Group Q & A 622080

Lou Brown:

Hello everyone, and welcome back to another session of our Group Q and A where together we’re gong to go through a lot of different questions that you guys have sent in.  I’m just back now from the national REA cruise.  Many of you know that I’m the original or first president of national REA… which is an outgrowth of an earlier organization called Real Estate Leadership Association of America.  Which was an outgrowth of an earlier organization called National Leadership Congress.  I was the last president of Real Estate Leadership Association of America, and then took the organization in a new direction and it became National REIA in 1993.

So, we just had our cruise, the eleventh year that they have had a cruise, and it was quite interesting.  There was lots of people from all over the country.  There was lots of information and talk about real estate.

One of the interesting things that I came away with is that there’s a lot of folks that have been doing this business for a very long time.  They’ve made an awful lot of money at this business.  They still continue to do it to this day.  They still continue to learn as well.  I was very impressed with many of them even though that they’ve been investing for so long, they were still attending the session, and still very interested in the discussions that came up there.

There was also some good new information in terms of where the market is going in new directions and products that can get us there quicker and safer.  I’ll be sharing some of those with you as we go into events and share more information of events in our in-depth sessions.

I got some additional information for you guys that I think you’re going to be very interested in.  Congress has put some great benefits for rental property owners in the 2008 economic stimulus package.  They have said, if you put an asset into service in 2008, and it has a useful life of under twenty years…you can take a first year depreciation of 50% just like in the Go Zone.

Some of you know that the Go Zone is that the economic stimulus area of southern Mississippi, and also southern Louisiana where Hurricane Katrina came through…and, actually, created a lot of incredible property damage.  So, they created this Go Zone that encouraged investors to come in there and receive that 50% write-off.  It goes on to say, that not only do you get the first year depreciation of 50%, you also get the allowable depreciation already allowed as well.

How does this benefit rental property owners?  Most rental property owners know the property has a useful life of twenty-seven and a half years.  So, it does not apply.  However, savvy rental property owners know that the chattel or personal property in every rental property has a useful life of five to fifteen years.  It does qualify for this allowance with an average of ten to twenty percent of a property purchase price in chattel.  This leads to thousands in depreciation for every rental property put into service in 2008.

I might add that ten to twenty percent could be low in your area depending on the price point of the property.  For example, if it’s a $50,000 house, and we say twenty percent is chattel or personal property, then that’s $10,000.  If instead the property is a $500,000 house, then you’ve got other…you might have multiple heating and air conditioning systems.  You might have multiple washers and dryers.  You might have multiple other personal property, that goes with the property that can add to the percentage of the property in the house that can be written down faster

This also happened in 2001 after 9-1-1 to get the economy rolling again.  Two thousand eight is the year to buy rental property and get chattel appraisals done on them.  So, we’re, actually, working on some things in the Street Smart System that can allow you to be able to do your chattel calculations using one of our calculators.

MPI which is Massive-Passive Income is where we teach you how to hold and sell properties.  That’s June seventh through the tenth.  Now, that is where we’re going to go into some of these discussions about how to write down and write off properties in a very rapid way.  So, I’m very excited about it.  I thought you guys might be interested in it as well.

Okay, our first question here is from Velva.  She has an IRS tax lien question.  She says, “My question is regarding IRS liens.  I found a listed REO, real estate owned, that needs work and once completed will have an excellent return, but it has two IRS liens.  How do I get those removed?  I am in the Orlando area.

Well Velva, good news.  When the property was foreclosed, the IRS had 120 days to come back, even if it had been bought from a third party, they had 120 days to come back and say, “Look, we think there’s enough equity in there for us to go ahead and purchase this property back from whomever bought it at the steps.”

So, for example, if it went back to the lender, then the IRS can go back to the lender and say, “Lender, here’s your money.  I’m going to buy the property.  We’re going to sell it ourselves at auction.  We’ll get the difference.”  Or if it went to yourself, for example, and you were the successful bidder at the steps.  The IRS has 120 days to come back to you.  Pay you off what you paid and they take the property from there, and sell it and make the difference.

If yours has gone passed that 120 day period, then these no longer apply.  If you want to confirm that, you’re welcome to call your local title company and just say, “Hey, this property was foreclosed back last June and has two IRS tax liens on it.  Do they apply?”  They will tell you, “No.”  There’s no further notification necessary if its gone passed the 120 days that the IRS has to re-instate or take back the property.

You can ask them about any further notifications, but generally speaking, they seek a release from the IRS.  The IRS says, “It’s fine, this properties gone and we’re not going to seek any further information about it.”  That clears the title.

So, the good news, I am excited that you’re telling me it has an excellent return.  So, this is going to be a perfect place for you to have your money, and be able to do that deal there in Orlando.

Let’s see here, we’ve got Brian Musa who has a short sale question.  He says, “What are the easiest loans to short sale?  How can I determine if a loan is an FHA, VA, Fannie Mae, or Freddie Mac?

Well first of all, the easiest loan to short sale is the second mortgage.  Second mortgage is, generally, I will offer anywhere from $500 to $1,000 to get rid of a second mortgage and that’s even if its $100,000.  So, I’m not to worried about the amount that’s owed.  I’m more worried about getting rid of that loan…provided I can improve the discount.

