All Forum Posts by: Ed Caldwell

Good evening BP family,

I engage a lawyer in an attempt to draft legal contracts in order to do Subject To deals and for any Seller Financing through Lease/Option, all while being a licensed AZ Realtor.  So far I have paid him $375 for a lecture on the current legal structure and restrictions, which I am well aware of already.  He now wants an additional $3,000 to draft these contracts, which I could use over and over again going forward. He also said I was not required to use the standard ADRE approved purchase contract as a Realtor, which surprised me to say the least.  He also said "Keys to the real money door cost a little money", which is reminiscent of the Guru pitches out there, which made me uneasy. 

Anyway, any insight and/or advise would be greatly appreciated, especially if this price is reasonable?

Thank you for your participation.

Another suggestion is if this 401K is rolled into self directed is to find another third party unrelated real estate investor in the same situation. You can execute a loan agreement and loan your money to that investor. Simultaneously, the other investor with a self directed account can loan you their money for the same terms. Interest is a wash and it is an arms length transaction. Interest from the notes accrues tax deferred both your and the other investors self directed accounts (somewhat pass through) and you can use the funds from the other investor in your business since the loan is from a neutral third party.

Another scenario, is that your 401K partner not be an owner or participant in the Leasing Company and he can loan directly from the self directed to the Leasing Company. The loan can be structured as flat percentage, percentage of profits, etc. If he needs the income, want to be involved, doesn't want to defer, this won't work. However, you could each form separate property management companies, and he could loan to the one he is not involved with until the business is has grown to enough capital to pay off the 401K funds used to get started. You could then merge the separate companies to become one entity. Getting into this type of arrangement would require ALOT of trust between friends.

I would consult a local lawyer and/or CPA before pursuing this to make sure your paperwork is above board and to protect your individual interests.

Peter, in my 25 years of marriage, the one thing I have learned about my wife is that she wants to feel security, stability and safe, especially if children are involved or will be in the future. I am not going get myself in trouble here by getting into the genetic differences in which God graced us with and made us so different with a sense of humor, but I believe that we are meant to become as one and our differences make us stonger together. Like you, I am the risk taker in the family and want to invest full time in real estate as I absolutely love it and it is my passion. From my wifes point of view, it scares her to death that I am contemplating leaving the steady well paying paycheck with great benefits for a job with unsteady paychecks, no benefits, in an industry that has destroyed people in this past economic decline. Marriage is a constant negotiation and comprimise, so I agreed not to leave my day job until all our debt is paid off (except the house) and we had enough money set aside to cover expenses for at least a year. This helped with the security and safety emotional concerns in the interim. To get her to go along with investing our life savings in real estate, all I had to show her was the long term picture for non-retirement if we continued on the path we were on. This included the fact that neither company we worked for provided a pension anymore, social security may or may not be there, and we were stuck with crappy 401K investments in mutual funds that have not grown in 10 years other than by our contributions and some minor matching by our employers. Couple this with the fact that we will have two teenage daughter in college soon and this put the fear, lack of security and safety right back in place and woke her up to looking into the future. We live in a country where corporate America no longer has any loyalty to employees and it is all about the bottom line. If you continue down the same path everyone else is following right now, you to will plummet off the cliff and may end up working until you die (99%). This is where the FEAR should be placed.

You are just starting out your marital journey, so you should expect that things will not always be rosy and hard times and decisions will come. As a man, I like to provide for my family and give them as much stability and peace as I can. Happy wife = Happy life is a very true statement. That said, she is your partner in life and being honest about your financial future and stresses in life is part of the deal. I view everything we have together as ours and she has a stake in all decisions. How you approach and educate her about your plans and how you plan to get there will give her comfort. Baby steps are best as described previously to demonstrate to her that you can do this. I would not overwhelm her with the grand design all at once, especially if real estate is not her passion like my wife. This only causes more stress. Just have the frank discussion similar to mine above and start one property at a time until she is more comfortable.

I really hope this helps you out. I truly wish I would have started at your age instead of waiting until I was 48 years old to wake up and take control of my future.

Best of luck in your new marriage and real estate investing.

Nathaniel just made my point. I was only throwing ideas out there and clearly Nathaniel is much more versed in this area of expertise as a CPA. I was thinking more long term, which I did not clarify and I appologize for that. Personally, I am trying to quit the day job and invest full time, which is always the angle I view everything from. In the current situation, Nathaniel is absolutely correct. Longer term, the baby will eventually be able to hold a paint brush, address and lick envelopes, clean rentals ;-) Just saying you can teach them the business early and they can get paid. Not sure how child labor laws apply to your own children, but I know I started helping out around the house at a young age like newspaper route in elementary school. LOL

I might also throw out there that you can max your 401K contributions with your employer for now and when and if you decide to invest full time and leave the day job, roll it to self directed and use those funds to invest in real estate. Also thinking longer term, I set up my investment company as an "S" corporation and established my own 401K in that corporation as self directed. I then rolled my SEP IRA from when I was self employed into my self directed 401K. I now use these fund for real estate investments and rental income and gains are tax deferred. I can also piggy back a Roth IRA onto this system to fund as well, which goes in after tax. However, any properties you buy in this Roth, all appreciation and rental income is TAX FREE when you retire from what I understand. Unfortunately, if you are employed and utilizing a 401K there, then you will not be able to fund your business 401K until you quit the day job. I am currently in this situation as well.

From my point of view, tax planning is ALWAYS long term and Proactive. I think alot of people get to caught up in thinking only in the present situation and end up being Reactive.

My advise stays the same, find the right CPA and Lawyer to set yourself up correctly going forward. I love classifying the wife as a real estate professional, which is where I was going in my tired stupper last night with the "Property Management" and/or "Cleaning Business".

