Question:
Velva in Apoca, Florida says, Happy Holidays Lou, the Brown family and wonderful staff.
She says, recently you advised if a Tenant Buyer is going to lease option and only has $3,000 down to take a Promissory Note for $10,000. How much time would you give to pay back that Note and how much a month?
Answer:
Okay, let’s start there. You go on to say at the end that the house value is $295,000 and up. Of course, $3,000 down is just 1% of the house’s value. We all know that that makes for a pretty dangerous situation on a pretty nice house. What you definitely want to make sure of, Velva, is that this customer that’s moving into your property that hasn’t had the ability to save up any significant amount of money in his life is now going to be able to have the ability to pay your monthly payment. Because not only are they going to have to pay the monthly payment, they’re also, somehow, going to have to pay you back this other $10,000 to get you up to the $13,000 that you really wanted down. I want you to look very closely at this Buyer. I want you to check out their job, how long they’ve been there, how much they earn and their spouse, where do they work, how long have they been there, how much do they earn. The combination of the two is what’s going to tell you whether or not this is a go and if it’s a no go, then I suggest that you pass on this customer or, alternatively, get a co-signer.
All of the information for this is in your Volume 8 – Property Management. What I recommend is that you use the scoring criteria that I have there where you actually score the application. Once you do your due diligence on that application and evaluate each one of the things that they’ve filled out by calling the job, by checking with their bank and doing all the things that I recommend on there, then based on that score it will tell you what to do with this customer. Basically, the idea is that if the score is too low, then the only thing you can really do is go back to this customer and offer that they offer more in order to get the Credit Committee to accept this application. It’s highly advisable that you be careful about such a nice house in a nice neighborhood and you make sure that they have the ability to pay.
Question:
Let’s talk just a second about the Promissory Note of the $10,000. You asked what should I do about this $10,000?
Answer:
I recommend that you create a payment plan and then be sure that they can pay it.
Question:
The question you asked is how much time would you give to pay back that note and how much a month?
Answer:
The answer on the monthly is actually I would make it per pay period. If the husband gets paid twice a month and the wife gets paid twice a month, let’s get out a calendar, mark those dates of income, how much they’re going to get on each one of those dates and then let’s determine exactly how much they can afford to pay you every week or every other week from each paycheck. Keep in mind that you have to give them enough and leave them enough to be able to pay that monthly payment as well, the rent that is.
Question:
Now you say how much time?
Answer:
Well, you want to get it back as soon as possible. I know that that’s not a real strong answer but the idea is that you don’t want to spread it out over too long a period of time but let’s be realistic, you need to look at that calendar and the calendar of income to see what you can do. The other thing to do is recommend to them that they go to their family and friends, uncles and aunts and anybody who would like to see them get ahead in life so that those folks will give up some additional cash to help make ends meet and loan them or gift them some money. We’ve seen parents, uncles and aunts and all kinds of people, grandparents, cough up big money to help people get their first home or get themselves out of trouble or what have you. It’s a good idea to go ahead and ask for that.
The other thing, Velva, is to ask for a co-signer. If they don’t pass the sniff test, just say well is there someone in your family that could go ahead and co-sign this rental agreement with you so just in case you get in trouble, then I’ve got someone else I could call. When you talk to this co-signer, ask them if Joe Jones ever gets in trouble, let me just ask you a question, before we evict them and put them out, could I go ahead and give you a call just to see if you might be able to help them out. Boom, you’re going to find out some very interesting information then. Regardless, if those folks have a good credit history and a good past then definitely sign them up. Where are you going to get a Co-Signers Agreement? It’s in Volume 8 – Property Management.
By the way, for those of you on the call that don’t have Volume 8, you can call the office at 1-800-578-8580. We’re running a special this month $699.95. That includes your forms disk, your audio CD’s, six of them, six hours worth along with a 200 page really just soup to nuts encyclopedia of property management. It gives you every form and tool and training you need to be successful in property management. So, that’s a really strong one. Don’t leave home without it. Serious, if you have anywhere over three properties, I would say you probably need that because it supports you in your collections as well. If they ever get behind in payments, you ever have to urge them out of the property, you ever have to file dispossessory or after the fact, deal with collections, it has ideas and forms and solutions to everything you’re going to be faced with as a property manager. Very critical piece of information.