Provided I can take my cost to sell worksheet along with our short sale profits package.  Actually, put together all the paperwork necessary for them to be able to go through the program, and understand why it makes sense for them to short sale.  If they do, then we will just pay them off and that takes care of that lien.  You want to be sure and get a satisfaction and release of mortgage, Brian…when you do that.

Then for the second part of your question, how can I determine if the loan is an FHA, a VA, a Fannie Mae, or Freddie Mac?  Well, it really depends, because generally speaking, lenders will go ahead and write up the mortgage on generally accepted paperwork, Fannie Mae, Freddie Mac, paperwork.  Although, if it’s FHA they’ll have a different mortgage, and it will say FHA at the bottom.  If its Fannie Mae or Freddie Mac, it will have their information at the bottom.

However, that does not necessarily make it a Fannie Mae or Freddie Mac loan.  Once the loan is originated, then its, usually, originated by a local mortgage broker.  That broker then re-sells the loan in a package to Fannie Mae or Freddie Mac.  Just because it’s written up on their paperwork does not mean that it is held, ultimately, by Fannie Mae or Freddie Mac.

So, there’s really no real way to determine whether it’s a Fannie Mae or Freddie Mac except for…if it is revealed to you by the servicer of the loan.  The servicer is, generally, someone who handles all the payments.  They collect them from the borrower.  Then they send on the payment to the lender, such as Fannie Mae or Freddie Mac.

So, generally speaking, you don’t have a direct access to them.  It’s done through a servicer.  The servicers are the ones that are empowered to take care of all the aspects of the mortgage and service it under the terms of that mortgage.  Interesting question., Brian.

Okay, we’ve got a realtor question here.  What terms would you recommend when working with a realtor on both the buy and sell side?  What commissions should I pay?  Should I, okay let’s start there.  What commissions should I pay?

The answer is it’s negotiable.  So, in Georgia, for example, it’s seven percent is the percent that the realtors are always shooting for.  Throughout the country, mostly its six percent.  Generally speaking, that commission is split between the selling agent and the listing agent.  They subsequently split with their broker.

So, the listing agent has a broker and the selling agent has a broker.  Depending on what type of broker that is, that’s split yet again.  So, your listing agent may only get one and a half percent of that transaction.  The selling agent may only get one and a half percent.  Each of their brokers get one and a half percent as well.  So, that brings us up to six percent.

Now, to answer your question, what commission should I pay?

It’s completely negotiable.  It really depends on how you are setting up the marketing for the property.  For example, if you agree to do some of the marketing and pay for it, then the agent has a lesser cost.

Here’s what I would be very careful about.  Many agents that you would list with simply don’t have the funds to be able to truly market that property.  Put it in the appropriate magazines and get it fully exposed to the market.  So, what they do, is they simply take your listing, put it in the MLS, put it on free web sites throughout the internet, and maybe hold an open house.  You say, “Gee, is that what I get for my money?”  The answer is absolutely.

So, you have to put the deal together in a way that makes it very, very clear, exactly, what marketing that you’re doing.  Exactly when that will run.  Exactly what size ad that will be.  How you can confirm when they do run it.

So, you’re next question is should I have a termination option?

I would say, “Absolutely.”  At any time during the listing agreement, that they do not do what they said they would do, which should also be part of the listing agreement.  Then, I would say that you should have a default clause, which says they are in default of the agreement.  You have the right, the exclusive right, to terminate the agreement in whole, and you owe them nothing in commission.

Nothing for their prior marketing or anything like that.  So, that ties the realtor down to a commitment and for them to do, exactly, what they said they were going to do.  Even back it up with e-mails, faxes, and photos, to show you, exactly, what happened and when it happened.

Now the second thing that I would keep in mind, when you’re listing with a…an agent, is that you also want to keep in mind that in today’s market, selling is what you’re really up to.  So, you can even go so far as to list it with a flat fee realtor for anywhere from $199 to $699 most of them charge, and that’s merely to get it in the MLS.  They provide no further and other services.

That might not be all bad.  Depending on the price point of this house, because if you can save one, two, three percent, and do all the marketing yourself.  Pay all the marketing expenses, and the signs, the signage, all the different bumps and grinds that it takes to get something sold.  If you do that, then it may make sense to the realtor to, actually, take a lower commission for the listing.  Put a higher commission for the selling agent.

Now, what I would do there is put, possibly, four percent to the selling agent, and as little as possible to the listing agent.  Particularly…in the case where you’re going to be doing the marketing yourself and  paying for the marketing yourself.

Now, Chris Skelf has a question about Flagler County, Florida.  Where he says there’s 2,000 houses on the MLS.  Every one of the sixty to eighty sales per month are either short sales or REO’s.  How do we sell properties at market price when the average sales price is 60% below retail?

Well Chris, welcome to the world of discounted real estate.  Basically, the market price is now that 60% number, its not market price any longer.  So, market price is old news.  Or another way to put that is market is market is market.  The market determines the market for the price.

So, I could tell you that my rental over here on Bay Street is $2,000 a month.  If the market for the same property, in the same condition, in the same general vicinity, is $1,000 a month, I’m never going to get that $2,000.  It’s just not going to happen.  So, again, consumers aren’t that stupid.  They are going to look at the price.

