Group Q & A January 29, 2008
Well, hello everyone, and welcome back to another installment of our Street Smart Group Q and A where you are the questioner and I am the answerer. And we’ve had an exciting couple of weeks since we talked last. Our MAS, Maximum Asset Shield, has been completed this past weekend. We had a great event. Lots of excited people there; new faces. We had a terrific information gathering and sharing and quite a few new things came out of that as well. So, we encourage you to get to the next Maximum Asset Shield when you have an opportunity to.
All right, let’s start off the day with a conversation about the market; and my goodness, the foreclosures, have you seen them. They’re looking horrible and getting worse every day. It’s exactly what I expected to happen. It’s an exciting time for us to be in this business because there’s so much equity and so much opportunity on the table. Especially with the way we buy and we sell properties which is unique to what most other investors do. So, I encourage you to stick with the program, buy the way I tell you to; buying right and buying cheap, using the seller as the bank as the bank instead of the bank as the bank. Then selling to customers that eventually some day want to buy the property and you be the bank for them.
It’s a great plan. It works. We have so much testimonial and proof of it that I encourage you to stick with that program.
Any questions you have about foreclosures you’re welcome to ask them. We have a new program that we rolled out at MAS that’s quite exciting. It is a way to find all of your leads the way that I really want you to which is to market directly to the folks that are selling the properties. We came up with a program where there are 18 different campaigns with the right words on the paper; on letters, post cards, etc., that communicate with your market. What happens is they actually provide the leads to you by providing the list to you.
For example, absentee owners; free and clear properties; thirty, sixty, ninety-day-lates, before they are listed in the foreclosure paper for everybody else to see. We’ve got so much great information on this including bankruptcies. A list of folks that have been in bankruptcy and the bank has applied for the list of the stay. Well, their options are severely reduced now, and about the only thing that’s going to happen is a foreclosure unless you come and buy the property. Imagine that all of these different lists were not only available to you, but they actually mailed the list for you. You tell them the area you want, they mail the list, and you deal with the leads. No licking, sticking, stamping, mailing; nothing. I think that’s the way for all of us to go.
If you’re interested in more information call the office at 1-800-578-8580, and we’ll give you our Street Smart discount on that, too. I thought that was so exciting and there was so much response to it at the event that I had to include it on this call in case you didn’t make it to the event.
As we talk about foreclosures let me give you a little Street Smart information here. We of course, keep very close tabs on what’s going on in the market place and we look at a lot of things that are happening with the numbers. The interesting thing that’s happened – in 2006 there were 1.05 million sales of homes. In other words 1.05 million home sales in 2006 and those are typically homes that went through realtors. It doesn’t even count all the ones that us guys do. They said that weak December sales left full year new home sales at 774,000 homes. That’s a 26% decline over the year earlier. That’s the biggest drop since the government started tracking new home sales in 1963, surpassing the 23% decline posted in 1980. No bottom yet according to an economist with Wachovia in a report that confirms the fears that the housing market won’t bounce back any time soon. We’re expecting sales to decline into at least mid 2008, he said. We think housing still has a long way to go.
Mortgage market woes were a major part of the problem for new home sales in 2007. Homes financed by conventional mortgages fell 27%, the biggest drop since the government started tracking financing in 1988. But the weakness in prices made buyers reluctant to jump into the market even if the availability of financing was not an issue. The number of new homes bought with cash fell nearly 24% while mortgages guaranteed by federal agencies such as the Federal Housing Administration or the Veterans Administration, fell 16%.
Now, that is new homes and on the existing home front there’s been an annual price drop as well. Rate cuts may not help, they say. There’s rising concerns among economists that the problems in housing could drag the overall economy into a recession. It hasn’t done so already.
Okay, folks, so what does all of this mean to us? And should we just hang out on the sidelines? Should we just wait? Should we just see what’s going to happen? Should we wait until the market bottoms and then starts back up? The answer is absolutely, positively not. The reason being, that we can set, based on trends using the prop-whiz or comp-whiz and other things that happen in the market place, we can track what’s going on. By doing so, we can also track our pricing. We know what to buy, when and where to buy it, because of several factors.
