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  1. 1. REI Wealth Magazine Issue 01 / Sept 12 Creative Real Estate Financing and Acquisition 101 by Matt Theriault - Host of the Epic Real Estate Investing Podcast How to Use Bandit Signs to Get Leads for Your Real Estate Business Lease Options Transferring Real Estate Into Your LLC VIDEO:Why Mobile Home Investing Works
  2. 2. REI Wealth Magazine EARNINGS DISCLAIMER The information presented in this Magazine is intended to be for your educational and entertainment purposes only. We make no claims as to any income you may earn. We are not presenting you with an opportunity to get rich. Third party information, products and services are included in this magazine. We make no representation or warranties regarding the performance, effectiveness, accuracy, applicability or completeness of any of the information, products or services, in this magazine, including that from third parties, There are unknown risks in any endeavor that are not suitable for everyone. Before proceeding with any of the information in this magazine, please use caution and seek the advice of a competent attorney, ac- countant, tax advisor or other professional, as applicable. Where income figures are mentioned (if any), those income figures are anecdotal information passed on to us concerning the results achieved by the individual sharing the information. We have performed no independent verification of the statements made by those individuals. Please do not assume that you will make those same income figures. Please do not construe any statement or testimonial of individuals in this magazine as a claim or repre- sentation of average earnings. There are NO average earnings. We cannot, do not, and will not make any claims as to earnings, average, or otherwise. Please understand that past performance is not an indica- tion of possible future results. Success in any endeavor is based on many factors individual to you. We do not know your educational background, your skills, your desire, your prior experience or expertise, or the time and resources you can and will devote to the endeavor. Please perform your own due diligence before embarking on any course of action. Follow the advice of your personal qualified advisors. You agree that our company is not liable for any success or failure di- rectly related to the purchase or use of information, products, or services in this magazine. There is no guarantee that you will earn any money or achieve any results at all from the ideas, products or services presented in our magazine. Examples in our materials are not to be interpreted as a promise or guarantee of earnings. Many factors will be important in determining your actual results and no guarantees are made that you will achieve results similar to ours or anybody else’s. You agree that we will not share in your success, nor will we be responsible for your failure or for your ac- tions in any endeavor you may undertake. Materials in our magazine or website may contain information based upon forward-looking statements within the meaning of the securities litigation reform act of 1995. Forward-looking statements give our expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning in connection with a description of potential earnings or financial performance. Any and all forward looking statements in our materials are intended to express our opinion of earnings potential and should not be relied upon as fact. Copyright © 2012 by Net Planet Media, LLC ALL RIGHTS RESERVED. This magazine contains material protected under International and Federal Copyright Laws and Treaties. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher.
  3. 3. How To Use This App Tap and hold screen to show the top bar Swipe horizontally to move between pages Tap and Hold screen to show the bottom bar Tap “HOME” to return to the App home page Swipe horizontally to quickly navigate between pages Tap a page to view
  4. 4. 4 Editor’s Note Welcome to REI Wealth Mag! NOTE FROM THE EDITOR Noland Araracap We are pleased to bring you the inaugural edition of this new digi- tal magazine. The power of Apple Newsstand allows us to provide a beautiful magazine full of great articles, vid- eos and interactive elements for viewing on Apple’s media rich de- vice - the iPad. REI Wealth Mag brings you the latest real estate investing strat- egies, techniques and tips. We feature some of the very best real estate investors, attorneys, ac- countants, and other experts, to provide you valuable information on every aspect of real estate investing. Our goal is to provide the highest quality and most relevant content applicable in today’s environment, delivered by individuals with high integrity and ethics. We will strive to make every edition better than the one before. Please provide us feedback on which articles you enjoyed most and what you would like to see covered in future editions. Just send us an email at: Best wishes on your success! Noland Araracap P.S. Please help us spread the word to other entrepreneurs interested in real estate investing by sharing our magazine with a quick Face- book post or Twitter tweet. Real Estate Investing Wealth Magazine (REI Wealth Mag) Editor: Noland Araracap Contributors to This Issue Kaaren Hall Matt Theriault Lex Levinrad Clint Coons Wendy Patton Carey Buck John Fedro Frank Gallinelli Bill Walston Sharon Vornholt Jason Grote Michael Zuber Published By Net Planet Media, LLC Design & Layout Lise-Mari Coetzee BECOME A CONTRIBUTOR REI Wealth Mag features the latest strategies in real estate investing and important related topics. We are always looking for contributors interested in sharing great articles, videos or other content beneficial to our readers. If you would like to be considered, please email us at: Or Visit our Website: Copyright © 2012 Net Planet Media, LLC All Rights Reserved
  5. 5. 5 29 VIDEO: Why Mobile Home Investing Works! by John Fedro 30 5 MISTAKES Every Real Estate Investor Should Avoid by Frank Gallinelli 38 ARE YOU STILL STRUGGLING To Close Your First Deal? by Sharon Vornholt 44 DO YOU HAVE MORE MONEY Than Time by Michael Zuber 35 DEDUCT YOUR VACATION What The IRS Doesn’t Want You To Know About Your Next Vacation by Bill Walston 41 PROFESSIONAL HOME BUYERS: Back to the Heart by Jason Grote FROM THE DESK OF... 06 a Self-Directed IRA Expert by Karen Hall HOW TO USE BANDIT SIGNS 14 to Get Leads For Your Real Estate Business by Lex Levinrad LEASE OPTIONS: 22 Little or No Money Down Techniques by Wendy Patton CREATIVE REAL ESTATE 09 Financing and Acquisition 101 by Matt Theriault TRANSFERRING 19 Real Estate Into Your LLC by Clint Coons MAKE MONEY 26 While You Sleep Without Tenants And Toilets by Carey Buck Table Of Contents Select A Title Below To View The Article
  6. 6. 6 FROM THE DESK OF A SELF-DIRECTED IRA EXPERT Kaaren Hall From the Desk of a Self-Directed IRA Expert By Kaaren Hall N ot a day goes by when there is not some interesting investment idea that crosses my desk. Investors are creative people, always thinking up ways to make deals work. Often times these excellent ideas run into a brick wall when it comes to using an IRA. There is usually a way around the wall however and we’ll cover that, too. For example, recently a gentleman (we’ll call him Bill) called our office and he was making an offer on a property. Bill had not yet opened a self-directed IRA so I let him know that the first step is to have his SDI- RA opened and funded so he could proceed without delays. When someone gives us an application to open an ac- count we get that account
  7. 7. 7 FROM THE DESK OF A SELF-DIRECTED IRA EXPERT Kaaren Hall opened usually on the same day. Typically it takes about two weeks for another custodian to move funds into the new self-directed IRA whether it’s from another IRA or from a previous employer plan like a 401(k) or a 403(b). Bill gave me another call a week later and he revealed his full plan. He had found a great deal on a 4-plex and was thinking of buying it with his IRA. First I explained again that the name of the buyer was “Custodian FBO IRA-Owner”. I also explained that Bill did not sign the offer to purchase himself, but rather he was to give that informa- tion to us and we would have the contract signed and returned. He wanted to know why he could not sign the offer to purchase himself so I explained the custodian signs purchase documents on behalf of the IRA. The IRA-owner can sign as “read & approved”. Next came the issue of leverage. Bill wanted to use his IRA as a down-payment on the property. I ex- plained that IRAs are not down-payments (unless the IRA itself is getting a non-recourse loan). Typical lenders do not allow IRAs to be a party to the note because there is no recourse against an IRA. It is possible, however, to have the IRA itself borrow the funds. There are non-recourse lenders out there who make loans to IRAs. The loans are based on location, condition and cash-flow. Sometimes lenders ac- tually want to see a rental agreement signed before they’ll close on a loan like this. These kinds of non- recourse loans are like commercial loans and they have high LTV requirements. The IRA may put 50% into the deal, for example. I provided Bill with a list of non-recourse lenders. When IRAs do borrow money with non-recourse loans, the IRAs can be taxed. The tax is called UDFI (Unrelated Debt Financed Income Tax). Any property held to produce income is “debt- financed property” if at any time during the tax year there was acquisition indebtedness out- standing for the property. This UDFI tax is at the same rate as the estate tax rate (currently 35%). You can read more about this tax at www.IRS. gov Pub 598. Your CPA reports this on a Form 990t. So now we had cleared up the issues of “buyer name” and the use of leverage. At this point in the conversation Bill tells me it was his intention to purchase the four-plex and have his son live in the property. This brought up the issue of “prohibited transactions” which usually involve “disqualified people”. Disqualified persons in- clude your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant). So, it would be a prohibited transaction for his son to have use of the property owned by his IRA. If you put yourself in Bill’s shoes, you can see it was an excellent idea to use IRA funds to buy a
  8. 8. 8 About the Author Kaaren has helped hundreds of people self-direct their retirement savings. A native of California, she has a 16-year background in Real Estate, Property Management and Mortgage Lending. She has worked at such companies as Bank of America, Centex Homes, Pulte Homes and Indymac Bank. She’s held a real estate license in Washington, Texas and California and a Life & Health license in California. Her company, uDirect IRA Services, LLC, offers self-directed education and services to investors, providing excellent customer service. Kaaren is a public speaker and master networker. A mother of two, she lives in Orange County. If you have a question about how to use your IRA to self-directed you can contact us here at info@uDirec- or at 714.460.5505. Our website address is FROM THE DESK OF A SELF-DIRECTED IRA EXPERT Kaaren Hall 4-plex and have his son live there. The IRS would disagree so we had to find some work-arounds. Bill opened his self-directed IRA and had the funds transferred into it. Then he made an offer on the 4-plex in the name of the IRA. The custodian signed the offer, sent it off to escrow. The earnest money deposit was disbursed from Bill’s IRA. Rather than use borrowed funds, Bill partnered with another real estate investor (thereby avoiding the UDFI tax). His IRA closed on the property and tenants moved in. His son still could not be a tenant but the investment was made and began to cash-flow right away. I do a lot of public speaking to explain how self-directed IRAs work. So many people feel their retirement funds could be invested somewhere besides the stock market and for over 35 years you’ve been able to invest your IRA into anything except life insurance contracts and collectibles.