Question:
The next question you have is what agreement form should be used?
Answer:
If it’s the Promissory Note, that you’re referring to, for the $10,000. Then that would be a Promissory Note signed by both the husband and the wife. That Promissory Note is also in your Volume 8 and I think there is one, yes, in your Volume 2 – Selling and Holding book. This is our keys to the kingdom to solve problems when people get behind in payment or, they can’t quite make the full payment to move in then we work with a Promissory Note.
Another idea for you and we have this available to you at a Street Smart price, but you might want to start taking credit cards. A lot of folks have open to buy on their credit cards and we’re seeing people come along with $7,000, $10,000 availability on their credit cards. Heck, just charge them, charge them additional costs too of whatever the fee is, say 3% credit card fee, charge them that too as a convenience fee. Then you get your $10,000 or $7,000 or whatever the number is and they can pay it off whenever they want to to the credit card company. Makes it a lot easier and takes you out of the collection game. We’ve got a resource for that and if you would like more information on that, just call the office 1-800-578-8580 and that will help you. That’s our Street Smart Pay Whiz that makes it a lot easier for you to be able to deal with getting collections done.
Question:
The next question is, should I add this to the Option to Purchase form or is it separate?
Answer:
The option would be for a full $13,000 and in other words, you’re going to give them credit for receiving the $13,000 and you are receiving $13,000. With the combination of $3,000 cash plus the $10,000 Promissory Note, you are receiving $13,000. That means you will deliver the Option to them at the closing of them purchasing the property on the Option to Buy but secondly, that Option to Buy will be fully delivered to them and you can still collect on your $10,000 whether or not they pay you off.
Question:
You go on to add, what happens if they never pay the remainder?
Answer:
You could one, get a judgment because they did sign a Promissory Note which is essentially an IOU or, two, once you get the judgment you could garnishee their wages to be paid that other balance that’s due on the $10,000 Promissory Note.
Question:
Next question, is this recorded?
Answer:
No, you would not record your Promissory Note.
Question:
Number 8, I checked into opening a bank account with Bank of America for Trust on the above property. I considered using an attorney as the Trustee. The bank officer said that only the Trustee would have access to those funds. Am I Director or who, please advise.
Answer:
In this case, I want you to keep in mind one thing, wherever the money is is where you are. You will be the Trustee of the Trust Bank Account. It’s not going to be this property’s bank account; you’re actually going to set up a Third Party Trust and the only thing that’s going to be in that Personal Property Trust is a bank account.
Yes, you’re absolutely right that we do have a relationship now with Bank of America with a particular high level branch through their Premier Banking. They have granted us a Street Smart Deal where you actually receive three accounts, two business accounts and one savings account and there are absolutely no fees for opening the account nor is there any minimum balance required to keep the account open for a period of two years.
So that gives you a Street Smart Deal of absolutely nothing and in fact, those of you who are attending our MAS event, Maximum Asset Shield, in January, January 24th through 27th, we’re actually going to be giving you the forms right there in class. You can fill out and fax in right from the class and you’ll be able to set your account up instantly without even having to appear at the bank.
How many of you like that idea? I love it. It’s a great deal. It’s one of the places we’ve found that people were getting stopped, in doing their real estate protection program, was to not set up the bank account. So therefore, they weren’t getting things done. You’re going to have the opportunity now to do that and we’re going to support you in getting that done.
Question:
The next question is from Vicky Blako. She says I am starting to have trouble getting my short sales approved. I present the packet and when I finally get someone on the phone, they tell me my offer is not high enough for them to postpone the sale. But if I was to raise it, then they would postpone the sale. My offers are always right where they should be. The problem is that the mortgages are much higher than the BPO will ever be so the lender thinks that I should be offering a lot more. On the last one that I lost the payoff is $92,000 and the property needs $15,000 in repairs. The comps are $40,000 to $50,000. My first offer was $21,000 and the lender said for them to postpone the sale I need to have an offer of at least $60,000. That’s how my short sales have been going lately. What should I be saying to the lender to get them to postpone at the offer of $21,000?