One is, we teach you to build a business in your own back yard. In doing so you know what the schools are. You know the local economy is. Not the macro economy of the entire United States or the world; you know what the local micro economy is. That’s what is really important to you. If you’re investing in good neighborhoods with good schools, let me tell you something. There ain’t no recession. And this is true almost across the country. People want to put their kids in good housing markets. Good houses and good markets where there are good schools. That’s the thing to pay attention to. And the fact that existing homes are in those markets with good interest rates that are fixed rates that you can take over; that’s exactly what we want to do.
So, our program is not impacted by all of this falderal. Further, our program is not impacted because of our exit strategies. We’re not worried about selling new homes and we’re not worried about selling existing homes either. Why? Because we’re not worried about the financing. We provide the financing. We buy houses with financing in place. We sell houses with financing in place. We become the bank when we sell, through lease options, through owner financing. We provide the financing for our customers. It’s an absolute perfect storm that no matter what the economy does we win.
I don’t know if you’ve ever looked at Home Depot. I think that’s one of the greatest business models ever to live, because when times are good they do well. When times are bad they do well. When times are good people are improving their properties. They’re adding to, builders are building; everybody’s going in and out of Home Depot. When times are bad people are doing it themselves. They’re not hiring contractors; they’re improving and fixing and taking care of their properties themselves. Again, they’re going in and out of Home Depot. We’ve got the same situation. It doesn’t matter what the economy is; good or bad. We can buy in the economy. It doesn’t matter if the economy’s good or bad when we’re selling, because we have an exit strategy there, too.
So, that’s my commentary on the current market situation; and good news, you’re at the right place at the right time. Now let’s get to some questions.
Let’s answer a legal question for Janice. Hello, Lou. One of the “other” trainers promotes a company called Pre-Paid Legal for assistance with legal services. Are you familiar with this firm? I would be interested in your thoughts, comments, and recommendations. Thank you for your time.
This is a carry forward from an earlier call. We weren’t able to get to this question. So, to answer this, yes, I have indeed used Pre-Paid Legal. For a letter here or there I would say they are fine. I have a problem though and a challenge with – and perhaps I haven’t seen all the benefits of Pre-Paid Legal – because when you pay $49.00 or $75.00 a month how often are you really going to use them. Does it really make sense to have that or just to pay an attorney for a letter when you do need them? My concern with my usage of it is that there’s no guarantee as to who you’ll get. Therefore, there’s no opportunity for a relationship. You can’t really control the ticket. In other words, when you file for them to answer a question or to write a letter or whatever, a ticket, an order ticket, is issued and then you get the next attorney up and you can’t really delve into issues or thread it with issues you’ve had in the past. I think it makes it difficult to really have a long term relationship with an attorney. Also, if you get bad advice you’re pretty much stuck. I don’t like no-control situations. I would say be careful about those situations and I haven’t found the perfect solution yet to legal issues. I would say let’s proceed with caution on that one and get someone who’s totally connected with us and responsible to us rather than a hit and miss situation.
Here’s a marketing question. What is the best way to find a target market area? The areas that appreciate.
Well, it’s a good idea to go to the US Census Bureau. The US Census Bureau gives you all kinds of details within your local market that would be the zip code that you are marketing in. It can give you a lot of data about the market that you’re looking in. Here’s what I suggest; that you go to zipskinney.com and there you will see the details about your area. You can plug in a zip code and it’ll take you to the US Census Bureau site about that zip code. It gives you all kinds of data like how many high school graduates are there. How many college graduates are in that zip code? What the median income is. What the median house price is. Lots of good stuff and that can help you identify your target market area and areas that appreciate.
Now, we do have a service called Prop-whiz that’s available and one of the things I love about Prop-whiz is you can plug in an address or an area and it gives you literally a view, a visual view of all the rooftops and the Platt map laying over all those rooftops. You can see the size of the lots, the addresses, the type of properties they are, the number of bedrooms, the number of bathrooms; but more importantly it will overlay the number of foreclosures in blue versus red. The blues versus the hot market. Let’s say that the reds are the hot market; that is an appreciating market. It tells you that the houses in that particular area have gone up versus the houses in the other area perhaps next door where they have perhaps gone down. More importantly you get an overview of the entire area and the number of foreclosures that are going on there as well. It’s a phenomenal tool and I’ve told you about 2% of what this tool does. If you’re interested in that tool it’s called Prop-whiz and you can call our office at 1-800-578-8580 for more information about it. But, frankly, that’s what I would recommend that you do. So, that was zipskinney and that was Prop-whiz and you can really find out the true details of what’s happening in an area.
