What is the No.3 most common mistake investors make

RJ-80p-headshot

Buying inexpensive, low-income houses looks excellent on paper until you count the cost in terms of time and money.

I’ve owned as many as 350 low-income houses at one time with 143 tenants on Section 8.  These are exactly the type of properties you want to avoid as they will never have predictable income long term and they are not the type of properties that appreciate in value.

Worse, who are you going to sell them to after you rehabbed them the third time?  The short answer is: not a would-be homeowner.

So the No. 3 most common mistake real estate investors make is buying the wrong type of property.

It wasn’t enough for me to screw up my personal portfolio once. I had to do it twice in  different parts of the country.  Both times it netted me the same result as I built a portfolio on sinking sand.  First in New York, then in Detroit Michigan, parts of Ohio and Indiana.  I cut my losses prior to the City of Detroit filing bankruptcy and have since built a new portfolio in Atlanta, Georgia.

When you are feeding off the bottom of the real estate barrel with low-income housing, it’s easy to become disillusioned with cash flow houses.  These types of houses always require more maintenance and more management.  The clientele you get for tenants are a “protected class” for liberal politicians that act like they are the “protectors of the poor.”

You can have the best intentions to help and serve people, but I found out the hard way that you can’t help people who won’t help themselves or people who think the world owes them a living.  When you have this type of mindset from a tenant, you are going up against the Al Sharptons and  Jesse Jacksons of the world.  Underneath my alligator skin is a sensitive, caring person who truly wants to help people and sometimes it seems like the people you try to help the most are the first ones to rain on your parade when they think they can get something for nothing.  There is NO free lunch out there and I suggest you avoid doing business in any area and/or neighborhood that relies on any type of government assistance.

The first question I ask myself when I by a house is, “Who will buy this house from me for more money than I paid?”

If you are in the ghetto, or a low-income area that is marginally better than the ghetto, then you will only sell to another investor.  Why?  Because people who want to be homeowners don’t want to buy in these areas either.  If they qualify for financing, they are getting out as fast as they can.  People buy for emotional reasons when it comes to buying a home for their family.  That’s why the houses I select for purchase have good curb appeal, are in good areas and the surrounding neighborhoods are well kept by primarily homeowners.  Buy houses where people want to live; in subdivisions, near schools, churches, jobs, and shopping.

Promoters sell these low-income houses based on a rate of return that is fictitious and never materialized to unsuspecting investors.  I get calls to find houses for $30,000 to $60,000 and I simply tell people that I won’t buy this garbage.

First, I don’t want to buy anything that I wouldn’t keep myself, so these types of houses are immediately ruled out. Second, my property manager won’t manage houses in these types of neighborhoods and, by the way, these types of neighborhoods are in Atlanta, too.  I initially purchased several houses that we would never touch in today’s market.  They are not good for your portfolio for long- term cash flow houses, for predictable cash flow and future appreciation.

I’ve seen people offering houses all over the Midwest and parts of the South with rates of return over 40% if you use financing and get a mortgage.  Financing your purchase always adds risk as your portfolio and is only as good as the tenants who reside in your homes.   A few months of vacancy or repairs will destroy your “hoped for” return and you will also dig into your pocket to pay the mortgage.  And, you will never sell these houses for what you paid for them.

Disagree with RJ’s point of view? Or, agree? Post your thoughts below in the Leave a Reply area.

You can visit RJ’s website at www.buycashflowproperties.com

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What Has America Become?

A MICHIGAN NEWSPAPER LETTER TO THE EDITOR

Editor,

Has America become the land of the special interest and home of the double standard?

Lets see: if we lie to the Congress, it’s a felony and if the congress lies to us its just politics; if we dislike a black person, we’re racist and if a black dislikes whites, it’s their 1st Amendment right; the government spends millions to rehabilitate criminals and they do almost nothing for the victims; in public schools you can teach that homosexuality is OK, but you better not use the word God in the process; you can kill an unborn child, but its wrong to execute a mass murderer; we don’t burn books in America, we now rewrite them; we got rid of the communist and socialist threat by renaming them progressives; we are unable to close our border with Mexico, but have no problem protecting the 38th parallel in Korea; if you protest against President Obama’s policies you’re a terrorist, but if you burned an American flag or George Bush in effigy it was your 1st Amendment right. 