Now, does that mean that you can fudge it?  Absolutely, when you…using our system of lease option, owner financing, auctioning, etc.  The way we approach the market, we have the right to market up higher than traditional market or lets call it today’s market.  We are offering something unique in the market place.  We are offering financing.  Financing is worth money.  Therefore, you have the right to market up without them squawking about it, because it’s something that the rest of the market is not offering.

I can suggest that that’s generally true.  If it was a short sale, so if it were a short sale or an REO, then no.  You’re not going to be able to market up.  If that’s what’s happening in your area, those are the prices.

I’m glad that you have access to the MLS.  So, you can compare and find out what things are going for in the area.  It’s very important in today’s market that you not only look at sold comparables, but you also look at what’s on the market today.  You need to know those, those are the real comps.  What are they asking today?  What things sold for even a few months ago is not what they would sell for today.  So, be careful about that.

Keep in mind though, that doesn’t mean that you should market it at that price.  For example, if your house is in good shape, and a good area, good school systems, good functionality, good age, not a lot wrong with it.  Then you have the right to mark that up higher.

If it has other dents and dings, such as bad area, bad schools, etc.  Then you’re going to have problems.  Let’s keep you out of trouble, and as I always like to say, “Our goal is to help you be a success long term.”  One wrong move early in the game can take you out of the game.

So, survival is a real gain.  In order for you to survive with this kind of sale, you’re definitely going to have to offer some kind of financing to get any kind of mark-up.  If you don’t, I would say that you’re going to have to sell at, at or below what things are going for on the cash market today.

Let’s see here, we have a question from Brian who says, “A lease option tenant recently moved out.  For the last twenty-four months she has paid me on time, every time, other than the last two months.  She still has belongings in the house.  During the move out inspection, I noticed there was no oil in the tank.  She told me she had oil being delivered that next day.  On my visit to the house I noticed that some of the heating pipes were split.  There was black soot blown out of the slits…puffed back.

Let me just hesitate here.  Obviously, Brian’s in an area that oil heating is common.  Other parts of the country’s its very uncommon to have oil heating.  So, he’s describing some of the issues that come with oil heating.  One of the problems with oil heat is its dirty.  It lands on all of your stuff, and gets it dingy looking and so on.  So, it’s not as clean of a heat as say a central forced heat or electric heat.  So, that’s what Brian is talking about here.

Now, he says, “I reminded her that her lease requires there to be oil.  That her option fee was not first and last months rent.  We agreed to a payment plan of $300 a month which she has already paid the first installment.  I don’t have our payment plan in writing.  Should I get something in writing?  Should she be responsible for all plumbing repairs and clean up costs?  How should I handle?

All right, first Brian, we don’t want to tip her off that you have more to talk to her about.  Tell her that we need to…you have someone that she will be paying the note to in the future and they need paperwork.  So, you need to meet her for a promissory note.

So, what I would recommend Brian is that you get yourself a promissory note, and that’s on page 129 through 131 of your volume two selling and holding book.  There I would suggest that you go ahead and get her to sign.  Anybody else in the house that’s 18 years of age or older.  Get them to sign too.

Then down at the bottom it has a payment schedule.  So, you’ll use your due date along with the amount and spread that out.  I would suggest you get a calendar and identify when the pay periods are.  Then put the pay periods down as payment dates.  That way you can get a regular payment.  Get her in the habit of making a regular payment and that should solve the problem.

Now, as far as the additional plumbing repairs and clean up costs.  When you meet her for this promissory note, I would show her evidence of your additional costs and boost the promissory note by that amount.

Now, another thing you can do to get a bit Street Smart with this, is you can also have a third party company as the one that she pays instead of you.  You can be paid to like a trust, or an LLC, or corporation, some other third party outfit that can also charge interest on it as well.  So, you can use this same promissory note with interest.  That way your pay back, will also pay you back, for some of your pain and suffering for having done this.  Also, give you a return on the cash that you have invested in this deal.

We have another question.  Other than a lease option, what is the fastest way to sell a home in this market?

Well, the fastest way is to market it at a very low price.  You should be able to sell it very quickly at a low price.  Seriously, when you offer financing, especially, in today’s market, because they can’t really go and qualify for a loan in the traditional way.  Think about it this way, everyone has to go to the bank.  They have to qualify for a loan.  There’s just not the same amount of programs that were available only a few short months ago.

So, now, it’s very difficult for people to be able to qualify.  Which is good news for us, because guess what?  One of our exit strategies is to offer owner financing and a rent-to-own.  So, we put them in on the rent-to-own.  We convert them to the owner financing after they’ve been with us for a period of time or they pay the 10% down.  They use their original option fee and their credit to build up over time…to convert to that owner financing program.  That’s all built in and that is a quick way to sell.

Now, the other and the recent things are a little bit tougher.  Is, because if you go for cash that’s going to be the toughest market that you can go for.  So, I like to go for other ways to sell now.  One part of getting a property sold is not so much price, but exposure.  It has to be exposed to every different web site.  Every different market that it can possibly be exposed to.

Even internationally now.  Think about this and think outside the box.  That people are moving in from all over the world.  The Euro, for example, right now is at a huge discount to the dollar.  So, in other words, the dollar as of today was 1.51 to the Euro.  So, that means, essentially, that people who come to this country with their Euros are, actually, buying at a much lower price than they ever have been able to buy before.