Your follow up question, Brent, is what’s the best method to find these homes where the seller is the bank?
Well, the seller being the bank doesn’t really happen in the finding of the home. It happens in the negotiation of the home. How do you design and craft that deal in a way that has the seller want to give you their house, number one? Number two, for you to buy that house where you take over their existing financing. Number three, that if there is equity in the property that the seller carries back that equity in the form of owner financing. This doesn’t happen by the type of leads you generate. This happens by the words you speak once you get the leads. How do you design and craft that deal? How do you make them want to do business with you? That’s the key to the success in actually crafting a deal. We have a training coming up in March called Millionaire Deal Maker. At that event we invite you to bring your own leads of any kind to the event and we work them right there. It doesn’t really matter what kind of lead it is because it’s going to be worked in class. You’re going to split up in groups and other groups are going to get your lead and work it and tell you exactly what the group came up with. Then that’s going to be presented in front of the room and I’m going to put all my twists on it as to what else can be offered. Then you go back on your cell phone and you make your offer to the seller and you’re able to craft and design the deal and hopefully get it under contract while you’re at the event. That’s our plan when you come to MDM.
By the way, we teach you how to craft and construct 35 different offers so that you don’t have the one or two that most investors have. You actually have 35 different ways to structure the deal. I hope you like that idea, Brent. In fact, that’s what I’d really like to see you guys do. The sad thing that I see over and over again in our business is the lack of skills. It’s not necessarily the lack of leads; it’s the lack of skills to do something with those leads. It’s important that we all work together to learn these skills because it makes a massive difference out there in the real world.
Here’s a question on purchasing on how do we compensate for today’s real estate market? Sandy, asks, how do we compensate for today’s real estate market.
Well, I say buy, buy, buy. But, you must buy right and buy cheap, Sandy. The thing to do is through your marketing I want you to have a lead generation design where you are literally given the opportunity to cherry-pick those leads and you take only the ones that fit within our program. The rest can either go to less savvy other investors, or unfortunately you won’t be able to help that seller. The great news is that we do have terrific opportunities inside of leads. As I was saying before, there are so many different ways you can structure and design and craft a deal. It really is important that you get those skills and it doesn’t have anything to do with today’s market. It has to do with what you do with the lead, and again, how you craft and design that lead. How you craft and design that offer.
Your question isn’t really specific enough for me to get into any detail, but the idea is that we have a systematic approach that first, we ask the seller the right questions. We get all the details about their existing financing and then we design at least three different offers to make to the seller. Then when we visit together we actually make a presentation to the seller. Once we make that presentation, then we make them our offer. But we don’t tell them what our offer is that we designed at home; we actually ask them to help us design the offer. We use our cost-to-sell worksheet to come up with that offer, where we work backwards from their asking price and actually come up with all of the details of how we came to our offer to the seller. That gives them the understanding and the motivation to want to work with us because we are helping them.
The next question is from William who asks, when going over the cost- to-sell worksheet with a ___ (18:53), how do you justify a 6% realtor fee?
Well, William, it’s pretty easy. I’m going over with the seller using the cost-to-sell worksheet; I’m going over with them what it’s going to cost me to sell that property. Now, do you get that distinction? It’s what it is going to cost me to sell that property. So, justifying the 6% realtor commission is quite justifiable if I tell them that I’m going to list it, or potentially I may list the property with a realtor and that the real estate commission is 6%. In fact, in Georgia it’s actually 7% on some deals. Now, if you’re saying that you can negotiate a lower realtor commission, well the fact that we who are in the business can negotiate a lower fee has nothing to do with what it would cost a typical seller to list their property. And yes, the realtor is typically going to go for that higher amount. What we’re going to do is just make sure that we have the best marketing strategy and of course, we’re typically not going to list it with a realtor. We’re usually going to do that ourselves or if we list it with a realtor it’s going to be a low fee or a no fee realtor. However, that still does not state what the truth is, that it could cost us that much. Remember that that’s what your cost-to-sell worksheet is illustrating is what it could cost you to do that deal.