You can have pornography on TV or the internet, but you better not put a nativity scene in a public park during Christmas; we have eliminated all criminals in America, they are now called sick people; we can use a human fetus for medical research, but it’s wrong to use an animal.

We take money from thsoe who work hard for it and give it to those who don’t want to work; we all support the Constitution, but only when it supports our political ideology; we still have freedom of speech, but only if we are being politically correct; parenting has been replaced with Ritalin and video games; the land of opportunity is now the land of hand outs; the similarity between Hurricane Katrina and the gulf oil spill is that neither president did anything to help.

And how do we handle a major crisis today? The government appoints a committee to determine who’s at fault, then threatens them, passes a law, raises our taxes; tells us the problem is solved so they can get back to their reelection campaign.

What has happened to the land of the free and home of the brave?

-Ken Huber, Tawas City

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Who Moved My Cheese?

Who Moved My Cheese?

The book, Who Moved My Cheese, by Spencer Johnson, MD had an incredible impact on my life, and still does today. The book is more about changing trends in business and the economy and it will always be relevant and you can apply the principles from this book to your business, your industry or your life.

You see, the only real constant in life is change.  Nothing remains the same, except may be some of your friends from high school.  Think about how information has transformed the way we’ve done business over the last 40 years.   We’ve gone from the first car phones and large, multi-frame computers to fax machines, scanners, ipads, iphones and texting.  The world is flat, meaning that information is available to everyone that has a computer.  It doesn’t matter if you’re in the United States, India or Singapore as everyone has the same access to information and jobs, and  that is a “game changer” for many.

In my office, we are involved in some new technology, start ups, property acquisition and management – businesses completely different from just a few years ago.  We now hire virtual assistants from the Philippines for $60 a week, that have replaced workers in the USA that we would have had to pay $500 a week for the same service.  This is just one small example of how the information and technology age has impacted my business and most certainly yours as well. Heck, we’ve only had automobiles for 100 years and look at where we are today.

If you’ll look around your world today, you’ll notice that you have been impacted by all the new technology and how you’ve had to adjust your marketing and even the direction of your business.  All this cheese-moving stuff changed my life ten years ago when I realized my cheese was gone.  The livelihood that I used to make wasn’t working anymore.

You see, my business goals were to buy enough real estate to live off my rents.   And, candidly, I was good, maybe even the best in my area of Western New York.  I owned as many as 350 houses at one time, but my program was hopelessly flawed from the start.  In a nutshell, I bought the wrong property in the wrong part of the country.

There are many prerequisites to having a successful real estate business and basically I did a lot of it wrong.  Here’s just a partial list of my screw ups that I hope you won’t repeat:

  1. I bought low income houses
  2. I rented to Section #8 tenants
  3. I rented to people on welfare
  4. I bought in a rust belt city with a declining population
  5. I bought old houses with unseen repairs, including lead base paint.
  6. I bought in a very liberal state and tenants had more rights than owners.

I built my empire on sinking sand and eventually it crumbled and burned.  It took a long time for me to realize I had some bad cheese and I needed to find new cheese.

It’s difficult to do a “check up from the neck up” and realize your kingdom isn’t what you thought and you need to leave the castle and start over.  But, for a lot of reasons, that’s exactly what I did.

I left New York for the gold-laced cheese of Tampa, Florida.  I went from buying and holding houses in Western New York to flipping houses in Tampa.  I thought I went to real estate investor heaven when I moved to Tampa in 2002.  My company ran ads on TV to buy houses and we would buy 8 to 22 houses a month and wholesale them to other investors.  This was so exciting, and the profits on each house were between $5,000 and $50,000.

