Hello everyone and welcome back to another installment of our Street Smart Group Q and A. This is Lou Brown, and I’m here to give you my words of wisdom on what’s happening in real estate over the last couple of weeks and what’s going to be happening in my crystal ball over the next few months. Also, to answer all your questions that you’ve submitted to us over the last couple of weeks.
It’s exciting what’s been happening. We’ve been buying houses left and right in our office. In fact, I believe we secured nine different properties at a recent auction, and I don’t know if the banks are going to approve because as they said at the auction this is way lower than we expected to get and this is way lower than the banks’ minimums, but we’ll see what can happen. So far, we’ve heard back on three of the files, two of the files the banks did accept our offers, and of course when I say offer we were actually the successful bidder at the auction. The third one the bank came back at a significantly higher amount than we had bid, so we said thanks but no thanks. We had offered $57,000 and the bank came back at $65,000 and we said thanks but no thanks. We’ll see if the bank doesn’t come back. What typically happens is they go to the next bidder in line and offer it to them for that and hopefully that bidder got plenty of properties that night too so they would turn it down and then it would go to the next one and the next one. Then, finally, the bank would come back to us and say yeah, I’ll think we’ll take that. We’ll let you know what happens with that.
Also, we’ve been buying several “subject to” properties. We bought one last week that was a beautiful house in a beautiful neighborhood. It had a 6.25% interest rate loan on it, and we figured we could get about $1500. The payment on it is $1100. We figured we could get about $1500 which we did do today. We do have a new tenant moving in, in the next week, and they’ve already paid us their option fee and they’ve paid the first month’s rent of $1500. The good news is they are taking it “as is” under our Work for Equity Program, so we’re giving them credits towards the purchase of the home for them replacing the carpet, them painting the interior and exterior of the house and them taking care of the minor repairs that the house needed. That’s exactly how I want you to be looking at your business is that how quickly can I move the property at how little cash out of my pocket both on the buy side and on the sell side. If you’ll do it the way I’m telling you to do it, this business won’t drag you down like it does so many other investors.
Now, let’s take a peek into all the different questions that we’ve received and it’s pretty numerous. We’ve got one here on getting started from Byron McDade from Ohio. Byron says:
If you only had enough money to run one ad in the newspaper to attract cash buyers so that you could have a list of buyers, what would the ad say?
Well, Byron, my first concern is that you might be spending your money in the wrong place. If you have such limited funds, I would say that your real focus needs to be on your buy ads, on your ads to buy property rather than your ads to build your buyers list. However, if that’s not the case, and indeed you do have enough funds to run your buying machine as well as running your selling machine, then you have the luxury of spending some additional money to build a buyers list.
To answer your question, the way I would run the ad is “Your credit is approved. No bank qualifying. Take over payments. Three houses to choose from,” and your telephone number and your web address as well if you do have some houses to choose from. If you don’t, use your web address for them to go and find that there’re no houses currently available and that gives them the opportunity to fill out the Buyer Questionnaire and go into your database. Good news on that questionnaire. It tells how much money down they have to work with, how much they can afford per month on rent and what type of property they’re looking for, the number of bedrooms, the number of bathrooms, the location, all the goodies that they’re looking for in a house now gets loaded safely in your database which you can access from any computer in the world.
Hopefully Byron, you have our investor websites. We’ve designed a website for buying, for selling your properties and for borrowing money. These websites are what we use in our business every day, and it is designed to give you instant credibility for anyone going to your Internet site because there, beautifully, is a complete display of your entire operation. Your buying business under one domain name, your selling business under another domain name and the funds to fund your business or fuel your business under another domain name. What we offer you is a completely predesigned site that is open to the public to see that you drive traffic to and we drive traffic to through your keywords on the Internet. Then, also, there’s a back end database where you can sift and sort your leads, manage the deals that you’re working on as well as manage your buyers. You can even match buyers to sellers and all that good stuff. It’s all designed in your database.
So, if you don’t have our websites, we encourage you to take a tour. Call the office at 1-800-578-8580 and that will be a marvelous way, Byron, to capture those leads when people do respond to your advertising. It would be a real waste for people to call in and not have a way to capture number one, their telephone number if they were to hang up, and number two, all their other information so that when you do have a house, and of course what it actually ends up being is a shopping list to go look for those very kind of properties. It’s a wonderful thing to kind of encourage your business as well because now you have people that want to buy property exactly and you know how much money they’ve got to work with.