Essentially, they are getting almost a 50% discount off of a retail property.  Just imagine that they come here and buy at their 50% discount…and they have the added benefit of having property at a discount to begin with.  So, now we take our discount that we’re already having right here.  They bring their Euro in and they are buying a smashing good deal.

So, what you want to do also, is to look at international ways to market property.  The New York Times has an international web site that they market properties.  So, if you can have an international connection for example.  That could help you to sell the property at a great discount without it hurting you.  So, I would suggest that that’s another way you can do it.

Now, when you attend Massive-Passive Income, which I said is in June.  June seventh through the tenth, we, actually, give you a massive check list of all the different sites that we want you to list your property on.  In addition to the Neighborhood Reward Program.  In addition to the direct marketing campaign.  The mail-out that we have,  In addition to the building your buyers list campaign.  In addition to the signs, and signage that we do at the properties.  Plus, your three buy banner.  Plus, all the other goodies that we’ve agreed to and I give you a check list on all of this.  This is, exactly, how I want you to market your property.

We take our buyer presentation kit.  Those of you who don’t know what that is, is that we have, actually, taken our entire program, our rent-to-own and our owner financing program and we’ve built a buyer presentation kit that you can use as a print out.  You can put that all over a house, on the storm door, on the windows, whatever.  We also put signs in the windows.  We also put signs in the yard.  We also put banners; we do a lot of things to really thoroughly expose that property.

In a slow market, I also recommend an open house.  That gets people coming your way to look at the property.  Wow, lots of good questions tonight.

Now, I’ve got one here from Frances Lee.  He says, “I am currently evaluating a house in ___26:36, Georgia.  I need some advice on it.  A house in the area with a basement sold for about 175,000.  Another that is a split level sold for about the same price in August or September of last year.

The house I am looking at is asking $163,000.  It’s on a slab with no basement, four bedrooms, two baths, below average condition.  They converted part of the garage into one bath and one bedroom.  The bedroom in the garage has window air conditioning, but no heat.  It took up 65% of the garage.  The garage door is still there, but I don’t think the garage door could be opened.

Probably not, probably no way to pull it up.

I did not count this as a fifth bedroom and third bathroom…or should I?

So, let’s start there.  No, I really wouldn’t count it that way, although I would market it that way.  If I was counting it for the purchase purposes, that’s one thing.  If I’m counting it for marketing purposes, that’s quite another.

“They currently owe $108,000,” you say, “On this property.  A monthly payment of $1,260.  PITI principle interest in taxes and insurance.  Fifteen years fixed at 4.87%.”

Oh my goodness.  Four and seven eighths percent is what that means and that’s an incredible opportunity right there.

“The house was purchased in 1994 and quick claimed to the current owner in 2004 with a mortgage of $132,000.  There is a renter there, that is paying $1,200 per month with one year left.  The seller expresses that they may be willing to let me take over the payment, if I could get them 50% of their equity now and 50% of their equity after we sell the house.  I will not make them an offer until I hear from you.  It might also need repairs of less than $10,000.”

First of all Frances, I’m glad to see that you’ve given me details that I need in order to structure this transaction.  This is very good news.  The challenge with a fifteen year mortgage, for all of you paying attention, is that it pays down very rapidly.  However, it also has a high payment per month.  So, it’s hard to cash flow on fifteen year pay down houses.  However, it is doable.  It really depends on how much equity there is in the house to begin with.

It sounds like this house has a really good spread on it.  It sounds like at the 163,000 he’s asking for you can work that backwards.  Now, what I would do is not take the list price that he’s asked for.  I would find what the comps are in the neighborhood for the properties for sale.  That’s going to be the true indicator of the number.  That is the top number that you put at the top of your cost to sell worksheet.

For those of you who are not experienced with that.  That’s in buying volume one and the cost to sell worksheet is also on the forms disk that has your seller presentation kit.  It’s contained inside the seller presentation kit.

So, the cost to sell worksheet is a very critical tool, and it makes it so much easier to have to work with a property.  We start with the higher number, and then we begin a long journey of deducting.  All that it is going to cost you to sell their house after you buy it.  That should make a lot of sense to the seller.  Generally, speaking…they’re very excited about doing it.

That solves your concern about having the price be what it is.  Before we start talking about equity, and who’s going to pay, and when we’re going to pay.  Let’s first get to the number.  Once you work backwards, you’re going to find that he doesn’t have nearly as much equity as he thought he did.  You’re going to get agreement all along the way on that cost to sell worksheet.

Now, the next thing I would do with the seller is go through the repairs with them.  Tell them what you found and get their agreement on it.  So, once you get agreement on the cost to sell, then it’s easy to get agreement on the renovation costs and repairs.  Then you’re going to have a final number to work with minus a profit for yourself.

Now, following that cost to sell worksheet, you’re going to find that you’re going to get to that final number.  Then I would begin your negotiations there.  I would back into it by, actually, showing them that you can take over their payments right now.  You could take over the property with the tenant in place.  You can take over all the issues that come with the property, such as all the repairs that are necessary.

However, the house needs the money.  I would get them to take as little cash as possible in order to do this deal.  That they will get their cash on the backside.  Of course, you want to structure that as a zero interest loan.  That’s going to be built into your purchase and sale agreement.