  9. 9. 9 CREATIVE REAL ESTATE FINANCING Matt Theriault Creative Real Estate Financing and Acquisition 101 By Matt Theriault C reative real estate financing consists of just about any method of financing the purchase of real estate of which doesn’t involve a tra- ditional bank or an “all cash” transaction. The more credit and money you have to invest, the less creative you’ll have to be in building your real estate portfolio. Nonetheless, even the investor with the most pristine credit score will hit a limit to qualifying for bank financ- ing, and using “all cash” to build your portfolio isn’t typi- cally the wisest use of your cash if another option is available, but in the end… it all depends. interest of your “return on investment” (ROI) to arm yourself with some creative real estate financing and acquisition education. I cover 12 different creative strat- egies in a detailed step-by-step format in the EpicProAcademy, but let’s begin with some basic creative real estate investing education. So, we’ll begin by assuming that you want to invest in real estate with little to no money. However, you should not restrict yourself to any one strategy in any one situation. There are many variables constantly at play in real estate investing as every situation is unique, as well is every Seller. The list below is to be used merely as a reference tool to assist you in your thinking through possible solutions to Seller’s needs. “you should not restrict yourself to any one strategy in any one situation”
  10. 10. 10 CREATIVE REAL ESTATE FINANCING Matt Theriault Creative Real Estate Financing and Acquisition Strategy #1 Equity Sharing • A/K/A: Joint Venture, Partnership, Membership, Syndication, Shareholding, among other terms. • Often Appropriate When: You have friends, family or organizations with capital available for in- vesting in real estate and they don’t particularly want to dirty their hands with rehabbing or leasing. • When to Avoid: Avoid Equity Sharing with the Seller when dealing with the Seller’s personal resi- dence. If you must share equity with the Seller in this situation, word it in your agreement as de- ferred interest as opposed to equity. Creative Real Estate Financing and Acquisition Strategy #2 Option • Often Appropriate When: You may not want to take title to the property to avoid liability. For ex- ample, the market has fallen and you anticipate it to come back in the near future. Maybe you an- ticipate a zoning change or change in use. Perhaps there’s good value in the property but negative legal issues attached to it. Or, maybe you anticipate some environmental issues with the property. • When to Avoid: Avoid spending a large amount of money for the option premium since it’s almost always non-refundable. Creative Real Estate Financing and Acquisition Strategy #3 Option with a Lease • A/K/A: Lease Option, Rent-to-Own • Often Appropriate When: Seller is motivated to act quickly. Seller wants to maintain the tax ad- vantages that accompany the property. Seller wants to keep the property in his/her asset column. • When to Avoid: Avoid combining the Option and Lease into one Agreement. Avoid leasing back to the original “owner occupant” Seller. Creative Real Estate Financing and Acquisition Strategy #4 Subject-To • A/K/A: Buying Subject to Existing Financing, among other terms. • Often Appropriate When: Seller must sell fast. Seller trusts you (and you are worthy of that trust). You have too many mortgage loans and you can get another. Seller has difficulty selling traditionally. Seller is in arrears on mortgage payments. Property is in disrepair. Property is “investment” property. • When to Avoid: Avoid selling or leasing back to the “owner oc- cupant” Seller. Avoid this if there is a balloon payment or an interest rate adjustment coming soon. Avoid if the existing mortgage puts you, the Buyer, in an upside down cash flow or equity situation. Avoid if the lender strongly objects.
  11. 11. 11 CREATIVE REAL ESTATE FINANCING Matt Theriault Creative Real Estate Financing and Acquisition Strategy #5 Agreement for Deed • A/K/A: Land Contract, Contract for Deed, Buying on Contract, Installment Sale, Seller Financed, among other terms. • Often Appropriate When: Seller is concerned about “due on sale” clause. Seller wants a specific market value price and will concede to below market interest. Seller is selling “investment” property. Seller is stable. • When to Avoid: Avoid if the Seller is in extreme financial trouble (i.e. facing bankruptcy or divorce). Creative Real Estate Financing and Acquisition Strategy #6 Seller Carry-Back Mortgage • A/K/A: Private Mortgage, Seller Financed, Seller Carry Back Trust Deed, among other terms. • Often Appropriate When: Seller wants a specific market value price and will concede to below market interest. Seller has no better investment options and likes the idea of a fixed rate of return over a long period of time. • When to Avoid: Avoid unless the Seller provides a title insurance policy clearing all items to which you, the buyer, object. Creative Real Estate Financing and Acquisition Strategy #7 Wrap Around Mortgage • A/K/A: Wrap, All Inclusive Wrap Around Mortgage, All Inclusive Wrap Around Trust Deed, AITD, Seller Carry- Back Wrap, among other terms. • Often Appropriate When: Seller has much equity and a low balance existing loan compared with the property value. The interest rate on the Seller’s loan is low. The existing loan has a lot of seasoning (the loan is many years old). Seller has no better investment op- tions and likes the idea of a fixed rate of return over time. • When to Avoid: Avoid this if there is a balloon pay- ment or an interest rate adjustment coming soon. Creative Real Estate Financing and Acquisition Strategy #8 IRA Investing • A/K/A: Self-Directed Retirement Account Investing, HSA Investing, Self-Directed 401K Investing, among other terms. • Often Appropriate When: Seller will discount the price deeply for cash. Property needs a lot of repairs.