Best of luck.

I am a CPA, but I could not speculate on your tax situation without the nitty gritty details. However, I have a good paying accounting position in the insurance industry and there are always ways to improve or lower your taxable income. The first thing you should research is setting up and "S" Corporation to run your real estate investing activities through. No double taxation and income and losses flow through to your individual tax return. Thus, there is ALOT more expenses to offset income from real estate taxation. Guess what, use that cute baby in advertising your "S" Corp and she gets a paycheck up to a certain amount TAX FREE and a write off for the business. You can pay yourself a "Reasonable" salary from the "S" Corp and take the rest as a shareholder distribution (again not taxed at full tax rates). Of course, for rental properties you can take depreciation against the rental income thus reducing taxable active income and deferring it as a future investment gain that is not taxed on a graduated scale, but has historically been a flat 15% - 20%, as apposed to you current 33%. But you can do this individually and through an "S" Corp and get the same result. I am not familiar with the Visa status of your wife, but perhaps she can form Property Management LLC or Cleaning business. You pay the cleaning business to clean your rental properties, take the deduction for the "S" corp, and if she is not an active officer, maybe she gets passive income through ownership and pays family to do the work. OK, I have gotten carried away. As I do not know your full situation, please do not take any of this accounting or legal advise. I would recommend continuing your search for the right CPA that is very familiar with structuring businesses and NOT just real estate. CPA's are like doctors, we all have specialties. Just because I am well versed in insurance accounting and taxation, does not make me an individual or general business expert which is why I have my own CPA to do my real estate business and taxes. I can't tell you how many people approach me when they see CPA after my name and start asking individual tax questions. I know enough to make me dangerous, but fully acknowledge this is NOT my expertise. I would also seek out a good business and real estate lawyer for the same reason. I would hope you would not go after an ambulance chaser to seek this advise ;-)

I hope this helps you and anyone else reading this post.

Thank you Joan. For personal transactions, I do not believe the Broker E&O insurance covers me anyway. I have only been licensed since January, so this is all new to me. I will take your advise and check with the Broker to help stay out of any trouble.

Are there any licensed Realtors doing Subject To in Arizona out there? I have scoured through the forums trying to find information on how to use the Standard Realtor Purchase and Sale Agreement and how to properly fill out this agreement to do Subject To.  I know I have to disclose that I am a Realtor, but just want to make sure I all the right disclosures and addendums to stay out of hot water.

Thank you for any advise and recommendations.

You are one of the lucky ones Samantha. Josh and Brandon have done a truly wonderful thing by creating this website. The investors that truly want to give back will do it right here for free. It always bothers me the true greed factor of the "Gurus". Most of them have more money than they could spend in a lifetime, but they continue to hit the newbies for a large chunk of their life savings or have them run up credit card debt. This is money they need to get going as there really is no real estate investing I am aware of that does not require at least minimal capital for start up and marketing. Good luck and keep learning.

I went to my first FB Seminar 2 years ago, and I found the 3 day seminar very enlighteniing and the speaker was great and informative. Well worth low payment (under $200). However, the upsell to the Mastery went full force and they know how to market and close people, including me!! I to am now a Mastery Student for life for the low low price of $20K (pun intended). If anything, this program lit a fire under my butt to get my first flip done to get my investment back, which I did pronto before my wife divorced me for puting this on a couple of credit cards as they PUSHED. I think there is alot of valuable information available, but the only coaching I got was them telling me to go watch videos on the website. I even picked coaches that were in Phoenix, and they had no interest in meeting me in person or making themselves available except for the 30 minute phone calls, which were limited in number. For the price I paid, I too expected some hand holding through a couple of deals as a newbie. Honestly, I was VERY overwhelmed with the program as they mainly teach broad concepts and systems. Whereas, newbies need a step by step implementation plan they can follow and more hand holding. I wish I had come across Bigger Pockets first, I would have another $20K to do deals with as an investor. I believe the program has alot of great information that I can now access anytime, but I don't feel it is was worth the price paid. Fortunately, I have the risk tollerance and self motivation to do this business. Unfortunately, I know of ALOT of individuals that joined this program two years ago and NEVER DID A DEAL!! A very high price to pay for never getting over the FEAR to pull the trigger. I guarantee you, nobody at Fortune Builders is going to follow up with these "students" to see how they are doing as I have never heard from any of them since they got paid two years ago. As usual, they over promise and under deliver like most. Honestly, I have not logged into their website in over a year as I have learned more through direct interaction with more experienced investors in my area, including finding hard money lenders.

Yes, this is one of my first posts, but I have been reading and following for some time and want people to be fully informed.

Best advise, use the FREE information on BP and join and get involved in your local REIA. I have learned more from other investors and by DOING than any seminar. Save the $20k for your first deal, or if you have to, put the $20K on a credit card to close your first deal.

Thank you for letting me know it is in the ballpark Cole.  Yeah, I already tried to wholesale this property at a loss and no takers.  I don't blame other investors who would rather get into something easier and fixable.  I just look at this as another challenge to learn even more about real estate.  I now know required permits to demo this house, including permission from the historical society.  I also found out that my property taxes go up and not down as bare property is taxed at a higher rate than one with a structure.  Figures.  I am learning about modular homes and how to finance them to turn this lemon into lemonade for the cheapest cost I can to get it cash flowing.  They even build modular duplexes.  This just has become a longer term project since I still have the day job and not enough time to deal with this right now.  I need to start focusing on using what resources and time I have left to start building cash back up again.  Wholesaling is the next learning objective as the revised strategy.