Answer:
First, it depends on who the lender is. The name of the lender helps me greatly because I know what kind of lender they are. Let me give you an example. Let’s say we were talking about Acwin or Wilshire or Aurora. These folks deal and dabble in servicing large note portfolios where they have been bought, usually from the bank, at huge discounts. In other words, what the banks do and some servicers of loans, as soon as the loan falls into default they take all the loans that have fallen into default and they sell them off instantly to a new buyer, but they sell them off at a great discount. In other words, pennies on the dollar just like I was describing to you before, on ASG they do the exact same thing except they buy the notes pre-foreclosure and usually either on its way to default or, already in default or, has been defaulted before and they don’t want it anymore. They sell it off pennies on the dollar. These servicers then, having bought this thing at a huge discount, are willing to play. On the other hand, you have other servicers, such as Countrywide, who don’t do that. They aren’t willing to play because it’s their note or, they have restrictions on the note from the actual owner of the note.
What happens with short sales really doesn’t depend on what’s happening in the marketplace, it really depends on who the lender and who the servicer is that you’re working with.
With all of that said the next thing I’m going to say is that you can get rather creative when you are trying to stop a sale. Let’s say that they have scheduled the sale and you know that you need more time to get the short sale done. Go ahead and submit a contract. Once the lender has the contract in hand at whatever price, they will usually stop the sale. What’s interesting about that is maybe then that contract doesn’t go through. If that’s the case, you can always call the lender, you can always resume negotiation and they would then have to readvertise the property or continue the sale and in any case, you’ve delayed it by however long you’ve delayed it. That may give you just enough time to be able to work out the numbers and prove to them that your comps indeed are $40,000 to $50,000 and that the property really isn’t worth $92,000 and all that other stuff that you’ve shared with me.
Question:
Next call is from Carol Holcomb and Carol says I am talking with the owners of a vacant house in my neighborhood. They lived in the house from July 2002, moved to their next house in January 2005. The house has been vacant since then. So, Carol that would be almost three years, for everybody on the call. I have met with them, gone through the Cost of Sale worksheet using their asking price. I do not plan to go to the bank for a loan and hope to work out an owner finance deal for the equity. They are concerned about the Capital Gains provision since the five year point of owning the house is coming near. Of course, they want to avoid the Capital Gains tax. They have already used the exemption once before. The $2,000 per month payments are too high to cash flow this property as a lease option. It is a ten year loan with a low fixed rate interest. The house needs updating but it is in pretty good shape. What do you suggest about avoiding the Capital Gains tax and any ideas about structuring this deal would be great.
Answer:
First of all, the rule is that you have to have lived in the house two out of the last five years. It doesn’t say the last two of the last five years. It says two out of the last five years. So they have met that rule if you buy the property pretty soon, you want to go ahead and put it under contract. The other thing is the fact that they’ve used the exemption once before means absolutely nothing. After a two year span has passed, it kind of like rejuvenates itself and regurgitates itself and it is available again. So, they can use the exception again and that will save the Capital Gains tax.
As far as this ten year loan with the high payment goes, I’ve got a few ideas for that. They could go right back to the bank and refinance. They could refinance it for a longer term. You could come in, take over that existing financing, even though it’s brand new financing, and that would give you the proper time frame that you need and cash flow that you need for this property.
Another idea would be simply to tell them look, you’re, Carol, talking about Capital Gains but if you buy the property subject to the existing loan at a price then you have bought what’s called an Installment Sale and that means that the gain is spread out over a period of time, however long they take to sell the property. So, that’s another option for you and another answer for their issues. Plus, tell them that you have to retain some capital to be able to restore the house and do the repairs on it.
Another way you could structure this is because it is a great loan, look at the fact that you’re paying down the loan very, very rapidly with this ten year loan. I mean a very significant portion of that $2,000 a month is going towards pay down on the loan and that means you’re literally putting money in the bank every month with equity. You and I both know you can’t spend equity, it’s hard to do, but you can get an equity line of credit once there is enough equity in the property. That’s another solution for the cash problem.
