All Forum Posts by: Douglas W. Rink

I've come to realize that Zillow is (strives to be) the "starbucks" of Real Estate.  Do they have some special some special algorithm that can give them such accuracy on their "Zestimate" like Google uses in it's search advertisements?  Are appraisers doomed?  Will Lenders of the future use the Zestimate instead?  How close are Zillow valuations to actual in your area?

Also, if the improvements are not permitted...you might try

looking for a "Certified Structural Engineer" to inspect the home first.

If they "Wet Seal" the home as to code...The County will likely HAVE to issue you a permit for the improvements regardless of when they were done.

In NC, anyway, a Certified Structural Engineer" out ranks a Building Inspector in every regard.  Check your state as well and be firm in your resolve.

This is a technique I had to learn the hard way...but I never understood how building code "modulars" could be assembled in a factory with all the inspections like electrical and plumbing so I called them and asked how many county building inspectors they had on payroll to build all those homes and they said "None".  I said, "How's that?" and they said we have on site CSE's we don't need building inspectors"

Put this little bit if knowledge in your tool belt, you will see this again...

Good luck...

-dr

Hard Money guys are like "pawn shop" financiers.  They also have a lot of "street knowledge" and aren't just making up what they tell you.  It does seem low.  Usually means something is wrong or they just don't want to fool with that low loan amount.  The Credit Union is different but I am not sure what their problem is. 

Try this...

Get the property under contract subject to financing the $25,000 for 30-days. Go do your own title search at the county court house (you need to learn how to do this anyway right) and study the title, also pull the building permits to make sure all those nice improvements are permitted. If all this checks out...then spring for a "Drive by" appraisal or BPO (Broker Price Opinion) and then propose to the Credit Union that they write you HELOC (Home Equity Line Of Credit) for $25,000 on the property once you own it. IF they will only give you $15,000 then have the seller carry a second mortgage for the rest at the closing.

What you want to do here is a "simultaneous" closing whereby the title flows to you, the HELOC is then secured to the CU and then the seller is given the second mortgage all at the same time (you'll need to explain to the attorney ahead of time what you want them to do for you here). You will have title to the property for only 5-seconds before the mortgages encumber it but this will give you ownership.

Nothing is like doing your Due Dilligence on your own.  Learn to do title searches, septic tests, Heating and AC tests, roof tests, well tests and know what the deed restrictions are and most importantly WHO ARE THE NEIGHBORS---ARE THEY ZOMBIES?.  Home inspectors are great but don't subordinate a good opportunity to learn to professionals until you have a working knowledge yourself of exactly what your doing and that only comes from doing it in the trenches.  If you can't, hire them and follow them around and ask lots of questions, they wont mind and will enjoy your enthusiasm.

Good luck

-dr

I think you will fine in the long run your Broker License its a mark of superior knowledge and ethics and you will garner respect from those that don't possess "the force" and the continuing education classes will always keep you up to date.  Here is an advantage no one will tell you about you might not know...

When buying, selling and flipping property you might run across "units" in a condo or land package of lots or assets that one seller might want to sell to you.  Maybe, you decide you want to wholesale the project (or sell your option) to another investor or investor group presumably because you're just starting out and really don't have the money to close.  You should then consider retaining the "Brokerage rights" to the property and you can even have that put into the deed when you flip it.  Make sure you use an attorney that knows how to flow the title from the seller, through you...(you only own the property for five seconds) and then to your buyer group in a "simultaneous closing".  Title will have to flow though you so you can place deed restrictions on the property and enforce them later if you have to.

Then, as the new buyer sells the property, he will have to pay your Brokerage fee.  Let's say its 1% of the sales price until the project is sold out and on and on.  As long as you have a brokers license, you can get this fee and its perfectly legal (just make sure you disclose this from the very beginning when talking to a buyer(s).

I wish someone would have told me about this technique back when I got my license in 1992.  On Lake Norman where I worked before I retired, I would have made lots of additional money before I figured this out.  I consider a real estate investor with a state issued broker/sales license a notch above any other investor(s) because of their higher standard of ethics and oversight.  It might seem a little burdensome but why the rush?  Good things come to those who are fair and ethical and you'll have a wonderful career with respect.  The money is either the same of more with the license because you'll always have more options than an average investor.  Also, a good Broker In Charge can be a life long Mentor and friend (mine is)

Good luck.

-dr

Just keep working and don't think about it, watch Magnum PI seasons, 1 -2- 3- 4 and develop friends like Rick and TC and et back into the fight!  Do deals!

-dr

Claude - great job!

Don't stop there, consult others...for a fee, that increases the income of Claude!

Best-

-dr

Originally posted by @Dave Foster:

@Michael Hayworth,  Very good questions.