  12. 12. 12 CREATIVE REAL ESTATE FINANCING Matt Theriault Property has potentially great cash flow. Seller is willing to do any of the above strategies non- recourse. • When to Avoid: Avoid anything high risk or that will cash flow negatively. Creative Real Estate Financing and Acquisition Strategy #9 Private Money Loan • A/K/A: Private Money, Hard Money Loan, Private Mortgage, Private Trust Deed, among other terms. • Often Appropriate When: Seller will discount the price deeply for cash. Property needs a lot of repairs. You have friends, family or organizations with capital available for investing in real estate and they don’t particularly want to dirty their hands with rehabbing or leasing. • When to Avoid: Avoid hard money situations wherein the entire profit margin goes to the Lender. Above are 9 basic creative real estate financing and acquisition strategies. There are more, but anything else is essentially a variation of the strategies above. Contrary to popular belief, when it comes to investing in real estate, it’s not going to be your credit score or bank account balance that presents your biggest obstacle, it will be your creativity. About the Author Matt Theriault has worked as a full-time real estate professional since 2003 and is host of the popular iTunes Podcast, “Epic Real Estate Investing”. Matt shares his insight, investing system and gives back through his free real estate investing course and the Epic Pro Coaching. Download Matt’s Free Real Estate Investing Course at
  13. 13. 13 CREATIVE REAL ESTATE FINANCING Matt Theriault Seller Financing and Lease Option I this video Matt Theriault uses several of the Creative Real Estate Financing techniques described in the previous article, including Lease Options, Seller Carry Back Mortgage, and Private Money Loan. Video Placeholder Internet Connection Required
  14. 14. 14 How to Use Bandit Signs to Get Leads for Your Real Estate Business By Lex Levinrad One of the most effective ways of driving more leads for your real estate business is to use yard signs, commonly known as “bandit signs” in the real estate industry. Allrealestateinvestors,regardlessofwhethertheyarerehabbers,whole- salers or landlords are looking for a great wholesale real estate deal at a bargain below market price. The investor that gets the deal first is the ulti- matewinner.Ifyouareawholesaler,thenyoucanmarketthedealtoother investors for a profit. If you are a rehabber or landlord, then you can get a great deal without having to pay a markup to the wholesaler that found the deal. So clearly, getting the deal first is what is most im- portant to you and is where utilizing ban- dit signs can really separate you from your competitors. “The investor that gets the deal first is the ultimate winner.” HOW TO USE BANDIT SIGNS TO GET LEADS Lex Levinrad
  15. 15. 15 HOW TO USE BANDIT SIGNS TO GET LEADS Lex Levinrad You can utilize bandit signs in many different ways. One effective method is to use preprinted signs that have a message specifically for individuals that are facing foreclosure, or are in some kind of financial dis- tress. These individuals are known as distressed or desperate sellers and this is who you are targeting when you use bandit signs. Your sign could say something like this: STOP FORECLOSURE TODAY WE CAN BUY YOUR HOUSE FAST WE PAY CASH FOR YOUR HOUSE CALL 561-123-4567 RIGHT NOW! The above sign is very effective at targeting sellers in a specific neighborhood area or target market that you focus on. Strategically placing bandit signs will lead to distressed sellers calling you. At that point, meet with the seller to see if you can put a deal together that makes sense for both of you. Before you start putting out signs, consider which neighborhood you want to target, and also what you will say to the seller once they call. I recommend that the bandit sign be preprinted with a generic message like the one above, with black writing on a yellow bandit sign. I also rec- ommend that you use an 18×24 bandit sign. Us- ing a smaller sign would be too difficult for most people to read from a passing car. You should not use the “H wire” metal stakes that the sign company offers. These stakes can cost as much as the signs do, which means your order will cost twice as much. Also, I don’t like using “H wire stakes” because they are heavy, which increases your shipping cost. I recommend using a sign stapler, like an Arrow Hammer Stapler, to attach your bandit signs to wooden telephone poles. This can be purchased at Home Depot. Make sure to put the sign up on telephone poles at about the same height as the roof of a car, so it will be visible above the cars when they are stopped at a traffic light. Put signs at major intersections in your target mar- ket. Place your sign on the right hand side of the road where traffic stops, so drivers can see it while waiting for the light to change. Placing your sign between traffic lights is much less effective, since cars will be speeding by and are less likely to notice your sign. Do not put your website on the sign. People that are driving by are more like- ly to dial a phone number than to write down a website. Many cities have laws that prohibit marketing using bandit signs. Generally, the more upscale the neighborhood, the more likely the city code
  16. 16. 16 HOW TO USE BANDIT SIGNS TO GET LEADS Lex Levinrad enforcement will have laws prohibiting the use of bandit signs, and the more likely they will remove them. Check with your local city. Even if they do have laws against it, some cities are more tolerant than others. I have bandit signs that have been up for 2 years in some cities with- out a phone call or complaint. Other cities will call you within 30 minutes of putting a sign out and threaten you with a fine if you ever put out a bandit sign again. Do not antagonize them. Move on to a more bandit sign friendly city. The easiest way to gauge your city and their poli- cy towards bandit signs is to see how many other yard signs are out there and how long they stay out before being taken down. If the city or code enforcement calls and asks you to re- move your signs, do so immediately to avoid upsetting them any further. Some wholesalers place their signs out on Friday evening at 5 p.m. and collect them on Monday morning at 8 a.m. In many cities, code enforcement does not work weekends, so this can be an effective way of saving your signs from the junk pile heap and staying out of trouble. But, keep in mind that you might be violat- ing city laws. See what others are doing and know the laws in your city before you start a bandit sign campaign. Also, never put a bandit sign on private property. If you put out bandit signs you will get calls from desper- ate sellers and some of these calls will turn into deals. Purchasing 100 bandit signs (18 x 24) will cost you about $200 or $2 per sign. You can put the signs out yourself or pay someone to do it for you. I recommend you spend your time talking to buyers and sellers, and pay someone else to put out your bandit signs. You will make a lot more money that way. Putting out 100 signs should get you at least one deal, if not 3 or 4. If you make $10,000 or $20,000 flip- ping one of these houses, the $200 for bandit signs, will be the best marketing dollars you ever spent. In South Florida the going rate for paying someone to put the signs out for you is $1 per sign. If you do pay someone, make sure they take a photo and write down the location of each sign. That way you can spot check to make sure they are really putting your signs out. When sellers call, ask them how they heard about you and verify if the call is because of your bandit sign. Also, find out where they saw your bandit sign, to determine which areas work best for your signs. I find that major roads leading to freeway access ramps or exit ramps get the most calls. “spend your time talking to buyers and sellers, and pay someone else to put out your bandit signs”
  17. 17. 17 HOW TO USE BANDIT SIGNS TO GET LEADS Lex Levinrad Using bandit signs is one of the most cost effec- tive marketing methods to get distressed seller leads on a continuous basis. However, it is not the only method. Other ways include traditional classified ads, display ads, radio ads, local tel- evision stations, social networking and internet marketing. I can guarantee that when you flip your first house for $5,000 or $10,000 using a bandit sign campaign, the next time you order bandit signs you won’t be ordering only 100 signs. Try it for yourself and see how it works. Just make sure you know how to put a deal to- gether and know what to say when they call! If you market to distressed sellers, eventually you are going to have a property to sell. One of the best ways to build your buyers list is by placing bandit signs around properties you have currently listed for sale. A bandit sign alerts peo- ple in the neighborhood about the property and the great deal that you have for them. The more properties you have for sale, the more buyers will call you and the quicker you will build your buyers list. For building your buyers list I suggest using blank yellow 18 x 24 bandit signs that are handwrit- ten and not preprinted. For some reason, hand written signs get a much better response rate. Make sure your sign says something like this: CHEAP HANDYMAN SPECIAL 4 BED 2 BATH ONLY $49,000 MUST SELL NOW CASH ONLY! CALL 561-123-4567 RIGHT NOW The price on your bandit sign should be $10,000 less than the cheapest houses in that city. The price needs to be a real bargain so a cash investor will be curious and call the number to find out about the property. Do not put the address of the property on the sign. If you do, they’ll go straight to the property and won’t call you. You will be surprised at how many calls you get. Find out how they heard about you and verify whether they saw a bandit sign. Also, verify the location of the sign, so that you can track your marketing efforts. Make sure you
  18. 18. 18 get the caller’s name, telephone number and email address. Try to find out as much as you can about the type of house they are looking for, how much cash they have, etc. In addition to putting up bandit signs in the same neighborhood as the property, put up signs in the more affluent neighborhoods surrounding the property. This is where the cash buyers live. If you are a realtor, you will need to mention this somewhere in your bandit sign, and you might need to disclose the address to be in compliance with your local real estate regulations. HOW TO USE BANDIT SIGNS TO GET LEADS Lex Levinrad About the Author Lex Levinrad is a South Florida real estate investor that has been wholesaling, buying, fixing and flipping homes for the past 10 years. He has written 7 books about investing in real estate, and is a nationally re- nowned real estate speaker and coach. Lex’s Website:
  19. 19. 19 I t is not uncommon for me to receive a weekly email from a real estate investor vexed with the problem of transferring en- cumbered real estate into a LLC. Many of these troubled souls have sought provi- dence from their local attorney, CPA, or banker only to find their hopes of protec- tion doused like a spark without the tinder to give it life. The problem for investors is in not knowing that information can be pretty thin stuff unless mixed with experience. A JD, ESQ., CPA, or other pro- fessional designation following a surname does not necessarily translate into omnipotence. For those wayward investors adrift in their concern for the unknown and know liabilities associated with in- vesting, staying afloat begins with the use of a land trust. Transferring Real Estate into Your LLC By Clint Coons TRANSFERRING REAL ESTATE INTO YOUR LLC Clint Coons
  20. 20. 20 TRANSFERRING REAL ESTATE INTO YOUR LLC Clint Coons Contrary to the multiple internet gurus or guest REIA speakers that sing the vestibule of virtues offered by this rudimentary of legal tools, the land trust is simply and nothing more than a title holding vehicle. But, it is from its simplicity of design that real estate investors can successfully transfer title to encumbered real estate without alerting banks or other curious souls to your personal dealings. To move real estate from your personal name into your LLC for asset protection you begin by creating a land trust. The land trust should name you or someone you trust as the trustee with the current titlehold- ers of the real estate as the beneficiary. It is important to note that you should not have unanimity of trus- tee, grantor, and beneficiary. Whenever my office drafts a land trust we will ensure that the trustee and beneficiary class differ by at least one person e.g., if John and Jane set up a land trust then I will have John serve as the trustee with John and Jane as the beneficiary. After the trust is established, John and Jane will deed their investment real etate into their land trust. This transfer should not trigger the due on sale clause that fosters so much angst and more likely than not will garnet scan notice from a inquisitive lender. Why? Thank congress. U.S. Code Title 12, Chapter 13, Section 1701j-3 limits a lender from accelerating a note when there is a transfer to an inter vivos trust in which the borrower is and remains a beneficiary… I forgot to mention, a land trust is an inter vivos trust. Once the transfer is complete, your property will be titled in the name of your trust. At this stage in your planning you are within sight of safe harbor and a few more strokes will safely see you home. To reach safety the next step in your planning requires the assignment of your beneficial interest in your land trust to the LLC you created for asset protection. This is accomplished with pen and paper and a few simple lines reciting your intent (be sure to have this assignment notarized). The assignment will escape notice by your lender because it will not become a matter of public record. The assignment remains in your possession and for the curious sole that seeks to divine the owner of said real estate shall only come upon the name of your trust and its trustee. The trust beneficiary shall remain a private matter.