But, it didn’t last.  As all of you reading this article know, the real estate bubble, which was fueled by speculation and loose credit, finally burst.  The fall out of investors and the lack of easy credit was a game changer.

So  we changed.  As the banks began to foreclose and then sell off their inventory, we embarked on a buy and hold campaign providing turnkey management for investors.  In real estate cycles, you have to know when to hold them and when to fold them.  This is the challenge most real estate investors face – to adapt their buying and selling strategies to changing market conditions.

Knowing what and when to buy and hold is important, but knowing where to buy will make you rich.  We are only buying in a specific state and the bedroom communities around the major transportation hub of the Southeast – that is, Atlanta, Georgia.  There are so many reasons that point to the Atlanta area as a desirable place where prices will come back quickly after the absorption of all the REO properties.  Why? Supply and demand.

Check out our website, www.BuyCashFlowProperties.com and get your free copy of the ebook, Buy Right, Retire Rich and you will know why it’s so important to select an area in the path of progress to retire rich on rentals.

To get involved in the greatest buying opportunity of your lifetime, call me direct at 813-435-1551 Ext. 1010.  This opportunity won’t last forever  as savvy investors are snapping up properties all over the country.  Don’t get left behind and wake up one day and realize you missed this great house buying opportunity.  Contact me direct for special house buying events in Atlanta, Georgia.

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Is My Money Safe In The Bank?

IS MY MONEY SAFE IN THE BANK?

It all depends.  Most people live under the illusion of the old cliché, “It’s like having money in the bank”.  As an American growing up in the 1960s, I put every dime I made in the bank in the hopes to save money, preserve capital and make some interest.

It really doesn’t feel the same as when I was growing up and that’s because the world has changed.  We live in volatile, uncertain times as terrorists try to disrupt our lives and socialists try to mandate our lives.

If you think the government needs to control our lives and oversee every aspect of how we live and give through force-feeding us socialistic policies, STOP READING!  You won’t like the rest of the article.

We are inundated every year with new legislation with the bottom line being that the government wants to control every facet of our lives.  Just look at how well they’re doing now.  They want us to believe that they are there to protect us but in fact they are there to steal what we’ve earned and then they decide what to do with the money they’ve stolen from us.

FORGET IT FOLKS.  There’s no free lunch!

If you want a better life, then do something about it.  Don’t expect the government of any country to protect you and especially don’t expect them to provide for you.

If you want something in life, it’s up to you.  Too many people have this crazy notion for all these social programs to provide for us.  Phooey!  The government doesn’t make any money, they just steal what they can in taxes and print the rest until they’ve paid for the programs that they think you should have.  Meanwhile, the increase in the money supply is devaluing our hard earned dollars and the cost of goods continues to go up. 
Did you get that?  As government continues to print money, your money is worth less and the cost of what you buy continues to go up.
No, your money is not safe in the bank because inflation is chewing up your capital and as the government prints more money, yours is worth less.

 

 You probably thought this article would be about your money being safe in the bank and protected by the FDIC.  Let me address this issue quickly and then return to my personal reasons.  In the USA, we have almost 3000 banks in trouble with Arizona and Florida leading the way.  7 out of 10 banks in these two states are vulnerable.  There will be hundreds of failures in the year 2011 and let’s hope yours isn’t one of them.

If your bank fails, the FDIC will cover your account up to $250,000.  If you have any more than that in one account – move it!  But, the FDIC doesn’t cover investments you may have in bank-holding companies, such as common or preferred shares, bonds or debentures.  

 

The FDIC doesn’t guarantee the continuation of your interest or lines of credit.  Ultimately, if your bank fails, you will have some interruptions, inconveniences and delays of services.

Here’s my main point…

Your money is not safe in the bank because it’s not working for you.  IF you can see your money on a bank statement, it’s not invested and you’re going backward.  You’re paying income tax on interest while your capital is being ravaged by the effects of inflation.