Finally, another idea is to sell the house with owner financing. If it is structured in the right way, you’ll have sufficient cash and income to be able to make this payment and you get the benefit of the pay down at the low interest rate while you collect a higher interest rate spread out over four years as I recommend in my training. You didn’t tell me what the interest rate is but in any case, what we’re looking for is a spread between that low interest rate and what you can get from a new buyer. You providing the financing will attract somebody so they won’t have to go to the bank and qualify for a loan.
Lots of great ideas there, Carol. Hopefully, that put it together for you and I’m expecting you to get that deal. You’re one of my coaching students and I’m really proud of you for getting that lead and I’m looking forward to you telling me that you got the contract on that property. That’s what I’m expecting.
Question:
We have Phillip Silver who has a personal residence question. I have found a home I would really like to purchase for my primary residence. It is listed with a broker agent. What recommendations do you have for me to get the lowest price and get them to pay for closing costs and/or to throw in any other discounts? The area has a lot of homes for sale but some of the buyers are holding to their original listing price. This is southern California.
Answer:
First of all, they need a reality check. You have a little challenge in that you have a broker agent involved and they obviously are advising their client, oh my gosh, you can’t accept a low ball offer or that might happen in your case. A couple of ideas. One is ask to be present when the offer is made. Ask to be present, so number one the sellers can see who it is that’s buying their property. Sometimes that has a big affect on sellers helping you to buy their property. Secondly, you’re there to answer objections and deal with objections and overcome them right in front of their eyes. That also helps with buying a house especially when you have a little emotional attachment here of this being a potential property that you want to own.
By the way, please don’t let emotion take over here because emotion can have you pay too much and not give you all the possibilities that’s really available in real estate. I want you to just kind of say okay, if I don’t get this house, believe me, there’s plenty more out there and even with our ASG pools we’ve already dealt with several California packages, you’re going to see a lot more over the next two years in California too. The good news about the California market is it goes down but it bounces back. It’s going to take a hit now for about another 24 months so be careful what you pay for this. I’ll guarantee you that you’ll be glad you listened to me a few months from now; you’re going to see the wisdom in what I’ve just said to you.
Before you make an offer I would tell you to tell the broker and the seller that before you can make that offer you have to take into consideration exactly what it’s going to cost you to sell that house when you go to sell that house.
So you’re going to put into effect all of the ideas that I’ve built into my Street Smart System. That means you’re going to use the Cost to Sell worksheet, you’re going to put their price at the top and then you’re going to work down all of the costs to sell, not their costs but your costs. Then you’re going to show that you really can’t afford to pay anything more than X. That should bring the seller off their high horse and bring the number down to a number that you will find acceptable.
Do that little exercise and I think you’ll find it to be really valuable and easy to work through. If you have any questions, remember that we do have a direct Q&A Program where you can fax and e‑mail questions any time during the month in addition to your group Q&A benefit as well.
Another thing, be sure to use your Comp Whiz that’s one of our products and also our Prop Whiz; these are tools we have available to allow you to comp the properties. What I’m recommending, particularly in today’s market, is I want you to have at least two sources of comps, not one but two. You can say that you have zillo for one. No you don’t because zillo is a very unreliable resource. I want you to get true, valuable resources that is what appraisers use to value the property. We offer those products, as Comp Whiz and Prop Whiz and these are available. If you’re interested call our office at 1-800-578-8580 and they’ll give you more details on those products.
Question:
We have a pre-foreclosure questions from Daniel Miller. How does the new law AB440 passed in Nevada in October of 2007 affect me trying to help those in foreclosure? Is it true that all the homeowner needs to do is make an allegation that I tried to cheat them and they can get their home back any time during the two year resention period
Answer:
I’ve heard a little about that law but I have not seen it yet. Do you have a copy? If so, I would like you to get that to me. I would recommend that you read the law as well because it’s fascinating what happens between what’s actually written down on paper and what people interpret to be the truth. I’ll give you an example. When the Texas bill came out and all the investors ran screaming into the streets like Chicken Little and said oh my God, they’ve outlawed lease options. Well that’s not true; they did not outlaw lease options, they put restrictions on them. We read the law and after finding what the restrictions were, we found four ways around those restrictions. The same is true when they passed the Contract for Deed law in Texas and then after we read that 32 page law we found out there were all kinds of ways around that very law. What you need to do is read it first tell me what you think. Also let me read it and let’s see if we can’t come up with some solutions to this problem.