Please review when buying and I’m loan modification used to my advantage and seller doesn’t know what? Wow – okay. Ann, I’m not sure if I understand this one, but let me see if I think I know what you’re asking. Please review when buying and I’m using loan modification, used to my advantage and seller doesn’t know. I think what you’re saying is, can you use a loan modification to your advantage and the seller not know what you’re doing.
The answer is no, you can’t. You’re going to need the seller’s full and complete cooperation if you want to work with the lender on a loan modification.
By the way, a very good point to make right now is an article that I read to the class at MAS where a couple years ago I knew that the time was right to start pushing the lenders for loan modifications. Back then at that MDM class people looked at me like I’d grown another head. I said, no, here’s exactly what I want you to do and exactly what I want you to say. Interestingly, it began happening. People started reporting back to me, sure enough, Lou, you’re absolutely right. The lenders are modifying the loans. They’re taking adjustable rate loans and making them fixed rate loans. They’re doing what you said about taking the arrearage and putting on the back-end of the loan. They’re doing what you said, Lou, and taking the arrearage and if they’re not allowing it to go on the back-end of the loan, they’re accepting a payment plan. That, my friends is what’s called a loan modification. They’re doing those right now. In fact, according to the newspaper the Mortgage Bankers Association has reported that the lenders now have done over 237,000 loan modification in the last quarter.
This is another very important technique that I want to teach you because it’s a wonderful tool to be able to get the lenders to do exactly what you want them to do. You approach the bank as a financial advisor working with Mr. and Mrs. Jones. You’re trying to help them solve their problem. In doing so you’ve looked at their financial affairs, you’ve looked at their picture and what you see is blah, blah, blah. And what you are recommending is blah, blah, blah. As a result the lender sees that a professional is advising exactly what the solution is for the seller. In doing so that’s going to be a big part of solving your seller’s problems.
Let me go on to a deal structure that came in.
From Nathan and Kelly Witt. Nathan and Kelly said we’ve come across a possible opportunity and would love your advice. We of course have some things to verify, but here is a rough outline of the situation. The after repaired value is $220,000. They are asking what they owe which is $250,000. Approximately six months behind on the first and second mortgages; first of $168,000 and the second of $82,000 for a total of $250,000. Monthly payment for the first and the second is $1800.00. The repairs are $2000.00. There has been no date set for the trustee sale. The house is in a wonderful neighborhood and sellers have moved out of state. The house is sitting vacant. We are in a situation that would allow us to move into the home if need be. Oh, that’s lovely. We have very little cash to make up the back payments, but could easily qualify for a loan and try to do a work-out with the lenders. Can you advise on what may be the most profitable exit strategy? I would discount the second and bring the first current versus short selling the first and the second.
Okay. Well, let’s start with that. It is very likely that on that second mortgage you could get a reduction. It is very likely you could get that second mortgage all the way down to maybe a couple of thousand dollars. I would start at $1,000.00. I would explain to the second mortgage lender how much trouble they’re in. I would explain that the market is dropping like a rock. That their mortgage put the value of the home up to $250,000 and that after the cost to sell…now remember cost to sell is different from after repaired value. You take the after repaired value of $220,000 and then you work backwards on your cost to sell. So, put that in your cost to sell and see what happens. But, it’s likely to bring that price down to probably about $180,000. So, I would definitely offer them a very low number on that second and, Nathan and Kelly, I’d come up with the cash from somewhere to give that cash to pay off the second.
Then on the first mortgage I’d do what I was saying before about the loan modification. I’d take that six months and work to put that on the backside of the first mortgage. In other words, that you would have to pay absolutely nothing to buy subject to that existing first mortgage. You would put that arrearage on the back-end. If the lender says no, then you say well, what can we do. Then they’ll come up with a payment plan on that arrearage. Now, I would suggest that you put as much of it as you can on the back-end of the loan and if they say they won’t do it without any money, then perhaps you could pay them $1,000 and put the arrearage on the back-end of the loan. If that doesn’t work, it’s just a regular payment for the next 24 months until that arrearage is worked out; in addition to the regular first mortgage payment. That will be a zero interest loan for that amount that’s spread over the 24 months, which was the arrearage. Why? Because they’ve already paid the interest. The arrearage is interest, so they can’t charge interest on interest so they just spread it out over time.