  21. 21. 21 The number one problem most real estate investors face today is knowing “how to protect” not “what to protect.” Caught between attorneys, tax professionals, and self-proclaimed gurus, the average real estate investor finds himself awash in a quagmire of information and ideas with little coherency or consistency. As a result, you are left with a piecemeal plan based upon a fragmented stream of advice that seldom allows you to feel secure in your planning. Clint’s book cuts through the confusion that pervades today’s real estate inves- tor’s understanding of asset protection. It provides in-depth, easy to understand analysis of different asset protection entities as they relate to real estate investing. Don’t just take your attorney’s or CPA’s word that his strategy is effective in addressing your concerns. Get a copy of Clint’s book today and learn first hand from a nationally recognized attorney and serious real estate investor the proper way to protect your investments. Asset Protection for Real Estate Investors Just Got Easier Available Now on Amazon! or Direct at About the Author Clint Coons is a nationally recognized attorney and author who regularly teaches workshops on asset protec- tion. His latest book “Asset Protection for Real Estate Investors” is available on Amazon or his website, www. This last step is the most important in terms of asset protection. If you skip the LLC and remain the benefi- ciary of your land trust you have not insulated yourself from the dangers associated with your investment. The land trust in and of itself offers no protection. In point of fact the land trust will neatly package and de- liver any liability on the doorstep of the trust’s beneficiaries. Hence, let your LLC be the beneficiary (or your mother-in-law) rather than you individually and protect yourself from your investments and your investments from you. TRANSFERRING REAL ESTATE INTO YOUR LLC Clint Coons
  22. 22. 22 LEASE OPTIONS: LITTLE OR NO MONEY DOWN TECHNIQUES Wendy Patton By Wendy Patton L ease Options are becoming quite the buzz word lately. Years ago it was harder for me to get Realtors to even consider a Lease Option for their clients. Today, mar- kets all across the country have changed. Lease Options are currently a viable industry trend and needed for many sellers to sell their homes. What is a Lease Option? A Lease Option is a way to purchase real estate, usually with very little or no money down, some- times even with money back in the investor’s pocket. Sound too good to be true? Well, it isn’t. Can an investor end up with money in their pocket and not have to put 10-20% down to purchase real estate? Yes. This technique is used commonly today by the most successful real estate investors. The lease option strategy gives an investor the right to lease a home and also the right to purchase the home during or before the end of the lease period. An option is a contract that gives an optionee the Lease Options: Little or No Money Down Techniques An Overview for the Way to Future Financial Freedom (FX3) for the Real Estate Investor
  23. 23. 23 LEASE OPTIONS: LITTLE OR NO MONEY DOWN TECHNIQUES Wendy Patton right to exercise a privilege – and in the case of real estate investing, it gives the optionee (investor) the right to purchase property during a contracted pe- riod of time. It is a technique that involves gaining ‘control’ of a property, without the total burdens of ownership. ALL money made in real estate is made by control- ling property. Owning property is the most obvious way to control it, but control is possible without ownership – and control is what makes the money. It was a dying John D. Rockefeller who told all of us his secret to achieving great wealth, “Control everything, own nothing.” All of the most success- ful real estate developers today utilize options, in one form or another. It is important to be aware that there are some risks involved with this strategy (as with all real estate investments), but there are also ways to minimize your exposure and the rewards that can come with this technique truly out weighs the risks. Real Es- tate investing is truly the quickest and best way to build lasting wealth. Many of the world’s wealthi- est people acquire much of their wealth through investing in real estate. While lease options can build you tremendous wealth, they usually shouldn’t be considered a short-term investing strategy. I define a short-term strategy as the time that passes from the start of the transaction to completion (cashing out) be- ing less than one year. A classic example of this would be a “rehabbing project” (fixing up a home and reselling it). The other side of the spectrum would be a longer-term strategy, such as buying a rental property and renting it over many years. I consider lease options and subject to’s to be in the center of that spectrum, usually requiring one to three years for the best payoff. However, you can always immediately sell the deal to another in- dividual or investor for a profit; this is what is called in the business “wholesaling.” This can be done if you buy the property at a low enough price that you can turn a profit by selling the deal to another investor at a discounted price. Visualize this scenario: In every seminar I teach I ask the students, “Who of you would be willing to purchase a home valued at $200,000 for $100,000.” Of course all hands shoot up. Then I continue by asking if they would still be willing to purchase the same home if the price was $150,000. Most of the hands stay up. I proceed upwards with the price increasing the increments by $10,000 each time. All of the hands slowly but surely drop. At the price of $180,000 al- most all hands are down. At $190,000, usually, all hands in the room are down. The point I am trying to make to each of them is most investors are not willing to pay this close to retail price for a home (nor should they in most cases). I then re-pose the question to each of them, “How many of you would be willing to pay $200,000 for that same home 10 years from now in a market that is appreciat- ing at 10% per year with nothing down and only $1000 per month?” Now all their hands go back up. I ask, “Why, now are you willing to pay more for that house that you refused to pay $180,000 - $190,000 for a few minutes ago?” They respond in unison saying, “Because you added some at- tractive terms!” My response is always the same, “You didn’t ask the terms before!” Most investors never ask the seller for any terms. They only con- sider one term - Price! They walk away from deals before they know if terms are even possible. “Terms” are parts of an entire deal, such as price, length of time to pay, monthly payment, amount
  24. 24. 24 LEASE OPTIONS: LITTLE OR NO MONEY DOWN TECHNIQUES Wendy Patton applied to the purchase price and other negotiat- ed items with the seller. Most of the time even ex- perienced real estate investors don’t ask, “When does the seller need their price?” They say no to an entire deal before they ask the seller when the seller needs their price. The previous example il- lustrates how most investors think, they don’t ask all of the right questions about the property before they make a decision. They look at the surface but they don’t dig deeper for other possibilities. Lease options provide a creative solution that can al- low you to negotiate terms that can increase your profits and provide a great investment opportunity. Whenever you can negotiate the terms on real es- tate the value of the property goes up. Deals that were out of your reach before now might be possible – i.e. large apartment complex- es. Now you are able to pay a higher price on a home if you can get reasonable terms, and having this tool at your disposal will allow you to open up many new possibilities and make money on deals that were before completely ruled out. I am not suggesting that you pay $200,000 for a home worth $200,000, espe- cially in many markets today, but you can if cer- tain market conditions and terms previously described exist. If your market is flat (not appreci- ating) and you have only 2 years to exercise your option to buy the home, then maybe the price you offer should be much less. It’s all about terms! When doing any lease option deal it is one of my mottos that everyone must win or don’t do the deal. There are 3 people involved in a Sandwich Lease Option: the seller, you (the investor) and the tenant/buyer. It must be a win/win/win, otherwise walk away. Wendy’s Rule about Buying on Lease Option: If it isn’t a Win/Win/Win for the Seller, the Investor and Tenant/Buyer then walk away from the deal. There are plenty of the deals out there where eve- ryone can win. The above illustration depicts a “sandwich lease option.” In a sandwich the meat is in the middle. The best part of a sandwich is the meat, and you (the investor) are in the middle of the transaction. Your reward is the meat -- the difference between what you paid for the home and then what you sold it for. For example: Seller Bob lease options his home to Investor Wendy for $150,000 at $850 a month for 3 years. Investor Wendy then would lease option the home to tenant buyer Sally for $180,000 and $1000 a month and only give Sally 1 year to purchase the home. In this example, In- vestor Wendy would have $150 a month cash flow and $30,000 in profit on the difference in the price of the home (what you paid and what you sold it for). This is a simple ex- ample in lease options, because there are so many more things that can be negotiated in a deal. It is very important you only work with buyers that have an opportunity to purchase your home. I only accept applications from tenant/buyers I think could qualify later for a mortgage. I can’t determine for sure if they will, but a good mortgage lender can give me that advice. I recommend you work with a good mortgage company to make that de- termination. Wendy’s Ethics Rule Don’t commit to a lease option with potential buy- ers who have no way of ever being able to qualify for a mortgage. That is being greedy and taking advantage of someone. It is not fair to the buyer. If the buyer messes up – shame on them! If you mess them up – shame on you! “When doing any lease option deal it is one of my mottos that everyone must win or don’t do the deal.”