Just as a reminder to all of you on the call, this is, exactly, what we detail out step by step and lay out the plan, the offer, and everything at Millionaire Deal Maker.  Millionaire Deal Maker is coming up at the end of March…March twenty-seventh through the thirtieth.  Now, that’s an absolute cannot miss training for any of you that are in this business.  Its absolutely cannot miss, because what’s going to happen first?  You are going to get leads.  You’re going to get leads, and what are you going to do with them?  You’re going to do the best you can with what you’ve got to work with.

If you’re like me, wouldn’t you agree that you don’t know what you don’t know.  I believe that we simply have to have training from people that have already discovered things they didn’t know.  Then found a solution to it.  As many of you know, my trainings are very detailed.  We get into, exactly, how to do the offer, exactly, how to do the paperwork.  Exactly how to do the cost to sell and everything else that comes up.

The good news is we’re not going to be using a lot of case studies from my past deals; we’re going to be using your case studies from your deals that you’re bringing to class.  In fact, what you do is; actually, bring offers and leads to class, and we work them right there in class.  You’re, actually, encouraged to go ahead and make your offer while we’re there in class too.  So, that we can go ahead and get you a deal.  Everyone of our Millionaire Deal Makers, someone’s made at least $100,000 on a deal that they thought was lost.  They thought it was wasted.  So, I encourage you definitely to be there.

Now, another couple of comments about Frances’s deal.  “The seller said that under the current leasing agreement with the current tenant, the seller could break the leasing agreement with the current tenant by paying them $500.  I am not sure what kind of offer I should make them.  The seller claims that the reason for selling is, because they need some cash now.  They will not accept the offer if my offer is too low.  I am also not sure if we should budget the renovation costs to convert the garage back to the way it was before.  What do you think I should do?”

Well, first of all, if the bedroom space in the garage is usable, I would let your new buyer make that decision.  Maybe they only need four bedrooms.  Maybe I would advertise it as four-five bedrooms.  Let them determine if they want to use that space for a bedroom, an office, a studio, a place for their kid to practice their band, whatever that might be.  That might be a good thing.

Another couple of comments here just keep in mind with the payment being 1,260 PITI, and the payment from the tenant only being $1,200 per month.  Then that’s where you’re going to run into some problems.  You’ve got negative cash flow.

However, I want you to keep in mind that he said he originated the loan for 132,000, but only $108,000 is owed now.  So, that sounds like there’s been a $24,000 pay down in just four years.  That’s an average of $6,000 principle pay down or $500 per month on getting that loan taken out.  So, while you wouldn’t be making any cash flow on this, you would be making a significant investment earnings by paying down, paying down, and paying off that loan on a monthly basis.

Now, what are we going to do to accelerate that?  Well, you’re going to go back to the people that currently occupy the property and offer them the rent-to-own program and the owner finance program.  See if they’re attracted to it.  See if they can come up with some down payment money.  That down payment money would feed your negative cash flow of $60 a month until they either buy or they don’t buy.

In the meantime, you’re also getting that huge, enormous pay down on the loan.  I would try to get the seller to carry back as much as possible, paying them at a much later date.  Such as when you sell the property.  That would be my preference.  When you sell the property or ten years, whichever comes sooner.  That way they can get some equity.

You may have to pay them some cash today to take care of their needs.  That’s another thing that’s important, in another MDM conversation, is what do they need the money for?  What are they going to use it for?  Then we go deeper.

If they say they need a car for example, then you go find the car and negotiate the price.  Then once you provide people with what they need, it’s not so much about the money as it is about what they need.  I’ve negotiated hospital bills.  I’ve negotiated prior mortgages.  I’ve negotiated IRS liens.  I’ve negotiated other liens.  I’ve negotiated even dental care and dental costs for my seller to get them to accept less.  So, whatever they need, we’re going to go negotiate it for them.  Isn’t that a great one?  So, let’s all attend MDM and let’s do lots of those.

Now Daniel and Debbie Miller, they’re also platinum’s in our Platinum Mastermind Program, they have a question for a CPA.  “In 2007, we borrowed money from my aunt via her HELOC.  That’s home equity line of credit for our real estate investing business.  To recompense her for the use of the available funds interest, we paid her property taxes in the amount of $1,984.66.  Would we report what we paid to her as interest paid?  Miscellaneous income for her?  What is the correct way to structure the payment for tax purposes?”

Well, first of all, it’s the total amount you borrowed from your aunt.  The total amount borrowed by your aunt from the HELOC.  I suppose would be the amount that you borrowed from the aunt.  Then her total payment of interest on the HELOC as provided that she’s not using any part of that HELOC for any other purpose.

Now, if she is, then you’ll need to deduct that and figure up the amount between she…and the HELOC.  Then the difference of the dollars, on the interest on the HELOC, are greater than or less than on the other amount that’s been borrowed, versus what you’re amount is due.  Now once you finally arrive at that number that would be the 1098 to her.

Essentially, it’s this way.  Let’s say that you owe her, let’s say that you borrowed $20,000 from her.  That was at say 6% interest.  Well, you would, actually, owe her interest accruing on that $20,000.  Let’s say that she’s borrowed it at $20,000 at 6%.  So, she’s giving you the same deal and there’s no other costs.