1. The assignments of contract rights to your QI complete what a Senior IRS official once called the "legal fiction" of the 1031 exchange.  

As case law has evolved and the dust from the land mark Starker decision has settled it has morphed from a direct swap of deeds to a situation where property is still directly deeded from you to your buyer and then from the seller to you later.  But in between there is an "assignment of rights so the seller's box of the hud would say something like "ERG as QI for Joe Investor.  The property is directly deeded to the buyer.  Then when you buy you once gain assign your contract rights to the QI and the buyer's box says "ERG as QI for Joe Investor".  Once again the property is directly deeded from seller to you the buyer.  

The process is really still just a normal closing on both ends. But at the end of the day you did not technically sell or buy real estate you "exchanged property with your QI although they never took title.

Much more important than that though is the treatment of proceeds.  You may not have actual or constructive receipt of the funds.  Actual receipt of course is cash in hand.  Constructive receipt is a level of control that rises to the level of the same thing as actual receipt.  So, no your cpa cannot just track the funds.  And a title company may not just hold your funds.  The funds must go into a trust acct with your QI.  You want the account to be segregated and insured so it is not co-mingled with other exchangors funds or exchanges.  And you want it to be a dual signatory acct where both your signature and the signature of the QI must be present for funds to transfer.  The IRS has accepted that these dual signatory accounts do not rise to the level of constructive receipt.  You need to ask these questions because there is no industry standard or governing law requiring such.

2. Having the funds separate in the 1031 acct does not preclude you from buying at trust sales, auctions, or foreclosures where the windows are tight.  It's just a situation of planning with your QI to make sure that the particular process needed is made to work and that coordination for transfer of funds.

3. I can't speak for the industry as a whole but if your closing is the 29th you've got plenty of time to interview, select your QI and set up the acct.  Most of these can be set up in a day or two.  In the case of a mail away emergency  or an "at the closing table decision" it's possible to work even more quickly.  

One more follow up that you may or may not have thought of.  You have the opportunity to combine those two exchanges in a variety of ways as you choose.  Again, it's simply a function of working with your QI to accomplish what you want yet make sure the integrity of each exchange remains intact.

@Michael Hayworth

 Michael has a great technical answer to your question.  However, if you're acting as a "dealer" (if you flip houses) and you file your gains on your schedule C you will want to set up your 1031 business in LLC's so as not to confuse a $75,000 a year IRS auditor.

For me personally, I would 1031 everything and never touch the money.  If you need a little money, mortgage it out later.  To most investors, 1031's aren't suitable since it involves the holding period.   I know clients that are "dirt poor" they literally roll everything and never touch the money and have an incredible net worth - but no cash - and that is the draw back. 

-dr

100m...

1.  Learn to Option property in the path of development w/little cash down (Option money) rezone and sell the property on a "simultaneous" closing.  (you can get the CD series from Rich Dad Poor Dad called "Rich Dad Advisers" series).

2.  Real Estate Option(s) is the most powerful way to get you there assuming you are starting with no money. (read "Deal Maker" by Jerry Wallace Career Press Books on this).

3.  Are you watching the debates?  Hear the part about Hedge Funds paying less taxes as a percentage, than a secretary?  That's "carried interest" at work.  Don't take a "salary" forget that, you pay too much in ordinary income tax...derive your income from "carried Interest" where you can and develop what Hedge Funds managers use...if you keep your gain rolling tax deferred, you can do it.  That's how Warren Buffett did and others.  Also, you should study 1031 exchanges, if you hold your properties for more than one year---roll into another and pay no tax (now).

4.  Understanding taxes, since you mentioned compounding interest - that means you can't have "tax leakage" in anything you do, nothing, its a way of life, do it now so you don't get spoiled...

Google "John Malone" and go to the Video of him giving a lecture at Stanford.  This is the smartest guy in the US...and he discusses "tax leakage" which is a curse...because what this means is that you "do the most efficient tax leakage avoidance all the time" not much fun, but you set the 100mm goal.

Work hard and always be doing deals.  100m  is very possible and very attainable today.  With the RE market improving, I believe you can do it.  You have to believe you can do it. 

Read, study, do... Good luck.

-dr

Great Job!  Never stop working, never stop doing...buy as many as you can handle and keep going.  Double down on the mortgage and pay one off every 24-months and keep going!  I'm glad I found this Blog...this might be the only place where a job well done gets you a pat on the back in RE (friends and relatives won't).  Just keep investing you'll make millions but don't stop when you do.

-dr

No- Walk away give up your earnest money if you have to.  RE investing is a local business and touch and feel.  I get bad vibes from your email and I think you know the answer to your own question.  I did this for a long time, you could lose more than money.  My advice: Never invest more than 20-miles from your front door.  Get out of his deal...

-dr