  25. 25. 25 LEASE OPTIONS: LITTLE OR NO MONEY DOWN TECHNIQUES Wendy Patton At this time my average profit is right around $40,000 per lease option transaction. Lease options typically turn over every 18-24 months. Depending on what part of the coun- try you reside in the profit range should vary from $25,000 – $150,000 (Midwest to Northern California). You decide how much you need to make, and then you will know how many homes you need to lease option to achieve your goal. Not only can lease options set you up to live today but they can set you up for Future Financial Freedom (FX3) and retirement. Just sit back and imag- ine…how would it feel to be completely debt free? Real Estate investing is the vehicle that can allow you to achieve just that. Don’t commit to a lease option with potential buyers who have no way of ever being able to qualify for a mortgage. About the Author Wendy began investing in real estate at the age of 21 - over 25 years ago. Today, she is a nationally and in- ternationally recognized author, speaker, trainer, and coach with a growing audience in the United Kingdom and the United States. She has taught tens of thousands of people how to invest in real estate with little or no money out of their pocket. To find out more about Lease Options and Subject Tos, you can order Wendy’s autographed book on her website: “Investing in Real Estate with Lease Options and Subject Tos” Use the coupon code FIVE to save $5.00 as my gift to you. Wendy’s Website:
  26. 26. 26 Make Money While You Sleep WITHOUT Tenants And Toilets You may be one of the many real estate investors out there that get so irritated and annoyed when your tenants stop paying you. You get tired of their excuses, tired of their lack of responsibility.... just plain old tired of them! By Carey Buck H owever, you and I know that we love these tenants overall because they make us lots of money. But, what if you had another passive income stream that could carry you through the months that your tenants didn’t pay? One that was an absolute perfect complement to your real estate business? A business that is such a perfect complement you’ll love it even more on the months your tenants DO pay! I’m referring to the ATM business. Yes, as in Automated Teller Machines. Most people don’t even know they can own an ATM machine. They think it’s just for banks. Not so. Only 40 to 50% of ATMs are actu- ally owned by banks, the rest are owned by people just like you and I. I’m going to share with you 3 simple, but powerful reasons why I feel you should consider adding an ATM business to your passive income stream arsenal. MAKE MONEY WHILE YOU SLEEP Carey Buck
  27. 27. 27 MAKE MONEY WHILE YOU SLEEP Carey Buck Reason #1 - The ATM Business Doesn’t Require A Lot Of Time The ATM business requires so little time that you could easily fit it into your daily lives. It really doesn’t matter if you have a full time job, are a part-time real estate investor, or even invest in real estate full-time. The ATM business can slide into your life perfectly. The most vital part of your ATM business is keeping it loaded up with cash. Obviously, if there is no cash in the ATM, no one can use it and if no one is using your ATM then you aren’t making any money. With this said, you can understand why the most important part of your ATM business is loading it up with cash. It takes exactly 1 minute and 10.8 seconds to load an ATM up with cash. Over time, you could probably even do quicker. 1 minute and 10.8 seconds. That’s not a lot of time. You could fill an ATM on the way to look at a house, on the way home from meeting with a motivated seller, or while you are out “driving for dollars.” Reason #2 - The Cash Flow From Your ATMs Can Equal Or Exceed The Cash Flow From Your Rental Properties You literally can make a full-time income on a part- time basis from your ATM business. It is very re- alistic and common to have your $2,000 ATM ma- chine generate enough passive, positive cash flow equaling or exceeding the passive, positive cash flow you may receive from a $50,000, $100,000 or even $150,000 rental property. My rule of thumb that I give folks is to shoot for any- where from $100 to $900+ per month in positive, passive income from your ATM machine. Each and every ATM machine. This rule of thumb applies to machines that are placed in smaller to medium sized areas. Obviously, if you are placing machines in New York City or Center City Philadelphia, then it’s very realistic to assume your cash flow will be higher than $100 to $900+ per month. Reason #3 - You Can Make Money While Your Sleep Just as your rental properties with tenants make you money while you sleep, so will your ATM ma- chines. You’ll even make money while on vaca- tion or even out looking at other rental properties to purchase! And the cool thing is; your ATM machine will never call you up and tell you it can’t pay the rent this month because its car is in the shop! (I know you’ve heard that one before, because I sure as heck have!)
  28. 28. 28 MAKE MONEY WHILE YOU SLEEP Carey Buck About the Author Carey Buck is a successful real estate investor and ATM business owner. She is also the creator of ATM Busi- ness Blueprint, which is a step-by-step, comprehensive home study course that teaches you how to start and grow a profitable ATM business. Start on your path to getting paid every time someone uses an ATM machine by getting your free ATM Business Road Map here. If people use your machine and accept your sur- charge fee then you will get paid. It’s that simple. There are no surprises come the beginning of the month. People will have access to your ATMs all of the time. Of course, the access will ultimately be determined by the types of places you are placing your ATM in. My point here is, it’s very feasible for you to have an ATM in a nightclub, casino, restaurant or business establishment, where people are using the ATM and making you money while you are sleeping, on vacation or doing something else worthwhile in your life. Making money while you sleep is one of the most awesome things about passive income! I am a big fan of multiple, passive income streams. I hope that this article opened your eyes to a new passive income stream that you hadn’t thought about before. I believe the ATM business is a per- fect complement to any real estate investing busi- ness. Each month I will be providing you with a new ar- ticle on how to start and grow a passive income stream in the ATM business.
  29. 29. 29 WHY MOBILE HOME INVESTING WORKS! John Fedro Why Mobile Home Investing Works! By John Fedro In this video, you will learn: • What types of Mobile Homes you should be targeting for investment • Why a seller is willing to sell their mobile home for much less than it’s worth • Why a buyer is willing to buy a mobile home for much more than it’s worth • How you, as the mobile home investor, can profit with years of cash flow by properly structuring the deal • Why you don’t need any of your own cash or credit • Why Mobile Home Investing Works! Video Placeholder Internet Connection Required About the Author John Fedro has been investing in real estate for over ten years. He has a passion for educating, mentoring, and partnering with real estate investors all across the country that are looking to invest in individual mobile homes for cash-flow. Manufactured home investing isn’t complicated, but it is detailed, so working directly with eager investors has been priceless for John. When not working with other investors, investing in his education, or learning what other investors are saying (via blogs/webinars), John enjoys golfing, walking his dog Gus, and indoor rock climbing. John’s Website:
  30. 30. 30 5 MISTAKES TO AVOID Frank Gallinelli 5 Mistakes Every Real Estate Investor Should Avoid By Frank Gallinelli I n my nearly 30 years of providing analysis software to real estate investors, and almost a dec- ade of writing books and teaching real estate finance at Columbia University, I’ve had the op- portunity to talk with thousands of people who were analyzing potential real estate investments. Some of these people were seasoned professionals, many were beginners or students, but just about all were highly motivated to analyze their deals to gain the maximum advantage. I’ve seen some tremendous creativity in their analyses, but I’ve also seen some huge missteps. Here are some of the pitfalls you will want to be sure to avoid. 1. The Formula That Doesn’t Compute If you are attempting any kind of financial analysis, then a full-featured spreadsheet program like Excel is almost certainly your tool of choice. You might opt for professionally built models, like my com- pany’s RealData software, or you could attempt to construct your own. • One of the most common problems I see in do- it-yourself models is the basic formula error. A robust financial analysis involves the interaction of many elements, and it is really easy to make any of several errors that are hard to detect. The simplest of these is an incorrect reference.  You entered your purchase price in cell C12 and meant to refer to it in a formula, but you typed C11 in that formula by mistake. You may (or perhaps may not) notice that your evaluation of the property doesn’t look right, but it can be difficult for you to find the source of the prob- lem.
  31. 31. 31 5 MISTAKES TO AVOID Frank Gallinelli • You used to have a formula in a particular cell, but you accidentally overwrote that formula by typing a number in its place. The calculation is gone from the current analysis, and if you re- use the model, you’ll always be using that num- ber you typed in, not the calculated value you expect. • Cutting and pasting numbers seems innocent enough, but it can scramble your model’s logic by displacing references. Simple rule: Never cut and paste in a spreadsheet. • Perhaps the most insidious is the formula that doesn’t do what you thought it did. Let’s say you have three values that you enter in cells A1, B1, and C1. You want to write a formula that adds the first two numbers and divides the result by the third. It’s easy to say this in plain English: “I want A1 plus B1, divided by C1.” So you write the formula as  =A1+B1/C1. Wrong. Division and multiplication take precedence, so the divi- sion happens first and that result gets added to A1. Not what you expected. The formula that does what you intended would be =(A1+B1)/ C1, where the sum of A1 and B1 is treated as a single value, divided by C1. 2. The Modern Art Syndrome Even if you get all of your formulas correct, your job is only half done. I harangue my grad students constantly with this pearl of wisdom: Sometimes you create a pro forma analysis of a property strictly for your own interest. You will never show it to anyone else. Most of the time, however, suc- cessful completion of a real estate investment deal means you have to “sell” your point of view to one or more third parties: • You may be the buyer, trying to convince the seller that your offer is reasonable; • You may need to convince the lender that the deal should be financed; or • You may need to show an equity partner that his or her participation would be profitable.