It’s a wonderful thing; a wonderful thing. We’ve only done this all the time and we have four of them in works right now. This is a very workable deal, Nathan and Kelly; particularly in light of the fact that you can move into the property and you’re looking for a house like this. This would be your first home run. A short sale on the second; a subject to on the first with a loan modification. Caveat; do not let the lender know that the seller has moved away. Do not let them know that the house is vacant. Try to keep that a secret; in fact, hopefully there are still curtains on the windows. Pick up all the papers out of the front yard because it’s likely the lender will send somebody by if they don’t already know that the house is vacant. When a house is in arrears by six months they often send somebody by to inspect the property and even take control of the property by changing the locks. It’s important that you seize the opportunity right now, and this is a great opportunity for you. I believe that is the best purchase strategy.
Now given your answer, could you point us to the forms you use in you VSH and Trust guidebooks?
Well, here’s an interesting answer. Because you’re using multiple different strategies you’re actually going to have to use multiple different pieces of the strategy. Number one, one piece that you don’t have is our short sale package. That’s available for $399.95 and that has all the forms that you would send on a short-sales deal. It’s a separate companion package because short sales are a different animal and require different paperwork. I don’t want to be confused with any of our other buying strategies. For example, you need a hardship letter. I’ve already got that made up for you. All you have to do is change the names, change the situation, press print and that’s there for you. You need a HUD One closing statement. I’ve already got one made up for you; already spelled out and detailed. All you have to do is change the numbers for your situation, press print and you’ve got your HUD One. You need an authorization to release information. I’ve got that in there all set up. All you have to do is fill out a cover sheet and then everything is auto filled into your paperwork. The letters to the lender, the cover letter for the lender that you need to include with your package, that’s included. The repair list, that’s included that you need to show the lender what needs to be done to the property to justify some of your discount. There are many different forms that are needed for that and that’s available in our short-sale package called Short-Sale Profits. Just call the office if you need that one. 1-800-578-8580.
Now, you will also be buying this property subject to the existing loan. To do that you’ll go to volume four, page 148. There are all the forms you need for a subject to transaction because it is a potential due-on sale situation; in other words the mortgage likely has a due-upon sale clause in it. So, we’re careful to make sure that all the forms are done correctly. You ask, well why is it in your land trust book, Lou? The answer is because you must have a land trust in order to do a subject-to safely. It prevents the lender from calling the loan due. Very important feature of the subject-to situation. The other form you’re going to need is in your buying book, volume one, which is your purchase and sale agreement. Now, if you get the short sale profits, I’ve actually got one designed for buying a short sale so that you’re protected, that you don’t have to buy the property if you don’t get the short sale. And isn’t that a good plan? You don’t buy the property if you don’t get the short sale.
All right, let’s see. Have I covered everything? You’re going to need a trust. You’re going to need a, for the subject to; you’re going to do a trust anyway, so volume four does that for you. Then the subject-to transaction, the buying and the short sale. Yep, I think we’ve covered everything. A lot of paperwork, but it’s all worth it. Imagine that you can buy that property for that first mortgage of $168,000. You didn’t mention what the interest rate is, but I want it to be a good one. We’re buying lots of properties today where the interest rates are very good, and that’s what I want you focused on. Stay within that 6 to 8 percent range and stay within the fixed rate mortgage area. If your loan currently is an adjustable rate, then when they do the modification have them adjust it from an adjustable to a fixed rate loan.
Okay, wow; that’s good stuff, Nathan and Kelly and I wish you the best of luck. Please do let me know how that goes. I’m very interested in it.
Now, Clara MacIntosh has a question on a; how do I structure a deal if the property is listed with a realtor?
Well, Clara, that’s a good question. If it’s listed with a realtor you have to buy the property through the realtor. Essentially what happens is that the seller has given up their rights to the property in terms of the listing to the realtor. Let me explain what a listing agreement is. It’s an option to sell. Essentially the realtor has the option to sell that property over whatever period of time they’ve signed it up for; which is usually these days a six month listing. That’s sad news. Of course, for our deal to work often we can’t pay a real estate commission. Now, that’s not true in all cases so you actually look at your numbers. Your deal may work with paying a real estate commission. But, of course, we’d like to make as much profit as we possibly could. So, another way to approach this, Clara, is to have your seller go back to the realtor and say listen, I have tried and I’ve waited and I’ve done everything I can do and I’m in distress; would you please let me out of the listing and let me go see what I can do on my own. Often, the realtors will let them out for just maybe a $25 fee, whatever the cost is to unlist with the listing service and that can pretty much preserve your opportunity with that.