One of the fun things is when the e-mail comes in, because that’s what happens when people fill out the questionnaire on your website, you also automatically get notified by e-mail as well as notification in your website. The good news is they tell you how much money they’ve got to work with. It’s so exciting when one comes in and says that they’ve got $25,000 down and they can afford $1700 a month. Well, instantly you know that there’re properties that you would turn down that now you can buy because you’ve got someone with enough money and they can afford a higher payment than typical for rent. It’s a highly motivating way to get customers and to promote your business as well.
Now, from Tom Fermiere we’ve got a purchasing property question on agreement for deed. Tom says:
Lou: I have a possible deal where I can get owner financing and want your advice. The owners of this house own it free and clear, no mortgage and taxes are current. The house is in good shape. They weren’t keen on the idea of giving up their deed so I mentioned land contract and they were more willing to listen. You teach getting owner financing with zero interest, but in Volume I, Buying, page 121, Standard Agreement for Real Estate Deed, there is a big, blank line where you’re to fill out the interest rate amount. On the Standard Purchase Agreement, page 104, you have the ability to have the owner take back a second mortgage in Section 14, Purchase Money Note, so that you can easily write it so that there’s no interest to be paid to the seller. Why can’t I easily do that on the Agreement for Deed Contract?
Okay, well, let me answer that first, Tom. The answer is you can. First, we want to get the people under contract, and you’re going to do that using your Purchase and Sale Agreement. Then, once they’ve agreed to it, and signed the contract, then you can complete your Agreement for Deed paperwork. Now, that big, blank line that you talk about that mentions interest, you can highlight that, press “delete” and that line will disappear, and you don’t have to make any mention of interest.
However, another way of handling that too, is so that there’s no confusion you make it clear that the amount that you’re paying is x amount of dollars to be paid at y amount on a monthly basis for z number of months or annual payments, etcetera, as I’ve outlined for you in the Purchase and Sale Agreement. So, follow those guidelines and then duplicate it with your Standard Agreement for Deed and that will duplicate it beautifully.
Now, you go on to say:
Lastly, on an agreement for deed, do I need to have a separate note created for the seller financing that’s described in Section 1, Purchase Price, or does that section nullify a need to also create a note?
The answer is you’re absolutely right, Tom, there is no need to create a separate note because that’s covered in the Agreement for Deed. Essentially, the Agreement for Deed is the note and if you pay that note according to its terms, then you get the deed. That’s why I named it Agreement for Deed, because it’s really an agreement to get the deed. That is a wonderful thing, Tom. I want you to go after that deal and I want you to report back to all of us exactly what the outcome was, the numbers and everything. That’s very exciting and it’s very motivating for a lot of other folks on the call to hear this because when you have an opportunity to talk with a seller who owns the house free and clear, and you confirm that there is no interest whatsoever, then you are able to prove that my methodology absolutely works. Therefore, you don’t have any problems at all being able to duplicate that.
Now we’ve got from Kathy Henderson a short sale question.
Lou: is it harder or even impossible to do a short sale with a HUD loan? Just started trying to do short sales and have a deal of owner behind on a first and second mortgage with a value of $185,000. He owes $150,000 on the first and $25,000 on the second. He’s behind three payments of $1300 per month. Also, is it possible to short sale the second and take over the first?
Okay, well, let’s first start with the first question here, is it harder or even impossible to do a short sale with a HUD loan. The answer is no, it’s not. HUD will take a discount on a mortgage when they have the opportunity to sell it. Now, they do go through a process of decision making and based on where the property’s located, and also based on the condition of the property, based on the age of the property, the square footage of the property, etcetera, they make decisions about whether they’re going to offer it out to just a typical homeowner base. They go through a cycle of certain properties going out to potential homeowners who can qualify for HUD loans, and they just sort of kind of recycle the property back out to other folks out in the world that want to live in the property. That’s the owner/occupant cycle.
Other properties who don’t qualify for that cycle go straight to the investor list and those are properties that are already owned by HUD. Those are already bank owned or HUD owned properties and those are sold that way. On the other hand, a short sale means that HUD is saying listen, we don’t want to take the property back, we don’t want to put it through that cycle, and we don’t want to go through the foreclosure process. Yes, we’ll accept less than we’re owed for the mortgage. Typically, Kathy, you’ve heard that there’re different percentages and that the magic number for HUD is 82%. The truth is it can even less than that and again, it depends on those criteria that I just outlined – age of property, condition of property, location of property and so on. They’ll even accept less than 82% of the loan amount; now, not of the value of the property, the loan amount.
You again, want to look at that and only make an offer that makes sense to you where you’re going to be able to see your profit. Remember that we do not offer on properties simply to go through the exercise. We offer on properties because there’s a profit in it. Now, you go on to say:
Just started trying to short sale, have a deal where the owner’s behind on the first and second, a value of $185,000. Owes $150,000 on the first, $25,000 on the second and three payments behind of $1300 per month. Is it possible to short sale the second and take over the first?