  32. 32. 32 Most of the homebrew presentations that I see look to me like a Jackson Pollock painting with numbers superimposed. The layout usually has a logic that I can’t discern, and I find myself hunting for the key pieces of information that the presenter should have designed to jump off the page. The layout needs to be orderly and logical: rev- enue before expenses and both before debt ser- vice. Labels need to be unambiguous: • If you mention capital expenditures, are they actual costs or reserves for replacement? • Is the debt service amortized or interest only? • When you label a number as “Price,” are you talking about the stated asking price, or your presumed offer? Be clear. Lenders and experienced equity investors will be looking for several key pieces of information before they scrutinize the entire pro forma, items like Net Operating Income, Debt Coverage Ratio, Cash Flow and Internal Rate of Return.  If these items don’t stand out, or if the presentation is disorgan- ized, you might as well add a cover page that says, “I’m Just an Amateur Who Probably Can’t Pull This Deal Off.” 3. Errors, We Get Errors, Stack and Stacks of Errors You may be too young to know Perry Como’s theme song (by the way, it was “letters,” not “er- rors”), but the tune goes through my head when I look at some investors’ spreadsheets. • The #NUM error can appear when you try to perform a mathematically impossible calcula- tion, like division by zero, or also when attempt- ing an IRR calculation that can’t resolve. • #VALUE usually occurs when you type some- thing non-numeric (and that can include a blank space, letters, punctuation, etc.) into a numeric data-entry cell. If there are formulas in your mod- el that are trying to perform some kind of math using the contents of that cell, those formulas will fail. In other words, if you try to multiply a number times a plain-text word, you’re violating a law of nature and Excel is going to call down a serious punishment on your head, a sort of high tech scarlet letter. It can get really ugly re- ally fast because every cal culation that refers to the cell with the first #NUM or #VALUE will also display the error message, so the problem tends to cascade throughout the entire model. Unfortunately, I often see investors who then go right ahead and print out their reports with these errors displayed and deliver the reports to clients or lenders. Your objective in giving a report to a third party is typically to try to convince the recipient to accept your point of view. You will not accomplish that if your report has uncorrected errors. 4. What’s Wrong with This Picture? It’s the errors you overlook – the ones that don’t have nice, big, upper-case alerts like #VALUE – that can cause the greatest mischief of all; and these can be troublesome even if the analysis is for your eyes only. 5 MISTAKES TO AVOID Frank Gallinelli
  33. 33. 33 5 MISTAKES TO AVOID Frank Gallinelli It may be an unwanted and unintended side ef- fect of the computer age that we tend to accept calculated reports at face value. Be honest: How often do you sit at a restaurant with a calculator and verify the addition on your dinner check? This presumption of accuracy can be dangerous when you are evaluating a big-ticket item like a po- tential real estate investment. As I discussed earlier, you could have bogus formulas that give you inac- curate results. But even if you use a professionally created tool like RealData’s Real Estate Investment Analysis software, you are still not immune to the classic “garbage in, garbage out” syndrome. The mistake that I see far too often is a failure to apply common sense. For example: • “Gee, this investment looks like it will have a 175% Internal Rate of Return. Looks good to me.”  (Reality: You entered the purchase price as $1,000,000 instead of $10,000,000. You should have been saying to yourself, 175% can’t be right; what did I do wrong?) • “Wow, this property shows a terrific cash flow.” (Reality: You entered the mortgage interest rate as 0.07% instead of 7%.) Again, results outside the norm, either much better or much worse than you would reasonably expect, are your tip-off that a mistake is lurking somewhere. It is essential that you develop the habit of examin- ing every financial work-up – those you create, and also those that are presented to you – very closely to see if the calculations appear reason- able. 5. What You Don’t Know CAN Hurt You The final item in our list of big-time mistakes goes beyond the mechanics of spreadsheets and for- mulas and into the realm of fundamentals. You can be the most proficient creator of spreadsheet models on the planet, but if you don’t really under- stand the essential financial concepts that underlie real estate investment analysis, then you will nei- ther be able to create nor interpret an analysis of such property. The examples that I’ve seen are numerous – I can’t possibly list more than a few here – but they all revolve around the same issue:  A lack of under- standing of basic financial concepts as they apply to real estate.  Some of the most important: • Net Operating Income – This is a key real es- tate metric, and calculating it incorrectly can play havoc with your estimation of a property’s value. Basically, NOI is Gross Operating Income less the sum of all operating expenses, but I have frequently seen all kinds of things sub- tracted when they should not be. These have included mortgage interest or the entire annual debt service, depreciation, loan points, closing costs, capital improvements, reserves for re- placement, and leasing commissions. None of these items belongs in the NOI calculation. • Cash flow – I have seen NOI incorrectly labeled as “cash flow,” and have seen cash flow mis- calculated with depreciation, a non-cash item, subtracted. • Capitalization rate – Cap rate is another key real estate metric and is the ratio of NOI to val- ue. Unfortunately, I’ve encountered some folks who have used cash flow instead of NOI when attempting to figure the cap rate and have end- ed up with a completely erroneous result – not only for the cap rate itself, but then also for the value of the property. Clearly, there are two vital problems with these kinds of basic errors. First, is that they completely derail any meaningful analysis. If your NOI is not re- ally the correct NOI and your cap rate is not really the correct cap rate, then nothing else about your evaluation of the property can possibly be correct. And second, if you give this misinformation to a well-informed investor or lender, your credibility will evaporate. “The mistake that I see far too often is a failure to apply common sense.”
  34. 34. 34 5 MISTAKES TO AVOID Frank Gallinelli About the Author Frank Gallinelli is author of three real estate investing books, including the best-selling “What Every Real Es- tate Investor Needs to Know About Cash Flow... .” His company RealData, has provided usable, affordable software for investors and developers for 30 years. Frank also serves as Adjunct Assistant Professor in Co- lumbia University’s Master of Science in Real Estate Development pro- gram, teaching real estate finance. Frank’s Website: The Bottom Line What is our take-away from these five disasters waiting to happen? You could avoid many of these errors by using the best, professionally developed analysis models – but then, of course, you would expect me to say that because that’s what we do for a living. Let me suggest three other important steps you can take: • Understand that there is no substitute for care- ful scrutiny of any financial presentation, wheth- er it is someone else’s or your own. Be diligent always and apply the test of reasonableness. • Recognize that any real estate analysis you cre- ate is likely to be a representation to a third party of the quality of your thinking and professional competence. You wouldn’t be careless or casual with a resume; you should give the same care to your real estate presentations. • Finally, recognize that you need to make a com- mitment to mastering the fundamental concepts and vocabulary of real estate investing. There is no substitute for knowledge.
  35. 35. 35 DEDUCT YOUR VACATION Bill Walston Deduct Your Vacation What the IRS Doesn’t Want You to Know About Your Next Vacation By Bill Walston So work’s beginning to drag and your mind is on vacation! How does that fit into your “tax deductible” lifestyle? Here’s the scoop: the IRS says that you can deduct expenses for taking a business trip. There is no rea- son the trip shouldn’t coincide with your next vacation. With proper planning, you get your business to pay for and write off most of your trip! For starters, the primary purpose and intent of the trip must be business. If there is no business purpose for your trip none of your expenses will be deductible. Now, as real estate investors, unless the destina- tion is completely random, chances are you’ll find a way to do business there. Secondly, your expenses will need to be allocated between business days and vacation days. Our goal is to document as many business days as possible at our chosen destination. Establishing a Business Day A business day is defined as any of the following: 1. any day you are traveling to or from a business destination 2. a day when you have a pre-scheduled appoint- ment (regardless of the length of time spent at that appointment), or 3. a day when you spend at least four hours on business What You Can Deduct Generally, you can deduct all of your travel ex- penses if your trip was entirely business related. Now, travel expenses include both transportation expenses and “on the road” expenses. Many peo- ple combine these under one set of rules. Howev- er, they are treated differently; each category has its own separate rule base. What are the differ- ences? Transportation expenses are those costs that you incur in getting to and from your destina- tion. So the cost of your airfare or car costs would come under that category. If the business days of your trip exceed the non-business days the as- sumption is that your trip is primarily for business
  36. 36. 36 DEDUCT YOUR VACATION Bill Walston and all of your transportation costs are deduct- ible. If non-business days exceed business days then none of the transportation costs are deduct- ible, even though you may be able to deduct “on the road” expenses. The “on the road expenses” include all costs nec- essary to sustain life while on your trip. These ex- penses include lodging, meals, laundry, dry clean- ing, and similar expenses. These expenses must be allocated between business and vacation days, if any. How Much You Can Deduct There are two ways of deducting your business travel, the per diem method or the actual expense method. Per Diem Method: The IRS allows for a set deduction per day when you travel. Every year, the IRS publishes a table (IRS Publication 1542) which specifies a per diem value depending on your desti- nation. There is an amount specified for both lodg- ing and meals and incidentals. Even if you spend less than your per diem rate, you can still take the entire per diem deduction. What I love about this method is that it doesn’t require receipts. You only need to document where you were! Imagine the possibilities. One caveat: Sole proprietorships are not allowed to use the per diem method for their lodging deductions. However, all other expense are fair game as far as per diems go. Actual Expense Method: This is pretty straightfor- ward. Simply keep all of your receipts and add up the total amount of deductions based on what you have spent. The important thing is to make sure you keep the receipts for everything you spend your money on. Deduct Expenses for Your Spouse or Significant Other If you want to take trips with your spouse or sig- nificant other and deduct the travel expenses for both of you, you must have a legitimate business reason for bringing along this person. This usually occurs under three scenarios: 1. The individual is part owner of your business. 2. The individual is an employee of your business. 3. The individual is a business associate with whom it is reasonable to expect that you will actively conduct business. This means that you can take individuals with you and deduct 100% of their business travel as long as they are directly associated with your business in any one of the preceding three circumstances. Make Weekends Deductible How would you like to treat Saturday and Sun- day as business days without ever working on the weekend? You can – if you know what you are doing. As long as Friday and Monday are business days then Saturday and Sunday are business days as well – even if you party like a rock star on the weekend! This is a very popular strategy; howev- er, its success rests on your ability to substantiate your claim that there was legitimate business ac- tivity on both Friday and Saturday. Records to Keep Remember the old saying about real estate. . . Lo- cation, location, location. Well with the good old Uncle Sam the rule is. . . Documentation, docu
  37. 37. 37 DEDUCT YOUR VACATION Bill Walston About the Author Bill Walston is a full time real estate investor and mentor as well as a business and tax strategist who supports his clients in growing, promoting and building their real estate business. His passion is bridging the gap between learning and doing. He holds a Bachelor of Science degree in Accounting and Finance and a Masters Degree in Tax Law. For a free copy of his report 17 Deductions and Strategies the Internal Revenue Service Doesn’t Want You to Know click HERE. You can read his blog at mentation, documentation. Make sure that you set up a trip folder. Keep copies of e-mails setting up ap- pointments with realtors. Take photos of properties you view. Take notes at meetings you attend. Keep copies of MLS print outs. Make sure your business appointments are recorded in your calendar. This all will establish the business intent and purpose of your travel. And remember, without business intent there is no deduction. So, there you have it. When you are a small busi- ness owner (and as a real estate investor that in- cludes you) the tax law turns in your favor. What were once personal non-deductible expenses have now become tax-deductible business expenses. With proper planning, you can literally make your life tax deductible. DISCLAIMER AND/OR LEGAL NOTICES: The information presented herein represents the view of the author as of the date of publication. Because of the rate with which conditions and tax laws change, the author reserves the right to alter and update his opinion based on the new conditions. If advice concerning legal or tax related matters is needed, the services of a fully qualified professional should be sought. This article is intended for informational purposes only, and not intended for use as a source of legal or accounting advice.