If you found out about the property through a realtor, then you owe that realtor a commission. If you found out about it on your own or if the seller called you on their own, well, no, I don’t say that the realtor’s a procuring cause in that case, because they did not find you…in other words the realtor did not find you it was the seller that found you on their own. Therefore, to make the deal work you can try to work with not having to stay with that listing agreement.
The second question is, I have a potential property where the seller will give me control, but the seller does not want to move out. What are my options?
Well, Clara, you’re getting some challenging leads here, my dear. The situation there is that you must have the seller move out. And I’m going to say that’s the safest place you can possibly be. Shortly, throughout the country, there’s going to be legislation going down in many states where the seller must move from the property. In other words it will be illegal for a seller to remain in the property after the sale of the property in a distress situation like this. Why? Because some unscrupulous investors have misled sellers and told them that they were not selling their property and in fact, what they were doing was loaning them money; when in fact what they were doing was buying their property. As soon as they had the opportunity they kicked the seller out of the property through eviction. This is why you’ve got to be very careful what you do. You explain everything to the seller.
You say, unfortunately because of case law, we cannot allow you to remain in this property. We wish you could; it makes perfect sense that you ought to be able to because after all if your family is connected with this neighborhood, churches, schools, etc., and you go and shift from being a seller to a renter, it makes perfect sense that you ought to be able to remain in the property. Unfortunately, because of other folks and other settled case law and lawsuits I can’t allow you to remain in the property. That’s the way you handle it, Clara. If they say that somebody else will, you say well, the best of luck to you and that other person, but I can’t do business; that’s not the Street Smart way.
We have another acquisition question here from Andrea Roach. Lou, I’m one of your prior boot camp students and have your system, but not all of it yet. I have an owner with eleven brick duplexes to sell at $80,000 each. He wants me to buy them all; he’s burnt out. I’d like six of them. What negotiating words should I say to him to give me a package deal at what percentage rate on the dollar? Please tell me what to say.
Well, Andrea, first I need to know the details. You need to know the details, too. What are the existing loans? What are the interest rates? What’s the term? What are the payments? Does he own it free and clear? What are the taxes? What is the insurance? What are the current rents? What are the repairs needed? What’s the age of the property, etc.? These are all very important questions and guess what, they are all asked in volume one on my seller questionnaire. The seller questionnaire is absolutely critical to crafting and designing an offer.
Therefore, you must have data before you can offer anything. Or you can make your offer contingent on data. If you make it contingent on data then you can offer anything you want because you’re going to be able to change it because it’s changeable based on the information you learn when you get the data. It’s kind of easy to make an offer of what the seller is asking, because you can then come back and change it. First of all, I didn’t know this, this and this. But I really recommend that you just sit down with your seller questionnaire and ask all those questions. Then, once you have that, you can further negotiate the price. I hope this helps, Andrea, and good luck on your purchase.
Remember that as a member of our silver coaching program you can submit questions any time you want to and have them reviewed and get instant answers on them instead of having to wait for the Group Q and A call. So, I highly recommend that everybody on this call upgrade your coaching from the Group Q and A to the silver, which is called our Direct Q and A program. And by the way, it also includes this Group program as well.
Now we have some trust questions; imagine that. Let me first do these couple of subject-to questions.
Barry asks, is subject-to illegal? Yes or no. If yes, how can we put subject-to in the contract and the contract be valid? If no, why is everyone so afraid of them?