Yes, Kathy. In fact, that’s one of the things that I teach, that if the numbers make sense…for example your $150,000, you haven’t told me what the property is…oh, you do say the value is $185,000. So, yes, you could merely reinstate that first mortgage of $150,000. Now, here’s what you want to keep in mind. They’re behind three months on payments. You could either have those payments added to the back end of the mortgage or, watch this one, ask the lender to forgive those payments and allow your client, the seller, to be able to reinstate the loan by just resuming the existing payments. Those arrearage payments get wiped out by the lender. This is a new tactic that I’ve been teaching now for several months and it’s working. We’re now seeing lenders take us up on that offer.
Now, let’s say that you get it wiped out; that’s a good day. What happens is that you’re going to do a loan modification with the lender to merely resume payments. Of course it’s going to be the seller that’s going to be signing that loan modification as if they were going to be staying in the property. Then, you would go to work on the second mortgage lender and work to short sale that second down to say $500 or $1000 and eliminate it all together so that there would end up only being one loan on the property at the $150,000 with no money out of your pocket or only the $500 or $1000 for the second mortgage plus closing costs. That way, you’ve really put yourself in a position to win on this. Now, it goes on to say:
Will the second agree to short sale if the first isn’t sold or foreclosed on?
The answer, Kathy, is yes. Most of the time they’re just interested in what’s happening on their side and they’re not paying that close of attention to what’s happening on the first mortgage side. However, if they want to see a HUD One, then you can fill it out truthfully and write on the HUD One, there’s a line there for loans taken “subject to,” and you can merely fill out that line at $150,000 and run it up the flagpole and see if it flies. If, indeed, the second mortgage lender even asks for a HUD One statement. One thing I want you all to learn is the finesse of the business, which is you don’t offer something that you may not have to offer. So, don’t step up to the plate and start throwing paperwork at a lender when you may not even have to give that paperwork in the first place. Be careful, because sometimes you can get yourself caught with something that you didn’t even have to give in the first place.
Alright, Evelyn Peckert asks: I have submitted a short sale to Saxon Mortgage Services ______ 17.53. When the phone is answered, they say that they are a debt collection service. What does that mean? Who is the actual lender on the account?
Well, Evelyn, any time that a loan has gone into default, anyone collecting on that loan is in the debt collection business. As such, they are under the Fair Debt Collections Act and under that act, they have to notify you that they are debt collectors. So, they’re merely complying with federal law on debt collection practices. To answer your second question who is the actual lender, well, sometimes you can find out and sometimes you can’t. You see, Saxon may actually own that mortgage or they may be acting as a servicer for a third party lender such as Fannie Mae or Freddie Mac. It really is not as important to you who the ultimate lender is as it is for you to negotiate.
Now, Saxon is a buyer of defaulted mortgages and they buy at huge discounts. So, you have a real opportunity here with Saxon to be able to buy this at a huge discount, and I would highly encourage you to do that. By the way, that’s a lesson that everyone should learn here on the call because short sales are not at all what you think they are. If a lender, or if the servicer that you’re working with is actually a buyer of mortgages at huge discounts, you can see how they can afford to take a huge discount, because they already have their profit built in. Just imagine that they’ve bought a $100,000 loan for say $30,000, and then you come in and offer them $50,000. You can just see how they had a good day not a bad day. You’re thinking all along well, my goodness, they are going to take a $50,000 loss. How can they afford to take a $50,000 loss? It’s only because they’re not taking a $50,000 loss. Somebody else took a $70,000 loss for them to be able to make $20,000 on that deal. If all of you followed the math, you start to understand how this business works, and it’s a fascinating business when you get into the back end numbers of who the real players are and where the real profits are in the deal.
Now, we have a call from I think this looks like it’s from Janice up in Connecticut.
Hi, Lou: I have come across my first short sale which I will be using the short sale service for. Those of you who are on the call who aren’t familiar, we also provide a service through Street Smart that does the short sale for you. So, instead of you having to go through the pain and suffering of negotiating the short sale and all the follow-ups that are necessary on a short sale, you can actually have a third party do that for you. So, if you’re interested in more information on that, call the office at 1-800-578-8580.
So, she says she’s going to submit it through that service and is there a rule of thumb for determining the amount to offer the bank if you are starting with the “as is” value? Do you have a little calculation sheet to estimate this figure?