Well, with the payments, and it sounds like she’s not been asking you to make any payments on that HELOC.  Then it sounds like the interest has been accruing.  So, that payment of $1,984 is only a partial payment towards what’s really owed.  That 1,984 is, actually, the amount that she has received in interest income for 2007.  So, you’d need to do a 1098 from her to you and she would report the income on her schedule D, 1,984.66.

She also gets a write-off on the HELOC.  She gets a write-off of whatever that money costs her.  So, if she’s marking that money up in any way, or if this amount is, actually, more than the interest that she paid, then she only owes taxes on the difference between the interest she’s paid and the interest that you paid her.  The difference on that.

Now, a 1098 form is available to you in volume six which is your borrowing system.  By the way, everyone on the call, if you don’t have the borrowing system, it’s really designed to take you through all the different aspects of borrowing money.  Whether it be private money financing.  Whether it be financing from a bank in a traditional way.  Whether it be private money from an individual, or private money from a private money pro institutional financing, all that sort of thing.  As long, along with seller financing, as well.

So, be sure and get volume six, I think it’s available at 7.99.  That includes a forms disk and calculators.  The calculators are all kinds of myriads of ways that you can input data including lining up four different loans side by side.  It tells you what the best loan is based on your tax bracket and so on.  Its really neat stuff.  If you don’t have that, you absolutely need to get it.

Now, another Platinum Mastermind, Joe Showji, has asked, “We’re considering doing a lease option with a person who has just filed chapter seven bankruptcy this month.  She has 19 pages of bad debt.  I’ve never seen anything like this before.  Somehow she has $5,000 put down for a lease option and has two jobs.  My question is what should we be aware of?”

Well, first of all Joe, you should be aware that she’s a mess.  That you want to definitely confirm those jobs.  Definitely confirm how long she’s been with those jobs, and that she is going to have sufficient income to be able to pay your debt.  You say that she has been chapter seven bankruptcy.  So, that’s just fine, because she’s going to wipe out an awful lot, if not all, of that debt that she owes with on the 19 pages.

That’s what a chapter seven is…it’s called a fresh start.  You’re, literally, starting over from scratch.  Unfortunately, those good lenders who gave her that money, who those good lenders who did what they said they would do.  They get totally taken advantage of in this situation, which is too bad.  It costs you, and me, and everybody else when that happens.

So, definitely be aware that this is it.  You want to be very careful to describe to her, exactly, why you’re doing this with her.  That her $5,000 is, totally, 100% at risk.  That if she doesn’t do, even on the first month, not paying her payments on time, then she will lose that $5,000.  You will evict her from the property.  You don’t put up with any nonsense.  No monkey business.  You expect her to take good care of the property and pay on time, and no further discussion.

If she becomes habitual, then you’re just going to evict her.  She won’t get her $5,000 back.  Just be really clear that she understands what a screw-up she is.  That you know it too, and you’re not going to put up with her nonsense like other people have in the past.

“Would you take her with that much down,” is your next question.

Well really, I would need to know what price of the property is, but $5,000 is pretty enticing.  I would say, “I would definitely look very, very hard.”  If your mortgage payment is $2,000 a month, then no, I wouldn’t take her.  If your mortgage payment is in the thousand dollar range, that says to me, “I’ve got, essentially, five months worth of payments in my back pocket.  That if I have any troubles with her, then I’m still going to have that cash to work with no matter what.”

So, I would, probably, give her a chance based on that and based on her agreement with no pull back.  That she, absolutely, understands what her past is and, absolutely, understands that she’s got to pay, make her payments on time.

“Can she…or does she have the ability to add us to this bankruptcy,” Joe asks.

The answer is absolutely not.  This is an agreement that was created after she filed bankruptcy.  So, therefore you’re in fine shape.

“If she can add us to the bankruptcy and decides to add us to the bankruptcy, what…can we still evict her while she’s in BK?”

Well again, anything that is created after that filing cannot be drawn into this bankruptcy.  In fact, she would have to file a new one…which she won’t be able to do.  In fact, she will be prohibited from doing so under the terms of her chapter seven settlement.  Which holds out for several years afterwards, that she can’t really have a shot at playing any more games for awhile.

“There is no signed contract at this moment you say but she wants to move in March 1.  What do you think?”

Again Joe, I would look at your payment.  Then I would make the decision from there.  Very good, congratulations, I think that sounds like a possible winner there.

Another Platinum Mastermind question from Jonathan Brian, he says, “What are the potential problems if you have an existing tenant buyer, or soon to be tenant buyer, who declares bankruptcy after they pay the option deposit and have moved into the property?  How might this affect their lease and the option contract?”

I would also like to add that I have a tenant buyer who was in bankruptcy when they become my customer last October.  They have not missed a beat.  Always on time, and they even paying an additional $100 per month, since I give dollar per dollar matching rent credits.  They are one of my best tenants as well.  I guess every case is different.”

Well, first let me comment about the bankruptcy and the bankruptcy process.  There’s chapter seven and there’s chapter thirteen.  Chapter thirteen is a work out plan; basically…that spreads payments over a period of time.  Then those court ordered payments have to be paid by the debtor out of their income over a period of time.  That goes to the court that then goes to pay the various creditors over time.