I’m not a bit afraid of them, Barry, and neither are any of our trained subject-to licensees. The reason that they’re not afraid of them is because we have determined the exact path and the exact paperwork you need to do in order to prevent the lender from calling the loan due. That’s exactly what we want to do. We want to prevent the lender from calling the loan due. What happens is we assist the seller in placing their property into their trust. Then after all of the paperwork is done and everything is completed then they sign one final document which is the assignment and quit claim of beneficial interest and trust. They then assign that to another trust, our personal property trust, which is where you are. Is that illegal? No. What is actually the truth right now, Barry, just imagine that if it wasn’t for the thousands upon thousands of subject-to transactions that have been done in this country over the last year – just imagine how bad our economy really would be. Just imagine how tough it would be for lenders right now. Thousands upon thousands of more loans would have been in default. Thousands upon thousands of loans would have gone into foreclosure and bankruptcy. Just imagine the service that we really do provide when we help people place their property into trust and then allow us to buy it and allow us to avoid all the costs, the frustration and challenge of a loan. In fact, those costs can devastate the opportunity and can devastate the deal. This takes all of that away and opens the door on so many other deals.
Beth asks, what happens if the seller doesn’t have all the paperwork you need?
Beth, I think you might mean by this question that they don’t have for example, a copy of their warranty deed, or they don’t have their insurance paperwork, or they don’t have their property tax bill, or they don’t have their statement from the bank. Just merely having the proper tools, Beth, can solve a lot of you problems. For example, our Comp-whiz program; if you have Comp-whiz you merely pull up the seller’s property and it gives you all kind of data that’s already recorded at the court house. For example, the legal description; the sub-division it’s in; the information that the tax office has; the number of bedrooms; the number of bathrooms; the details about the existing financing; the interest rate; the terms; the amount of the loan.
All of that is available right there at the court house. There’s so much available out there if you just use it. You heard me say earlier about Prop-whiz; it also has that data and a whole lot more about what’s going on in the neighborhood. I advise you once you have interviewed the seller by phone and collected all the data on the seller questionnaire, the next step is to work with the seller in designing and crafting the offer. Find out what they don’t have, but do your own homework before you ever visit with a seller. Pull your comparables; pull the details about the property. Confirm what you see based on public record; because often that information is flawed. You want to make sure that you get everything and do it right.
Now, we have a trust question from Jim Brown. Jim says, hope this finds you and yours well. Two issues about the same thing. I want as simple a way as possible to initially put home, car, business, etc. into a trust. Not that concerned about protection at this point except on the car; and later go back and change what I need to change, beneficiary, trustee etc. In first setting up can I be both the beneficiary and the trustee, then change one or both later?
Let’s stop there, Jim. The answer is, yes, you can. You can be both the beneficiary and the trustee. But let me explain one of the great benefits of trusts. That’s if something ever happens to you, it passes to your heirs. If you are both the beneficiary and the trustee, wouldn’t that present a problem? First of all, you’ve just created a merger of interests. For your heirs to be able to get the deeds to the property they just inherited they have to have a deed. You’re not here anymore to sign that deed, therefore, the only way they can get that property is through a thing called probate. Probate is confounding, confusing, upsetting and expensive in some cases; and definitely in addition to that, delaying. Trusts avoid probate. What I recommend is that if you are the 100% primary beneficiary, then you have someone else as the trustee. We do have our Trust-whiz as part of our program. You’re welcome to contact us. Trust-whiz charges $100.00 a year. It is an attorney; it is a licensed attorney to act as your trustee. One of the benefits of that is that you get attorney/client privilege, which is something you don’t get with everyday trustees. So, that’s something that might benefit you there, Jim. You can get the connection by calling our office and finding that out.
But, let’s say that you want to use someone else as your trustee; perhaps your mother in her maiden name or your sister in her married name. That’s got a different last name than you and it’s someone in your family that can pass it on to you heirs. By the way, it’s important for you to know that the trustee has to know who you want to get the property, therefore, they have to have a compete copy of the paperwork that you’re going to be providing.
Now, you ask about business. In the case of a business, I want to have daily hands-on to handle it and be the beneficiary, not to go through a trustee. One of the great things about how we’ve designed the program is that we have a management agreement in there. The management agreement is designed for you to have a manager…excuse me. Let me say it this way. For the trustee to have a manager and the trustee essentially hires you as the manager for whatever the trust asset is. The management agreement, which is in Book four, can be adapted for any type of purpose. Once the property, whatever the property is, is placed into trust, then the management agreement then has the manager take over all the responsibility. The manager can file taxes, pay taxes, do all kinds of details related to the property and not have to bother the trustee at all.