Well, Janice, it’s really going to depend on your particular scenario. I just covered an answer for Evelyn which partially answers this for you in that it really depends on who the lender is. The lender may already have a huge discount built in and so you’ve got the opportunity to just go ahead and take that markup yourself. You wouldn’t even have to run it through a service and pay a fee for that. However, if it’s one of the other traditional type lenders where it’s going to be a pain and suffering type short sale, then it can make sense for someone else to go through all of that calling.
Now, when you say that starting with the “as is” value, what are we going to do to come up with a number? Well, I would use your Property Acquisition Worksheet and also your Cost to Sell Worksheet. You can use your cost to sell to convince the lender what it’s going to cost them to sell that property. Then, in addition to that, you’re going to use my Short Sale Package, the Short Sale Profits Package, and you’ll recall that built in there is a multi-page list of repairs and cost of repairs. So, if you go through that process, you can see that there is an opportunity to pile on the numbers for the lender and then that gives you a chance now to take the numbers way down.
Also, interestingly enough, lenders will pay real estate commissions of usually up to 4%. Also good news they will pay for the service of the short sale itself. In other words, they’ll pay an additional fee just for the short sale to be processed. There’re some additional fees which could show up on the HUD One closing statement which of course come to your bottom line but for the lender, they don’t show it on their bottom line. They show it as a cost of doing business and getting the short sale done. They don’t look at those numbers the same way that you and I would. We would say look, everything comes to the bottom line, but lenders don’t quite look at it that way. You can take advantage of that and get that additional discount which could be available to you.
As far as the calculations go, you’re going to take the cost of the repairs. You’re going to add the cost to sell and you’re going to look at your profit that you have to make on it because if you’re going to go through the pain and suffering of repairing it, raising the money, the cost of funds, and all of that, those things have to be considered in doing the deal in the first place. When you come to those final numbers, that will be your offer price. Rule of thumb if you’re looking for one on conventional loans is about 60% of value, so you can pretty much take a huge discount right off the top and justify those numbers through our Short Sale Profits Kit. Those of you who aren’t aware of what that is, what I’ve done is develop a package that we send to the lenders. Instead of you asking the lender for their package, we’ve developed our own package to convince the lender to accept the short sale because the numbers make sense. I encourage you first to go through that process and if you don’t have the Short Sale Profits Kit, do call the office at 1-800-578-8580. It is going to make your life a whole lot easier in doing short sales because we’ve kind of mastered the way to get the lender to cooperate with giving a big discount because of the way that we justify the discount.
Now, Janice has a question on “subject to”:
Hi, Lou: I’m working on my first “subject to” and here’re some questions.
Janice, I’m so proud of you. You have come, you have taken the Street Smart System, you have run with it, and I am just thrilled with the fact that you are just getting in gear and buying all these properties. This is exciting.
Number one; we closed on the property a week ago, yay! The seller has canceled their insurance and I have purchased a commercial landlord policy with the trust as the named insured, etcetera, per LT202.
2002, which is a form number.
When a copy of the new insurance certificate is sent to the mortgage company, won’t this trigger a question regarding ownership if the seller’s name does not appear on the cert? We have kept the land trust form, 2120, “Notice of Placing Property in Trust for Estate Planning” in our back pocket. In other words, not really notifying them of the deed transfer to the trust. How is this handled?
Okay, well, let’s start with that because insurance is always a big challenge and concern on “subject to.” The concern being that the lender is going to be tipped off of the sale and they’re going to be saying well, wait a while. The insurance has changed so we’re not going to do this; we’re going to go ahead and call this loan due. That is a concern and you should be concerned about that.
Now, the insurance though, having been transferred from your name, excuse me from the seller’s name, into the trust name should not trigger that “due on sale” clause and here’s why. Because the Garn-St. Germain Act that allowed lenders to put the “due on sale” clause in mortgages, also has an exemption, and it’s when someone places their property in trust for estate planning purposes. So, that’s exactly what your seller did, isn’t it? They placed their property into their trust for estate planning purposes. Of course, as a result of transferring the property from their name into their trust name, of course the insurance needs to be changed.
To answer your question, that should not trigger any concern on the lender’s part. They’re going to see that the policy was canceled, the old one, and they’re going to see it at a new one is put into place. Now, the other concern, though, that might be brought up here is that your old seller had a homeowners policy on there likely. Now, you are placing a commercial lines coverage on there which of course is a landlord/tenant policy. Why in the world should the lender put up with that? Well, for one thing, the lender is named on the policy. They are named as the mortgagee. So, therefore, the trust is named as an owner, the trustee is named as the title holder, the lender is named as the mortgagee and further, you could even be named as the manager ATIMA, “as their interest may appear.” Most insurance policies allow you to put a third party name on there that outlines their interest. That should take care of that for you. If you’ll just merely send in the other letter that is in your Subject To Package, which is notifying the lender that you’ve taken over as the manager, and all future correspondence and anything related to this property are to go to you.