By the way, I recommend that all of you be members of NAHRI, that’s the National Association of Home Rebuilders and Investors. NAHRI is an organization where they are fighting for us little guys. What they are is a lobbying organization and they hire lobbyists throughout the United States to discover this kind of legislation in advance and attack it at the State Legislature level so that the legislators know what they’re about to pass and educate them on the risks to the investor community and the risks to the overall marketplace. It’s a wonderful thing. If you have not yet joined, I recommend that you join at the $250 level. What happens is then you get legislative e-mail updates that tell you exactly what’s going on and they provide a ton of valuable information.
What happens is if you mail your check, made payable to NAHRI, not made payable to Street Smart but made payable to NAHRI, to us here at Street Smart, we match any funds that come in for NAHRI. So, that’s our Matching Fund Program to encourage us to have the support that we need out there in the community. So just mail that to our office. If you want to know our address it’s on the back of every book, it’s on the bottom of every page; it’s very easy to find and so is our telephone number by the way. We’re not hard to find like some other folks out there.
Question:
We have an insurance question from Janice. Would you please explain how to handle the insurance property liability, et cetera, for the various types of transactions? One, Sandwich Lease Option.
Answer:
Let me explain what a Sandwich Lease Option is, that means when the seller is lease optioning to you, the buyer, then you are lease optioning to a new buyer and you are the bologna between the two slices of bread. You’re the meat between the sandwich so to speak and the sandwich is the two lease options. You’re asking what kind of insurance. What I recommend is that the owner, that means the one who is actually lease optioning to you, creates a Landlord/Tenant Policy with any agent, your agent, their agent, and that protects the seller. Next you get a Landlord/Tenant policy to protect you and your new buyer would get a Renter’s Insurance Policy to protect any of their personal belongings in the building. Now everybody is protected in this situation.
Another alternative, if you’re tight with the owner, is to have you listed as an Additional Insured on their policy thereby preventing you from having to get that second policy and the cost of that second policy.
Question:
The second insurance question is what do you do for an Agreement for Deed insurance policy?
Answer:
On an Agreement for Deed, that’s when let’s say that this is a property that you own and you are agreement for deeding it out to a new buyer. On property that you own, you will get the new buyer to get a new Homeowners Insurance Policy. You will be named as the Mortgagee on that policy and that will take care of your Homeowners Insurance. I recommend that they get a one year paid policy at closing so that there is proper and adequate protection. Then I recommend that you begin creating an escrow account and you will take one-twelfth of their insurance costs and start collecting that on a monthly basis. In other words, they come to the table with a paid policy then you immediately begin collecting so that the money is there a year from now when that policy comes up for renewal.
Question:
The next insurance question you ask about is Subject 2. How do you get insurance for Subject 2?
Answer:
First, I would change the Homeowners Policy from Homeowner to Landlord/Tenant in the name of the Trust. So, it’s actually going to be insured in the name of the Trust as a Landlord/Tenant Policy. That’s going to solve so many problems. I also recommend that you be named as an Additional Insured ___42:10 as their interests may appear.
Question:
Your final question on insurance is seller financing.
Answer:
You get a new Landlord/Tenant policy. Let’s say that the seller is providing seller financing, you get a new Landlord/Tenant Policy naming them as the Mortgagee. That gives you the coverage as the, let’s see if I can say this right, the seller is selling, you are buying; you are getting the deed to the property. Therefore, you need to be covered in that and so does the seller. So, you are going to get a new Landlord/Tenant Policy because you’re going to be putting a tenant in there. You’re going to name the seller as the Mortgagee in your new policy.
That covered everything on that one. I bet that’s more than any of you wanted to know about insurance. To read this, what I’ve just covered for you, I cover this, for example, in the Trust Book, Volume 4, there’s a section in there called Insurance and the Land Trust. I recommend that you, on Agreement for Deed there’s a section in Book 10 on Owner Financing that tells you all about insurance on Agreement for Deed properties. Lease Options in Volume 9, there’s a section in there on insurance for your lease option properties.
