I’m no longer the owner. I am the property manager. Of course I’m going to execute this paperwork on behalf of the new owners as agent. That way you can go ahead and put new paperwork in place and transfer ownership and get control of your property and raise the rent the $40 that you want to. You could put it as a separate clause and a separate charge, or just raise the rent by the $40. Either way, I highly recommend that you do so if you can keep the people.
Question:
All right let’s see, Rose Coronta asks the question; I know I’ve heard it half a dozen times but I need it again. Please tell me how to get one bank account to use for all my business and rentals in land trust. Thanks bunches – Rosie.
Answer:
Well, first of all, we’re not going to get a land trust bank account we’re going to get a personal property trust bank account. We’re going to get an ID number from the IRS. We’re going to use the information that you’ve got in your Volume 5 Personal Property Trust. You’re going to get that SS4 form or go to the IRS.gov and get yourself a TIN number for your trust. Use that TIN number to go to the bank and set up a new bank account. It’s going to be a trust bank account in the name of a trust using that ID number and that will be where we deposit all the rent. So, all the rents that are made out to Rose as Agent then are going to be deposited into that new personal property trust bank account and then you can write checks to whomever the beneficiaries are; to yourself, to the LLC, to the Corporation. Whomever the beneficiaries of the land trusts’ are who this bank account are going to write its checks to. If you are the beneficiary, you can merely leave your money right there in that same account and just write checks out of that account any time you want to since you control all the funds. Hope that made sense, Rose, you ask me as many times as you want to.