Now, you may in this case have the luxury of being able to go online and change the “care of” on the lender’s website, so the lender’s website currently says the seller’s name, the seller’s address and so on. Sometimes, you can go in and do a change of address on there. Sometimes they require something in writing which of course you have because you have my package and they would’ve signed that. For those of you on the call who haven’t yet done a “subject to,” in Volume IV, Section Four starting at page 148, we have all the documents you need in order to safely take over a property that has an existing loan on it “subject to,” and the form that I’m referring to right now is a letter to the lender notifying them that you’ve taken over management of the property.
Good news. Okay, now, number two of that is:
If the seller is required to stay in the home per the mortgage agreement, would that be stated in the note? The seller mentioned this after the fact but I do not see any mention of that requirement in the note. If that is a requirement, where would it be stated and what does the seller say if the mortgage company questions the fact that the property is being taken care of by a property management firm, my trust? Once again, how does the seller handle questions regarding change in mailing address, etcetera?
Okay, very good questions, Janice. So, let’s start with if the mortgage says it. Well, there’re two things. You mentioned the note a couple of times but there’s a separate document called the mortgage. The mortgage is actually recorded on public record; the note typically is not recorded on public record. The note, typically, doesn’t mention anything about having to remain in the property or anything like that. Those words are contained in the mortgage which is recorded on public record. Often, it’s paragraph 17 of a Fannie Mae mortgage which outlines these requirements. Yes, often, they do have some statement in there about the borrower having to occupy the property.
Now, that is the mortgage world and then my friends, there is the real world. Lenders, particularly servicers of loans, happen to know about the real world which is a totally different place than the mortgage world. Now, let’s talk about the real world. Let’s say, Janice, that God forbid you had to go off to Wyoming and take care of your mom who had fallen in disrepair or bad health, and now you have to take care of your mom for an extended period of time. Janice, you actually had to quit your job, and in order to keep your house you had to rent it out in order to continue to make the mortgage payments. You’re off in Wyoming, translated change of address, to take care of your mom. Well, lenders understand things like that. They also understand things like I just joined the Army, and I’m going to Iraq and I’m going to rent my property out while I’m in Iraq so that I can continue to pay the mortgage payment. They understand things like that. They understand things like job losses, they understand things like downsizing, they understand things like kids having to move in, move out, and move back. They understand all kinds of things because why, they hear it every single day.
So, that’s why I’m saying that you have to be very careful about giving a good story if they ask any questions at all. My expectation for you, Janice, is they’re not going to ask you or your sellers any questions whatsoever. Why? Because you filled out the paperwork right, and how do I know that you filled out the paperwork right? Because you are a graduate of our MAS class and you have learned about how to fill out the trust paperwork and in fact, we’ve even given you the auto-fill documents to do it and do it right. That’s a good thing, Janice. Then, your third question is:
If we do not notify the mortgage company of the transfer to the trust per item nine of the “subject to” process, the Year End 1099-Interest will be issued to the seller – or actually it’s going to be a 1098 – will be issued to the seller for all interest paid. Won’t this mess up the tax deduction reporting, i.e. the trust will not get a 1099 – which like I said is a 1098 – for the partial year. The seller will get the form as if the transfer was never made. How is this handled so the trust, ultimately my LLC, will get the tax deduction? As always, I appreciate your responses. I’ll see you at August at the MAS – Janice.
Okay, well, let’s go down that road. First of all, in fact, at the MAS in August, I’m going to have Al Aiello ______ 35.15 there who is a tax CPA expert, and he’s going to talk to you about a little known part of the tax code which says that you are entitled to the deductions whether or not the loan is in your name. That means that if you’re the one that made the payments, and of course, you’ll be able to prove that because you’ll have canceled checks showing that you are the one that made the mortgage payments, and of course, bank statements to show that you made the mortgage payments. Then, of course, you’re entitled to the mortgage interest deduction. Now, that means that of course, you’re not going to have those hassles even if a 1098 doesn’t match. Another thing that we’re going to teach you there at MAS is we’re also going to show you how you can get that turned around so that the lender, indeed, will go ahead and send you a 1098 after the year.
Those of you who are on the call, if you have not yet been to MAS which is Maximum Asset Shield, you absolutely, positively need to be there. We teach you at this event, how to do your trust paperwork. We’re going to teach you all the things I just went over with Janice and a whole lot more about “subject to.” In fact, we have a “subject to” workshop there. The reason we teach it at the Trust Training is because you have to have a trust in order to do “subject to.” So, we’re going to have that August 21, 22, 23, and 24 in Atlanta, Georgia. Gosh, if you’re not signed up for that yet you need to be. Go ahead and call the office at 1-800-578-8580 and get yourself registered right now for that event. We’ve got a special running right now for a single person or, if you’re bringing someone with you, we’ve got a real good special. So, definitely call the office and get the details.