The chapter seven, as a I said earlier, is a fresh start, it is a total wipe out.  It’s, we don’t have no money and we’re not giving any either.  Except to the attorney, of course.  To keep this in perspective, when someone files afterwards, which you’re saying that if there’s potential problems.  If you have an existing tenant buyer or should be…or soon to be tenant buyer, who declares bankruptcy.  After they pay the option deposit and have moved into the property, how might this affect their lease and the option contract?

Well, I have one right now Jonathan that we’re going through.  It’s really interesting.  Basically, we have had to file in court for a lift of stay.  Right now, they have a stay on us as landlords.  We have their option fee and there’s no demand for us to pay that money back.  They understand and everyone understands that that money is lost.

What they do have against us is a little over a month of unpaid rent.  That was prior to their bankruptcy.  Now, what most bankruptcies do is they want to keep the property is they resume payment.  These people did, exactly, that.  They resumed payments for a period of time.  Then they got behind again.

We started eviction proceedings.  Then, of course, because of the existing bankruptcy, the judge did not want to go on.  So, we have to file a lift of stay with the bankruptcy court.  That allows us to move forward with our eviction.

We have already chatted with their attorney.  We’ve already chatted about the circumstances, and we’ve encouraged them to go ahead and get something handled.  We think that before the lift of stay is, actually, heard by the court, they will already be out of the property.  Will even have the right to re-rent the property.  So, that’s the only challenge you’re going to have on doing owner financing.  Or rent-to-own, or rentals in this business.

It’s called bankruptcy.  Bankruptcy is the great out for our tenants.  So, we have to be careful that we check them out thoroughly.  That they can afford the rent.  That we get as much option fee as we possibly can.  Then put them in the property.  Most landlords don’t get an option fee.  So, therefore, they’re really hung out to dry in the case of bankruptcy.

John goes on to say, “We have a very short eviction process in this neutral, somewhat landlord friendly state of Virginia.  I live by the process of collecting late fees the day after rent is due, and beginning the eviction process five days after the day the rent is due.  I stick to this and I’m a happy landlord.”  I absolutely agree with that, John.  That follows our program to the letter.

The next one is for Rodney and Tania Hatten, who are also Platinum Mastermind.  Hello Rodney and Tania.  “The MAS event was just great,” he says.  “Since then we have been thinking about equity stripping.  We live in Florida where mortgage recording fees are quite high.  If we were to equity strip, $900,000 this would cost around $5,000 in recording fees.  Would we have enough protection if we created a note and not recorded it?  Thanks for all you do.”  Rodney and Tania.

Well, Rodney you might want to check on…if there is, actually, a fee for a shorter period.  Let me give you an example, if a loan is less than 36 months in Georgia, then it has no intangibles tax.  Or you might call them doc stamps there.  There is a recording that has to happen.  That’s only the recording fee which is very inexpensive, less than $30 all together.  So, you want to look at that.  Florida may have such a situation on a mortgage.  Where the fees aren’t going to be that high.

To have the best protection, you want to record something on public record.  The way that we really look at equity stripping is this is when someone is coming after you.  They want to take all of your assets.  They’ve gotten a huge judgment, or they’re about to get a huge judgment against you.  Now, you have to reveal your assets.

If they are unencumbered, by a third party, then that creates what’s called a merger of interests.  Now I understand that you understand about equity stripping, because you learned about it at MAS.  The challenge is that, it’s your entity that would be leaning against your properties.  Even though it is a separate entity, and it has its own tax tables, and, possibly, its own tax filings, you still have to look at what might happen in the court arena.

They are going to say that this is not a prudent loan.  This loan was made for the purposes of escaping any kind of other judgment or lien coming down.  So, to be very, very safe, you must record a mortgage.  I’m just going to tell you, that’s going to be the most important way to handle this.

Now, one way you might  do this, is to put a loan on the property that has what’s called a future advances clause in it.  So, let’s say that you put a loan for say $100,000 against the property.  It had this future advances clause of up to 900,000.  Well, that is recorded, perhaps, and you’ll have to check this out, at the $100,000 level.  The future advance clause is where you can, actually, expand it out.  It’s already a lien against that property.  A lien against those trusts I take it that hold title to the property.  That’s one way of doing it.

Another way of doing it is what’s called a collateral assignment of beneficial interest in trust.  You collaterally assign the beneficial interest of each trust to that other company, the equity stripping company.  Now, that collateral assignment can be recorded.  Or, at least, an affidavit of a collateral assignment can be recorded.  That may take the place of the actual cost of recording a mortgage.

Take a look at that.  That’s in your volume four of your land trusts.  Let’s see if that might not do the trick for you.

Got a question from Annette.  “Does the state have to be notified when you change your trustee?”

The answer is does the state have to be notified, no.  On public record, it does say that that person is the trustee.  So, when you go to sell that property, the title insurance company, or the attorney who’s closing the transaction, is going to say, “Well, wait a minute, we want to see Joe Blow over here.  It says on public record they’re the trustee.”

You’ll want to point out that on your affidavit of land trust it has a successor trustee on the bottom of page two.  That affidavit is your exhibit A to your deed when you receive the properties.  So, if you do my system the way I teach you, then  you, actually, take title to the property in trust and you have the affidavit as a, an exhibit to that.