You mentioned something interesting here and you say you want you business in trust. That becomes a question. What is the business? You’ve signed yours of course, the Potter, and if that means your pottery business then the question becomes, should the business be a trust or should the business be a corporation whose shares are held by a trust. I would say the latter. Let’s use, if it is a business, let’s use the entity that best is held for that purpose. Let’s say that it’s an LLC. The LLC may hold the business and all of the risk of the business. Remember what an LLC or Corporation does is it strips away the risk from being in business from you. It doesn’t strip it away from the business. So, if the business gets sued anything in that business can be lost. Now, here’s an opportunity. We say that the equipment in the business is owned by a trust and is leased to the LLC for its use. Let’s say that the business has vehicles can be held in individual personal property trusts and those can be leased to the business. So, the business received income and pays it out to these various trusts, therefore, leaving the business with very little in terms of assets except for the business itself.
Now, let’s say the shares of the LLC or the Corporation are held by a third party. That should be your living trust and the living trust outlines who gets what and under what circumstances that they get that. This kind of answers your next question…
Can the business be something like ABC’s Good Deal Place or does it need to be a Corp. or an LLC? Of course, I recommend…let’s back up for just a second. You can open a business as a DBA and it does not have to be a Corp. or an LLC. It can just be merely a company, but if it’s going to be doing any real business, then you need to go ahead and get the tax benefits that can be provided by a Corp. or an LLC.
By the way, we cover all of that in great depth at MAS. Jim, I highly recommend that you be at the next MAS in August, and before it gets filled because we already have…it’s already half filled. Be sure and go ahead and register for that now and in fact, since that’s six months away, everyone on the call, you can be on a six month payment plan for that at the same price. We’ll give you the reduced price with a payment plan. I recommend that you take advantage of that with the early bird discount and call the office for more details on that. By the way, they don’t even know that I’m offering that, so be sure and tell them that I said you can have a six month payment plan on MAS since it’s six months away. For those of you listening to this later, it’s going to depend on how soon MAS is upcoming to how long you can spread the payment out.
We always work with our Street Smart students because we want you guys to be successful. That’s one of the thing we do for you as licensee’s of the Street Smart System, is we have divided up our training into buying, into selling and holding, into trusts, your protection, we’ve given you your overview plan with your Millionaire Jump Start, and advancing you business through mastering business advancement. So, Millionaire Jump Start, Millionaire Deal Maker, Massive Passive Income, Maximum Asset Shield and Mastering Business Advancement, are your entire training cycle. It takes a year to get through the cycle and we highly recommend that you sign up for all of the training and we can put you on a payment plan for the entire thing and make it very much worth your while. We recognize that education is expensive and it is also important. It’s the most important thing you can be doing. Please do not be in this business and wing it. It is important to have the details of how to use the tools that you already have from Street Smart or from any other source. We’ve got to make sure that you don’t misuse it and mismanage your situation because it can take you out of the game and this is way too good of a game to get in trouble with.
We have a trust question from Victor ___(53:05) one of our platinum’s who says; when doing multiple subject-to transactions do you recommend a different EIN number for each subject-to in order to form the land trust for each property, or can you use one EIN number for multiple land trusts?
To catch everybody up, Victor, the EIN number is employer identification number or also known as TIN which is taxpayer identification number. What we do in our transactions when it’s land trust is we obtain one number. That number can be used for multiple trusts because when it finally boils down through system the land trust is a flow-through entity. Whatever happens inside the land trust flows through to the tax return of whoever is the taxpayer; whether that be an LLC, a Corporation or you. Therefore, we don’t have to worry about the land trusts having a number for each trust. All we have to do is worry about having one number and we can use that number on multiple trusts because that one number is going to be linked back to whoever is the final taxpayer, whether that be your LLC or whether that be you. That is the entity that we are going to be connecting that number to and in fact it’s going to be the entity that obtains the number as well. So, if you are the ultimate beneficiary you obtain the number using your social security number because you will be the one filing the 1040 tax return. If the LLC is going to be the beneficiary then LLC uses its number to obtain the trust ID number because it will be the one filing the tax return. I hope that made that clear, Victor.
Now, folks, this has been a very enlightening call. We’ve gone through a bunch of questions on this call as you can tell and I highly recommend that you become part of our upper level coaching.