  38. 38. 38 Are You Still Struggling To Close Your First Deal? By Sharon Vornholt W hat do you do when you just can’t seem to get any momentum going; when you are still struggling to close your first deal? Does this sound like you? You are working so hard in your real estate business, but you’re getting nowhere. It’s kind of like a puzzle. You have a whole bunch of pieces that you just can’t seem to fit together property so the whole picture comes together. Whenever I have been asked about this problem, my answer is always the same; “You need to slow down and regroup. Re-charge and get your focus back”. It may be that you even need to take some time off. This is in fact the same talk I have with myself from time to time. What do I mean by this? You know the old saying “You can’t see the forest for the trees”? It’s easy to get so caught up in what you are doing, racing through each day doing “stuff” that you look up and find that you are completely off track; you have completely lost your focus. ARE YOU STILL STRUGGLING TO CLOSE YOUR FIRST DEAL? Sharon Vornholt
  39. 39. 39 3 Steps You Can Take to Get Back On Track 1. Begin with the end in mind. Look at your goals each day. You should have no more than 3-5 big goals for the entire year. You want to nail them, and you can’t do that if you have a list a mile long. 2. Plan tomorrow before you leave the office today. Pick out those 3 or 4 tasks that are the obvious next steps necessary to lead you clos- er to your goal. You know the ones; the ones that will also ultimately be responsible for that in- crease in your income. These are your priorities. Work only on these tasks that day. 3. Get control of your time. Use time block- ing each and every day to get those important tasks completed the first thing in the morning. Block out the first two or three hours of the day and go to work before you answer a phone call, look at email or allow any other distractions to get in the way. You will find that those first few hours will be the most productive time of the whole day. I like to set the timer on my phone to help keep me accountable. Know What Your Number One Task IS As a Beginning Real Estate Investor Marketing!!!! Marketing is the number one task you need to get done no matter what. Spend AT LEAST two hours every day marketing for deals. (It’s OK if you do some of these hours on the weekend). Here are three truths that apply to marketing: • Without a steady stream of leads, you will be out business before you ever get started. • you must focus on providing a memorable cus- tomer experience. By simply calling folks back in a timely manner and really listening to what they have to say, you can be a standout in any market. What problem do they really need you to solve? It’s rarely just about the money. • Don’t worry about being new. Just be cheer- ful, speak with confidence and the rest will take care of itself. Put Together a Simple Marketing Plan It doesn’t have to be a complex plan, but you defi- nitely need a marketing plan no matter what level you are at. But it is really crucial when you’re just starting out. If you still have a 9 to 5 job you will need to set aside definite times to work on your real estate business. Once you have decided on a few marketing strategies, set up a schedule for getting them done and just go to work. I am a very visual person. This is what I do, and it is also what I recommend you do. Get one of those big wall hanging calendars at one of office supply stores, and plan your marketing for the upcoming month. That way, if “life gets in the way” one week, you can immediately see where you left off and get back on track. Remember that consistent baby steps will still get you to your destination; it will just take a little longer. ARE YOU STILL STRUGGLING TO CLOSE YOUR FIRST DEAL? Sharon Vornholt “Marketing is the number one task you need to get done no matter what.”
  40. 40. 40 Last but not least… Don’t give up! Real estate investing is like most other things, it just takes time and persistence to suc- ceed. Work on your mindset while you work on your business. Look at those things that inevitably come up as “challenges” rather than “problems”. You may be called a real estate investor, but what you really are is a problem solver. Get good at solving problems and you will be successful in this business. Real estate investing is really pretty simple, but it’s not always easy. When you are struggling, remember that your first deal is right around the corner! ARE YOU STILL STRUGGLING TO CLOSE YOUR FIRST DEAL? Sharon Vornholt About the Author Sharon has been investing in real estate since 1998. She became a full time real estate investor in 2008, after owning and operating a successful home inspection company for 17 years. Sharon is also an internet marketer and she blogs frequently on her website. Over the years she has rehabbed homes and bought rental properties. But, Sharon’s true passion is wholesaling. You can read Sharon’s blog at
  41. 41. 41 PROFESSIONAL HOME BUYERS Jason Grote Professional Home Buyers: Back to the Heart By Jason Grote A s real estate investors we give much attention and fanfare to creating a website that con- verts visitors to leads and direct mail campaigns that get the phone ringing. Though these things are needed, they do not put money in your pocket and allow you to achieve your goals and realize your dreams! So what does? Building relationships and winning people… Don’t tune me out just yet. This is not a regurgitation of the book, “How to Win Friends and Influence People” nor is this some sentimental and emotional garbage that just gives you warm fuzzies, yet this is the most necessary thing in any kind of business, especially the real estate investing business. Beginning real estate investor, you need to learn how to convert leads into actual deals. Too many guru programs get you focused on real estate methods and tricks and “new” exit strategies. Your focus needs to be on learning how to connect with people. Experienced investor, you have need of a better process and mindset to convert your leads more ef- ficiently and effectively. I watch fellow investors in my city kick, scratch, and claw for deals as they just fall into my lap with very little energy expended. I will show you why.