Now, once they review that, and see the trustee’s name.  If that, indeed, is who is now the trustee, then you won’t have any problem.  If they are not the trustee, now you’ve got a problem.  So, what are you going to do?  You’re going to, essentially, have that old trustee, deed it to the same trust, using a trustee’s deed, to a new trustee.  The trustee’s deed is in your volume four land trusts.  It will…it’s self explanatory about what to do.

Basically, that should solve the problem of the state being notified.  Or your title insurance company, more importantly, being notified of how that properties going to be able to transfer.

You go on to say, “Additionally, does the state have to be notified when you change the trusts address?”

The answer is no.  There’s really no provision for notifying anything on public record, except for property taxes.  When you change where your tax bill is to be sent that would change.  So, you should have a, you should have an office that’s about…oh six inches by twenty inches long.  Six inches wide by twenty inches long, and that’s at your local UPS store, or FedEx store, wherever that has a private mailbox facility.  That private mailbox facility is, exactly, where you’re going to be having your office.

So, that it doesn’t have to change from place, to place, to place.  That’s where you can have your information sent to.  You won’t have to notify anybody.  If you do change that address, then you’ll have to notify the tax office.  So, you can keep up with your property tax bills.

Wow, we’ve covered so much ground today.  Now, Just as a reminder, Millionaire Deal Maker is coming up the end of the month…March twenty-seventh through the thirtieth.  You heard me mention Massive-Passive Income that’s coming up June seventh through the tenth.

If you’re coming to either one of those, go ahead and call the office at 1(800)-578-8580.  Talk to them about a payment plan.  Let’s make sure that we get you to both of those events, because they’re very critical.  They are very critical to your future.

If you haven’t been to MJS yet, Millionaire Jump Start, that’s coming up in Dallas, Texas, April nineteenth through the twentieth.  That’s a Saturday and Sunday.  Your training is, absolutely, essential to your future.  You cannot do this alone.

Oh, let me take that back, you can do this alone.  It’s just going to cost you more and take you longer.  Which would you rather do?  If you want to get on board and take advantage of my thirty years of being in this business, that’s exactly what I recommend you do.  Definitely get on board with the training.  Don’t hesitate if you’ve been before, to come again.  We offer very low, only $500, repeater fee for you to be able to come again.  Every single one of these trainings is different each time.

So, you can pick up new information, new ways to look at things.  Just keep in mind, that you are a new person every time you come.  So, as that new person, you are going to hear things and see things differently, and things that you never even thought you heard before.  Or you thought you never heard before you, actually, will hear in this training.

Also, as a reminder, you are a member of our group Q and A program.  Which if your time is about to expire, definitely call into the office and get that renewed.  I don’t think you would hesitate to say that the time and money that you’ve spent on this training is, absolutely, essential.  I don’t know where you can get an hours worth of training like this, with direct Q and A, without all the folderol of people just chatting and saying things that don’t make sense. 

We’re, actually, taking real questions, giving real answers.  So, you can really get it and take advantage of it.  Please tell your friends about it as well.  Get them involved in our program.  Refer them on to us at 1(800)-578-8580.  Hey, if you do, I’ve got twelve calls recorded from last year.  If you’d like to get those, refer a friend to us and we’ll give you those twelve pre-recorded calls.  That’s another twelve hours of this group Q and A.  That’s a little special that we’re doing this month.

So, just call in or e-mail in, and let us know what we can do to help you advance your career.  Also, we have other levels of our coaching program.  Our direct Q and A allows you to fax or e-mail your questions in any time during the month and get an answer to those.  As well as your one-on-one

Q and A with me, where we steer your business on a monthly basis.  We, actually, look at what’s happened over the last month, and steer your business towards your goal on an ongoing basis.  Rather than you making it up as you go.

Then finally, it is our Platinum Mastermind Program, where we have two levels and that is the Apprentice program, and the Pinnacle program.  At the apprentice level, those are those of you, who are just getting started or feel you’re best suited to be in the apprentice level.

The platinum pinnacle level is for those who are building a business in the real estate business.  Want to have offices, want to have staff, and want to go to a whole other level.  That’s what we allow for you at the pinnacle level.

So, whichever level you are at, go to the next one as soon as you possibly can.  The next level includes all the ones below it.  That’s exactly how we want to support you.  As quick as possible we want to get you into the platinum program, because that’s where we can give you the most support of our program, and the most support of your business to get you there faster and safer.  That’s my goal.  Get you there faster and safer with integrity.  So, you can sleep at night.  Have enough cash and cash flow to enjoy life.

It was so wonderful having platinum’s, Jim Williams and Karen Rittenhouse on the cruise that we were just at.  They had a beautiful stateroom, and it’s their real estate that has allowed them to do that.  We just encourage you to enjoy life and take advantage of all the wonderful things that’s available to you.

After all, isn’t that why you’re doing this?  It’s to get your dreams, your visions, your hopes, your desires, for yourself and your family.  That’s, exactly, where we want to take you.  I’m, absolutely, impressed at how Street Smart you are by getting involved in our program.  I encourage you to stay involved and connected as much as you possibly can.  So, that we can guide you there quicker and safer.  I look forward to seeing you again in two weeks with all good hopes.  Good luck, good health, good profits, and may God bless.  Good day.