Not only that, you’re going to get a special piece of software as a bonus for coming which is all of your trust documents on auto fill. That’s land trust, personal property trust, and living trust, all beautifully designed to fill out one page and then once you fill out that page, boom, it automatically fills out all 40 pages of your trust documents. It’s a wonderful thing and it’s designed just for you, for the graduates of the MAS. Not only that, we’ll present you with a manual there and while you’re in class, we will actually create your land trust, your personal property trust and your living trust. I encourage you to bring a deed to class with you and a title to a vehicle to class with you, and while you’re there, we will actually do the documents so that you will have done everything necessary to be able to transfer your real estate and your personal property into a trust. What a wonderful thing.
I think this makes perfect sense for you to get involved in that because it’s simply information you will not get any place else at any price because no one else teaches what I teach. This is exactly the right way to do it at the cheapest possible cost. I encourage not only you to come, but you should bring your parents, your children, your CPA, your attorney and everybody else in your life who wants to get their assets protected, avoid probate, and also learn some really great real estate techniques on using trusts. It’s a fantastic training and it’s going to be a sellout so you definitely want to go ahead and get registered for that.
Now, Laurie McDonnell ______ 38.59 has some questions.
Hi, Lou: The Columbus Seminar was awesome. I learned so much and got totally energized.
Yay! I’m glad to hear that, Laurie, and I’m glad to have you on board our system and on board the call.
Now for the nuts and bolts. I own five properties and I’m having trouble selling three of them. So, we’ve got one listed at over $1 million; it’s a personal residence, 7000-square foot, all brick, paid $700,000. So, that sounds like there’s a markup there. It’s a golf, tennis, pool, beautiful house, beautiful neighborhood, 49 listings in the neighborhood. Have a $428,000 first and a $500,000 equity line used to buy a new personal home and to pay bills. It also offers a $10,000 broker bonus and there have been two showings in the last six weeks. I need to sell this house and retire this debt. Have four other properties and cash flow is in a precarious place. Debt service is $5600 on the first, $2500 on the second, and $2300 for the new house.
Alright, so I’ve got that clear. We need to get this big house sold. Now, let’s talk about this big house, this million-dollar-plus home. First, you’ve got to find the folks that specialize in million-dollar-plus properties. I would get on the phone and start making outbound calls to every real estate office in town. I would ask who there in your office specializes in higher-end properties and get the name and e-mail address and telephone number of every agent you can, and e-mail them details about your property. These folks are busy, busy, busy, busy, busy, and when they have clients coming in, often they work with transfers. This is obviously an executive home. So, they work with executives moving in taking over a VP or a president’s job there in town and you’re in Charlotte, North Carolina, so there’s a lot of white-collar jobs there. I encourage you to get in touch with the people in the know.
Now, why am I doing this, because we are putting a spotlight on this property. You see, the MLS is just full of properties just like yours. In fact, you’ve already said there are 49 of them in your same subdivision. You’ve got to give that realtor a reason to look at your property over and above all the others. What you’re going to do is send that special notice to the realtor with that bonus conversation at the very top, describing your beautiful property in the condition and the lifestyle that’s available in this country club that you live in. Get them excited about, particularly the bonus, because let’s face it, they can look at 48 other houses in that same subdivision.
So, what is it that’s going to make your house stand out? You, also, want to find that out. You compare your house to the other listings. You point up the features that are not available in other houses in that subdivision and then that’s what your cover sheet should be to the realtor with a link to details about your particular property, interior, exterior shots. If you’re one of our website customers, if you have our Selling website, there you can post 12 different pictures of your properties. I mean just lots and lots of pictures, interior and exterior shots. You can create a beautiful flyer there, all the details and you can give all the information about what you have for sale. Yes, Laurie, with selling five properties you should have a website so that you can send realtors and everybody else there, too.
Now, the other thing you want to do is contact mortgage brokers and again, find mortgage brokers who have folks that are not able to qualify for loans. We also want to offer this to the realtors as well. You see, Laurie, the truth of the matter is you could keep this million-dollar-plus property, couldn’t you, if somebody came in and paid $100,000 down and you were to carry back owner financing on this property. You had told me before that you have a good interest rate on these loans and just imagine that you mark up that interest rate. So, let’s say that you have an average interest rate of say 6 or 6.5%, you mark up that interest rate to 9, 9.5%. You make a spread on that number, whatever the buyer can afford, and then that becomes exactly how you market this property because you can market this property with financing. Instead of your new buyer having to come in and qualify for a loan which really does narrow the market down, you want to expand the market to the most number of people that could possibly qualify for a house like this.