  42. 42. 42 PROFESSIONAL HOME BUYERS Jason Grote I can assure you that by assimilating the following principles and tactics into your home-buying methodol- ogy, you will achieve a HIGHER CONVERSION RATE! That is the point, right? If we spend $5,000/month to get the phone ringing off the hook and the website leads flowing like milk and honey, then we had better CONVERT them! I will break this extremely important subject into 4 powerful articles: 1. The Website Lead – How to turn a website visit into a working relationship 2. The Telephone Call – How to handle the most critical moment in buying a house 3. The Home Visit – How to shine and build the seller’s confidence in you 4. The Offer Beyond – How and when to present an offer that they will accept The Website Lead For those that have a lead generating website, this one’s for you. If you are a home buyer and do not have a lead generating website, shame on you! I came kicking and screaming into the website marketing era, but am so glad I did! You will have to get that revelation on your own… When a lead comes in from your website through a form submission or an email, you need to know the correct way to respond. Remember, the theme of this series of posts is “winning people”, NOT “How to get rich quick by converting all of your leads.” So get the focus off of you and put yourself in the shoes of your potential seller. 3 Crucial Tips on Responding To a Website Lead 1. Auto-responder – When using a form, create an auto-responder that is warm and friendly and gives the potential seller an honest response as to how or when you will get back to them. Don’t say “I will get back to you within 4 hours with a phone call” when it normally takes you 24 hours to respond to them with just an email. In The Seller’s Shoes: They are in a sit- uation where they need help and they are looking to you, the home buyer, for a quick and informative response. The initial expectation of your performance is being set in their mind as to how and when you will respond. The auto-re- sponder allows them to wait patiently for your phone call or email. By respond- ing as promised, trust and confidence are built because their expectation was met. As we will discover later, these are the keys to buying their home. 2. Let Them Hear Your Voice – In my website form, I make the phone number a required field. I suggest that
  43. 43. 43 PROFESSIONAL HOME BUYERS Jason Grote at the minimum, you make this field available. Why? E-mail conversations are great for people that al- ready have a relationship of some kind. You need to make a connection with your lead, a person with a need that you can fulfill. A phone conversation is more personal than an e-mail but not as much as a face-to-face conversation. This is where you begin to build a relationship, don’t miss this opportunity by hiding behind an email! In The Seller’s Shoes: In a world of crazy-busyness, a phone call tells the seller that you are serious about what you do and that you care enough about their situation to take the time and have a phone conversa- tion. In the next articles I will discuss how to win the seller over the phone. Only 10% of my leads would prefer to have an at-length e-mail conversation. I typically do not convert these. 3. Your Professional E-mail Response – Though a phone call is the preferred method of com- munication, not everyone will want to talk on the phone initially so you must take the opportunity to build a relationship with the potential seller through an engaging e-mail response. Just like a phone conversation, you want to ask questions. Get the seller to engage you and share their situation with you. The more they tell you, the stronger the relationship being built. Formulate your e-mails professionally. When I receive an e-mail without a salutation or without a name, it makes me feel unimportant to them. My thought is, “Wow, they are so busy that they could only type this short, cryptic e-mail to me.” This is not the thought you want going through your potential seller’s head as they are seeking to engage you in a real estate transaction. Remember, for many, the selling or buying of a house is the single largest financial transac- tion they will make their entire life! In The Seller’s Shoes: It is about meeting the seller where they are comfortable. If they prefer e-mail, go with email. Be flexible as you begin working with your leads. Don’t put every potential seller in a box and force your methods upon them. Compose your e-mails with respect and friendliness. He who wants to make friends must show himself as friendly! Every day we are being sold this and that. Do not become a pushy and overbearing real estate investor trying to sell yourself. People want to know how much you care before they will care about how much you know. Value every lead by putting value in the person who is contacting you. This attitude will allow you to win the person over and build their confidence and trust. So when it comes time to talk money, everyone will be comfortable and reasonable! This article is part of a four-part series from Jason Grote that provides three crucial tips on responding to website leads. Implementing these tips will help personalize your engagement with the seller and help to build trust and confidence. Next month Jason will cover “The Telephone Call” with the seller. In future is- sues he will cover “The Home Visit” and “The Offer and Beyond”. About the Author Jason Grote, co-founder of “I Buy Austin Houses” has been involved in real estate investing for 10 years. His family formed the company “I Buy Austin Houses” in 2006. Since then, Jason has been a full-time rehab- ber and marketing expert in the residential investment industry, selling over 50% of his properties within 10 days of market time. Through his experience, Jason has gained the expertise to sell a home fast and can also help owners looking to sell a house for cash or stop foreclosure. Because of his initial struggle to enter the “flipping business,” Jason also enjoys working with and encouraging beginning real estate investors to “Just do it!” Jason’s Website:
  44. 44. 44 DO YOU HAVE MORE MONEY THAN TIME Michael Zuber Do you have MORE Money than Time By Michael Zuber D id you hear real estate is starting to get hot again? Prices are firm and demand is rising? If you’re like most people interested in investing in real estate you have a full time job, family commitments and no time to invest in learning how to invest in real estate? So you have the money but you have no time. I meet with individuals all the time that have secured an investable nest egg of 50K to over 500K. The discussion always seems to turn to real estate as a means to secure improved returns.  I suppose this is to be expected, given my track record in the real estate business and willingness to help where I can. Having had this conversation dozens of times now, I feel safe discussing the challenges, the opportuni- ties, and the options such an investor has. First, let’s look at the challenges: An investor who has cash to invest can become a target, as there are a lot of people itching to get their hands on cash for various investment schemes.  Some of these might sound very appealing, especially given the current environment of low interest rates.  The following scenario crossed my path a year ago or so and is just an example:  I was offered the opportunity to invest in oil wells through a reputable dealer with promises of returns and riches.  They had all the fancy charts, they threw out a mountain of jargon, and they topped it off with
  45. 45. 45 DO YOU HAVE MORE MONEY THAN TIME Michael Zuber a fancy Excel sheet showing proposed returns that would knock your socks off. I have to admit that I was impressed and they al- most had me.  But then I sat back and asked my- self, what do I know about oil wells, drilling, the risks of the industry, etc?  I was also suspicious of the fact that they were hunting for investors in Califor- nia; there had to be a lot of money in Texas that would chase this deal if it was so profitable.  Plus, I was really put off by all the jargon.  I have a simple rule if you can’t explain something in simple terms, then I suspect you are hiding something. I did not invest, and a year later I am very happy I didn’t invest. A peer of mine did, and they lost their shirt.  But hey, they have a tax write-off now. Besides being a target for unsavory deals, the cash investor’s time is limited due to a full life with work, family, and other responsibilities and they just don’t have the bandwidth to research another investment area.  They understand that it takes time and hard work to get good at something, and they just don’t have the time or energy to take on a new area.  This means that the investor is left holding cash, or worse, gambling in the stock market or chasing the latest hot fad such as gold or international stocks. These options might work out, but they will very likely leave them with less of return and more risk than should be acceptable. The Opportunities: As the previous section hinted, the investor with cash has a bunch of options, and it is their job to protect and grow their reserves via careful investment selection.  Given that this article adds the additional caveat of limited to no time, we will remove all the options that require lots of education, daily monitoring, and other headaches. We will instead focus on the idea of being a passive investor.  The passive investor is by definition not involved in the daily decisions, and when done correctly, simply picks up a check from the mailbox and moves on.  While the idea of being a passive investor is very appealing to many people, let’s set some ground rules so you don’t get burned.  You need to do some upfront homework before you invest one single penny. You should look for several things as you review op- portunities to invest: First, you need to find an investor with a document- ed track record of success.  You need to under- stand that this investor has done this before, and that they are not one hit wonders who got lucky or simply had good timing once.
  46. 46. 46 Second, you need to understand their investment program, structure, and how everyone is protected and will make money.  As the cash investor, you not only need to understand how you will make money, but you also need to know how the person you are investing with will make money to insure everyone is healthy.   Remember, it needs to be a good deal for both of you or you should run away fast. Third, if the party you are investing with tries to shower you with fancy jargon, just thank them for their time and leave without investing a dime.  The program you invest in has to be simple to understand or you shouldn’t do it. In the end there are many opportunities for the cash investor, but you need to look for an experienced team that has a simple program that offers secure profits for both parties. Finally, the investor should be able to describe the program without use of fancy jargon. The Options: In the current market, there are very few options that offer secure returns in a well-understood business.  I propose that you should look for real estate investors that are seeking capital, offer a proven track record, and are happy to share their model. Should you find such an investor, make sure you understand how you both will make money and the in- vestment options available.  If you do your homework correctly you will set yourself up for mailbox money which is the ultimate goal of the Passive Investor. Good Investing. About the Author Michael Zuber is an active buy-and-hold real estate investor who still holds a demanding full-time job. Mi- chael feels that real estate offers tremendous upside for investors that hold full time jobs, either as active or passive investors. He believes you need full support of your significant other, must do your homework and focus on the long term plan. Michael’s Website: DO YOU HAVE MORE MONEY THAN TIME Michael Zuber
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  48. 48. Photo and Image Credits The below photos fall under Creative Commons Attribution 2.0. Full terms at Select the author's name to view their website. • The Crisis of Credit Visualized, by Son of Groucho- page 6. • Property Taxes Icon, by Daniel Moyle - page 7. • Word Cloud Vector Background, by Vector Portal - page 7. • House of Keys 6-8-092, by Steven Depolo - page 14. • Foreclosue-Free Zone, by Jacob Ruff - page 15. • US Foreclosures, by GDS Infographics - page 16. • Facing Foreclosure with a Sea of Mail, by Casey Serin - page 17. • American Attitudes Toward Foreclosure, by Trulia Visuals - page 17. • Time is Money, by Roland - page 27. • Day 4: The Wake, by Koadmunkee - page 35. • Man Pointing to Chart on Wall, by Victor1588 - page 39. • Business People in Meeting, by Victor 1588 - page 39. • Money, by Duncan - page 44. • International Money Pile in Cash and Coins, by - page 45. • 3D Currency Dice, by M4D Group - page 46. The below photos fall under Creative Commons Attribution and Share Alike 2.0. Full terms at Select the author's name to view their website. • Global Economic Financial Linkage, by Ramberg Media Images - page 10 . • Interest Rate vs Money Balance, by Ramberg Media Images - page 30. • Pune Properties-Real Estate India-Vilas Palash Floorplan 1, by Nancy Arora 2020 - page 31. • Finance Strategy, by Ramberg Media Images - page 32. • Tax Calculator, by 401(k) 2012 - page 36. • Gold Dollars, by Brooks Elliott - page 45. Taormina Sicilia by gnuckx - page 37, falls under Creative Commons Attribution 2.5. Full terms at Select the author's name to view their website. Affiliate Disclaimer I believe in transparency in this magazine and would like to disclose that certain products or services in this magazine will earn me an affiliate commission if you purchase the product or service through a link in this magazine. Many products and services in the magazine do not have affiliate programs. But, to ensure coverage, please assume that they do and that I will recieve a commission if you purchase their products or services through a link in the magazine.