Each system that we have in our system of different deals, as you described in your list. Each system will support you by actually telling you exactly what to do. It’s not complicated. This is a small checklist, one page document in each one of those segments that tells you exactly what to do in each situation. If you have any confusion, that’s what this group Q and A is all about and also your direct Q and A program.
Question:
Taxes. We have from ___44:28. Can you please explain the tax ramifications of setting up a Trust? I believe your intro CD mentioned that the Trusts are created as a disregarded entity for tax purposes. Does this mean all your properties in all your Trusts roll up to your LLC or personal tax return of the beneficiary? If that is the case, then wouldn’t your tax return detail all that you own?
I really wish that I could attend your upcoming Asset Protection Seminar but neither of those dates work for me. I hope you will offer another one on the East Coast soon. Thank you so much for your time.
Answer:
I would highly recommend you change whatever is getting in the way of you coming to that event because it’s going to be smashingly valuable to you. I would just recommend that anyone on this call, listen, there’s so much that I’m going to cover in that four day event. You cannot afford to miss this opportunity for this information. This is information absolutely not provided anywhere else at any price by anyone. This has been learned over 20 years of being in this business and doing Trusts and learning all the inroads and all the pitfalls that comes with it. So, I’m going to teach you exactly how to do it.
In fact, I’m going to encourage you to bring your own deed to class. What that means is that in class we’re actually going to transfer your property out of your name and into a Trust name. Then we’re going to transfer your vehicles out of your name into the Trust name for your vehicle. Then we’re going to create the bank account as I talked about earlier, then we’re going to do your Living Trust. You’re actually going to create that in class as well. Then your Durable Power of Attorney and your Living Will. You’re going to walk out of this event with everything done. I highly recommend that you bring a spouse, a family member, your mother, your father, whomever, we’re giving a special for a limited time that you can bring a second person absolutely free and everybody on my coaching calls, you also get a $1,000 travel allowance to be able to attend the event. It is very, very worth it.
In fact, you’re going to walk out of the event with a special piece of software that will allow you to auto fill all of your Trust documents and that means that you fill out one page and boom, press one button, and it auto fills all of your Trust documents. How could you possibly miss out on something like that? It’s so valuable to you and your future.
Anyway, with all of that said, here’s your answer on tax ramifications of setting up a Trust. With our Trusts, there are none. I want to quickly say that there are over 30 different kinds of trusts. In fact, we’re going to cover many of them in the event. We’re going to talk about how they fit with what we talk about. What you’re looking to do is create a simple flow-through Trust. Our Land Trusts and Personal Property Trusts are simple, flow-through Trusts. That means that it flows through to the tax return of the beneficiary so the beneficiary, if it is a LLC, then all of that goes and flows from the Trusts to the LLC’s tax return, then the LLC K-1’s, the net income to your personal return.
To answer the second part of your question doesn’t that tax return detail all that you own? Your 1040 personal tax return will only detail that some LLC out there in the world gave you some money. It won’t detail what that LLC owns. Someone would have to, number one, know that LLC and number two sue that LLC, and then finally get a judgment against that LLC in order to get its tax returns.
This is a benefit to you in being able to put together all of the details. I highly recommend that you get this training because I’m going to show you exactly how to avoid all of the exposures that you normally would have.
Question:
Velva asked a question. Is there any tangible property tax in Georgia? I own a property that is about one and half years old. I put in a new refrigerator and blinds. It came with everything else. The property is in Winter Garden, Orange County, Florida. I live in this County and have never heard of such a thing. I am being charged tangible property tax on these items that I’ve provided, about $25 annually. I have houses in other counties and have never heard of this. The property taxes increased greatly on this property also this year. Sounds like double taxation to me. Guess the Tenant will be getting their own refrigerator and blinds on future properties. What do you think?
Answer:
Here’s what I would do, Velva, I would sell that refrigerator to the Tenant. Let’s say that you get $50 a month. Who cares? Its money you weren’t getting anyway. You’ve already sunk the money into the frig. Let’s get it back. When you sell it, tell the County that it’s sold and you provide nothing to the Tenant and therefore, you don’t have any of this tangible property stuff.