Face it, there’re lots of folks that have IRS problems, they have all kinds of other problems, but they’ve got down payment money and they can afford it on a monthly basis. Now, you just open up your property to these people and you can still retain the deed to the property through my Agreement for Deed methodology. You’ve got the ability to not only buy on agreement for deed as one of our earlier questions was, but now you can sell this property on agreement for deed and just make a heck of a markup on it and positive cash flow on it besides. In fact, I would look at all five of your properties the same way; sell them with owner financing. You remember that ad that I talked about earlier to run for attracting buyers, well, you run that ad and you say “Your credit is approved. No bank qualifying. Owner financing. Five properties to choose from!” Then, post all of these properties to your Selling website. Get lots of pictures, a dozen pictures of these things. Here’s what you’re going to find. Because you’ve got a website, you’re also going to find that the buyers are going to not come from Charlotte, they’re going to come from other parts of the country who are Googling and searching the Internet to find, guess what, you.
So, what we do on your websites is we put in key words such as “Charlotte,” such as “country club,” such as “lake,” such as “pool,” “beautiful house,” “beautiful neighborhood.” We put all those “golf, tennis,” we put all those things in your key words so that when people search for things on the Internet, guess what, they find your website with all this great stuff on it. That’s one of the things that’s changed our business because we’ve now begun attracting people from all over the country who are moving to Atlanta, and they are looking for property before they move. Imagine that! When they do a search on the Internet, up pops us and they also find things like owner financing because we’re going to put that in your key words as well. This is a perfect way to get yourself out there and get your stuff known.
You mention another property, great ranch, 2600 square feet, close to town, great schools, sort after neighborhood, fully renovated, everyone loves it. You see, here’s another way that you can get that one sold for full price, not for part price. You mention another one same great neighborhood, great renovation, 2600-square foot ranch, listed for $460,000, break even is $420,000, owe $400,000, someone is looking at it tomorrow, had ten showings, debt service is $1800 a month. Well, here we go again, that’s another one. Now, you mention a balloon here but we can go back to the lender and we can have the lender change that balloon. What we call them is burst that pretty balloon and take this pain away. Lenders today are willing to do things like that and we will go into more detail on how to do that when the time is right when you’ve actually got buyers for the property and we need to go down that road.
You talk about the new home, your new personal residence that you’re moving into to downsize from the big house, and yes, absolutely that makes perfect sense that that would be a keeper. Then, you’ve got the two-story townhouse, great neighborhood and location. Paid $160,000, worth $175,000 to $180,000, it’s got a $60,000 mortgage on it. Again, you have the opportunity to put someone in there. Of course, you say that it is rented at $1200 a month and your payment is $1000 a month. So, right there you’ve got a $200 positive cash flow and you say it’s been rented for four years. Great news. Renter has expressed interest in buying. Thought this would be a good long-term hold but we could pull out our $100,000 equity or finance it and leave it alone. That’s what I would do. You can put an equity line of credit on there so that you can access that equity. I wouldn’t take it out; I would just have it available to be able to take out. Then, when you have the opportunity to come in and buy more property, you can use that equity line for like a short sale or a reinstatement of a loan or something like that. Great question.
On coaching, I am working with Greg on action coaching and Bill on real estate coaching. Also, Vic and Mark on the projects and Street Smart set up. They are all great and have given me great homework assignments that I know will be very valuable. Can’t wait to start. Real estate really energizes me. Have 50 FSBOs on my desk; have so much trouble making calls, diving into your notebooks and CDs just from the time management standpoint. A husband and three kids take a lot of energy and so now I’m also renovating the new house, fixing up existing house and I’m staying busy. How do you plan your life with all the work and speaking engagements and coaching and family and more?
I’ve got to tell you, you’re doing the right thing absolutely, Laurie, because we have a very definitive, very supportive coaching program, and you’re a part of it. That was a very brilliant move on your part, and we’re going to help you through that process of balancing life and family and finances and all the other issues that come up for me and you and everybody else. The short answer is that we’re going to create a calendar and we’re going to calendar all these things in your life so that you have time for everything. We’re going to support you in that whole process.
Now, Evelyn has a question from Pennsylvania on trusts:
When I change the titles to my vehicles into the trust name, will I have to pay sales tax again?
Alright, let’s start with that one. Call your local office and explain to them that you for estate planning purposes are deeding, you’re titling your vehicles from your name into your trust name, and can they help you with that. No, you do not want to pay transfer tax, and you certainly shouldn’t pay sales tax again, because why, it is a gift; it is a gift from you to your trust. It is a gift from you to your trust and that’s exactly the way you want to describe it to them. There’s probably some kind of exemptions you can find. Although, I will tell you, Pennsylvania is the toughest in the country and the most tax intensive in the country I have seen. They absolutely put these draconian taxes on folks all throughout the state on everything. They are wondering why people are leaving the state and moving other places. I wonder why; I’m sure it couldn’t be the exorbitant taxes that people have to pay.
Anyway, I want you to pursue that and see if you’re going to have any problem. Now, you say:
We also have lien holders on the titles. Our state, Pennsylvania, has electronic titles. How will we get those titles from the state in order to change the name to the trust?
You will have to go back to your lien holders as they are the ones that actually have the titles, and you will say for estate planning purposes I want to transfer my vehicle from my name into my trust name. That way, if anything ever happens to me, my property will transfer to my heirs without having to go through probate and all the expense and all that sort of thing. Can you help me out here? They’ve heard of this before because of living trusts. So, you want to get to the right department and typically, what they’ll do is mail the title to you giving you the opportunity to transfer it, and then the state will mail it back to the lien holder, them. Or, as you say, maybe it’s electronic in your state, but usually there is some kind of paper trail that the lender has in their hands to prove that they have something from a lien holder point of view that they could come after if ever you stopped paying for the loan on the vehicle.
Now, Carol Holcomb ______ 53.43 says:
Lou: I love these Q and A sessions. Thank you for all the info.
Well, thank you too, Carol. It’s very encouraging to hear that you guys love this.
My questions today are about trusts. I have been to MAS once, and for me, this is like learning another language.
You’re not alone, Carol. That’s why I allow people to repeat for such a low cost because it is like learning a new language and there’s a lot to learn. As you know, we sort of shovel it out like a fire hose and you can take about all you can take and then put it into action. Then, we come back and learn more and more and more. That’s my layered learning approach. You say:
I have an offer in for a short sale. Yes! It is listed with a realtor who wanted me to sign the Purchase and Sale Agreement with the name of the trust, and I used my name, comma, as agent. What are the options for the closing? Does the trustee need to attend the closing?
Alright, let’s answer that one first. The answer is no because you can get all the paperwork signed prior to the closing. As you say:
I’d love to avoid going to any closing. Thanks.
Alright, here’s how it would be done. You would contact the closing attorney in advance and set it up. You’d say here’s what’s going to happen. Bank Z over here is going to be the seller, and I want you to go ahead and obtain whatever documents you need to from them, and my trust with me as agent is going to be the buyer. I’ve got a trustee over here in Wyoming, and I want you to send all of the paperwork that you need signed to my trustee prior to the closing. You point to whatever needs to be signed by them. They’ll get it signed in front a notary in Wyoming, and they will overnight it back to you in the envelope that you provide to them with your address on it, meaning the attorney’s address, and all that sort of thing.
Now, once it comes back to the attorney’s office and the attorney opens up the FedEx envelope and there it is, all the deed properly notarized by your trustee. Now, the next thing that happens is the lender sends in their deed to your attorney’s office. Your attorney does the transfer right there in their office where they take the deed, they record the deed for you and they do everything necessary to perform the closing. Guess what, neither the lender, meaning the seller, nor you, the buyer, were at the closing. It’s all done magically with all the paperwork done in advance. So, that solves the problem because guess what, you don’t want to be at the closing, neither does the lender, and the lenders often do not appear at closing. All these things are done in advance.
Alright, we have an IRA question from Laurie who says:
I have $115,000 in my IRA. Doesn’t look like I’ll be retiring any time too soon on that. If I take it out, I have to pay income tax. Can I put it into a trust and then invest in real estate without paying taxes?
Well, there’re several things you can do, Laurie. One thing is the IRA can buy real estate. With the $115,000 obviously, it can buy a lot of real estate the way I teach you with our “subject to” transactions and all that sort of thing. You could buy lots and lots and lots inside the IRA. What would happen is each property would be bought in its own trust and then the IRA would be made beneficiary. Yes, I’m going to go into a lot more detail on that when you come to MAS in August, but in the meantime, the answer is the IRA could do it.
There is another method that I’ll teach you there also that you could actually get your $115,000 out of the IRA by lending it to a third party, as the IRA lends it to a third party, and then, you separately borrow it from the individual who borrowed it from your IRA.
So, there you have it. There is a lot of ground that we covered in this call. Folks, if you’re not a part of our coaching program, I’m just going to encourage you to get involved. We’ve developed something new that many of you haven’t heard of yet…