Fair deal don’t you think Velva, fair deal. Let’s get out of that program. I hate taxes just as much as you do and yes, double taxation, triple taxation, guess what, welcome to the world. They tax you on your gas, they tax you on your property, they tax you on your sales tax, everything you buy, everything you sell. Every chance they get, they’re going to tax you, and that’s why we have to fight every tax we possibly can because it does cost you at the bottom line, right off your bottom line is where your taxes come from.
With our strategies of componentizing the property and spreading your risk and increasing your tax deductions, then all of us who are Street Smart have major league deductions that are totally acceptable by the IRS and therefore, have everything that you guys need.
Question:
We have a question here from Lynn Hurst and she says I have several questions; I hope you have time to answer them. Well, I’m getting close in time but I think I’m going to have time.
I bought the whole enchilada in December when you were in St. Pete. I am having a problem making offers since the market is so slow right now. What do you suggest? I can hold but I need to buy and resell to keep the cash flow coming in.
Answer:
Well, Lynn, you say that you’re having a problem making offers since the market is so slow right now. Do you mean you’re having a problem getting offers accepted because the market is slow or, you personally are having a problem bringing yourself to make offers? If it’s the latter, I would say use your Cost to Sell worksheet. That’s going to guide you in making the right offer. If you use your Prop Whiz and your Comp Whiz, that’s going to help you make the right and most intelligent offers based on the comps in the marketplace now.
I also recommend that you check on properties that are listed right now and find out what those current prices are before you make your offer so that you feel very, very confident and comfortable on the price that you feel is the retail price of the property. From there, your Cost to Sell worksheet teaches you to back into your final offer number and actually gives you all the calculations to be able to come up with that final number.
That way, you’re going to feel confident and happy about the offer that you make.
You said, I can hold but I need to buy and resell to keep the cash flow coming in. What I recommend is that you look at the deal, you don’t tell the deal what it is, let it tell you what it is. If you get a great interest rate, with equity, with great payments and you can make a cash flow on it, then guess what, I want you to keep that property. But if it’s a short sale, where you have to bring all cash to the table, then that’s a property that you want to sell. It really depends on the deal as to what you are going to do with it. That will then, if you’re getting enough leads that will bring the cash flow from selling properties from time to time.
That’s also where your wholesale properties are coming in. Like ASG for example, all of the deals that we would be bringing to you are all cash deals, so obviously I would expect that you’re going to turn around and resell those properties as quickly as you can. If you bought them at a discount, you can also sell them at a discount and make a nice spread in between.
Question:
You say I have seven properties and want to know if I put all of them in different Trusts, will I have to pay dock stamps? They are all here in Tampa.
Answer:
No, you will not have to pay dock stamps. Why, because you are transferring your properties to your Trusts, therefore, when you file the Transfer Tax Declaration form in Florida, you’re going to tell them that this is a transfer for no consideration. In other words, no profit was made from either the seller or the buyer and you’re merely transferring it as a gift from you to your Trust.
Question:
The next part of your question was can I use different beneficiaries other than myself? I have mortgages on all of them.
Answer:
The problem is if you use different beneficiaries then you have created potentially a taxable event because you have essentially gifted that property from you to that third party. You would have to manage that. Is it manageable? Yes, you could take a charge against your one time exemption, your estate tax exemption. We’re not going to have time here to cover that but there are ways that you can charge against your estate and reduce the amount of the overall estate tax deduction.
Question:
Your final question is I have a general real estate mortgage company. Should my wholesale and short sale business be using the same name or, should I have another name for this activity?
Answer:
Your wholesale business, it really depends on the activity of that wholesale business. If it is doing a lot of business, then it would be good to separate and segregate activity of that wholesale business. You say you have a short sale business, all that is a buying, and selling business. Here’s what I recommend. Every single property you buy, each one should be in its own Trust. When you purchase that property, it goes right into that Trust.
The beneficiary of that Trust can be whatever entity that you’ve put in place. If that’s an LLC, corporation, whatever it is, that can be the beneficiary. Therefore and thereby, no one would see how much wholesale properties you’re doing, how much short sale properties you’re doing because each property would be in its own Trust and it would have its own beneficiary.