The purpose of working and creating a business is so that you can accumulate investment dollars so that you can invest them.  The idea is to have your money work for you so you don’t have to.  By keeping your money in the bank earning marginal returns, you are losing investment capital.

So, where do you put it?

That’s up to you and it depends on how much you have, how old you are and what your financial goals are.

I’ve been indoctrinated in the single family house business for over 30 years and my  mind probably works a little different than yours.  You see, I see the housing bust as the biggest boon for safe dollars to preserve capital and earn double digit yields.  And, I’m totally goal oriented and know what I need in income to have a comfortable life.  Do you?

My income perspective is based on how many fee and clear houses I need to preserve my life style.  Right now, I can buy newer, maintenance-free houses in the Atlanta area and, after rehab, my average investment will be $65,000.  After management fees, real estate taxes and insurance, I would net on the conservative side $600 a month.  My lifestyle, with no debt, for a comfortable retirement, requires $15,000 a month which is really more than I need.  But that’s my number and, with no debt, will allow me to live in a way that I am accustomed to.  Based on $600 net a month, I need 25 free and clear houses.  Here’s how I determined this:  $15,000 per month divided by $600 a month income per house equals 25 houses, times $65,000 = $1,625,000.  Put another way, I need $1,625,000 of investment capital to buy the houses to attain a monthly 9income of $15,000 per month.

Folks, my goals are clearly in front of me so I know exactly how many dollars I need to buy the houses to give me the monthly income I required to never have to work again.  In my position, I can do this with a lot of creative buying strategies;  but for most of you readers, you just need to buy the houses and let the income come in.

The key is to buy the right houses in the right area that are undervalued and maintenance free.  This cannot be done everywhere in the country because your cash flow on free and clear houses is impacted by real estate taxes, homeowner’s  insurance and repairs. 

I invite you to our website, www.buycashflowproperties.com and get the free ebook:  Buy Right and Retire Rich.

This book tells a story and if you like the idea of buying houses for cash flow, then you’ll love this book.

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Investments You Must Dump

YOU COULD LOSE OVER HALF OF YOU WEALTH IN THE NEXT FEW MONTHS AND MISS A FORTUNE WITH OPPORTUNITIES IF YOU DON’T READ THIS REPORT.

OR

INVESTMENTS YOU MUST AVOID OR DUMP TO PROTECT YOUR CAPITAL AND THOSE YOU SHOULD BUY TO TAKE ADVANTAGE OF THE AMERICN ECONOMIC CRISIS

Or

INVESTMENTS YOU MUST DUMP TO PROTECT YOUR CAPITAL AND HOW TO TAKE ADVANTAGE OF THE AMERICAN ECONOMIC CRISIS

In this report, I’m going to give you some hard-hitting, practical action plans to safeguard your life’s savings and investment capital.

The worst of the economic crisis plaguing the United States is not behind us – the worst is yet to come.

This is not time to be complacent and listen to ECONOMIST, Wall Street, Bureaucrats, or your banker and accept what they say as the gospel truth.  For a variety of reasons, which I will explain, they all have reasons to mislead you.

The debt crisis created by the funny money being printed by the Federal Reserve is now center state and driving this economy on the road to perdition.  In the pages ahead, I will appeal to your sense of logic and guide you to see what the GOVERNMENT and Wall Street don’t want you to know.  Armed with knowledge, you will be able to protect your assets and take advantage of the opportunities created only if you take decisive action now.

  1. 1.      The Lies of the GOVERNMENT and Wall Street

 

The so called “recovery” of the US economy is a sham and was bought and paid for by trillions of dollars of stimulus and funny money.  Despite the GOVERNMENT’s effort to keep interest rates low, they are actually increasing and it’s getting hard to borrow money.

Politicians and Bureaucrats need us to believe they are saving the day or they could lose their jobs.  We have already had the real estate crises with its lingering effects causing the greatest buying opportunity in our lifetime.

It’s the government debt crisis that has taken center stage and it’s coming to a town near you.

Fed Chief, Ben Bernake is on a mad money experiment with no let up in sight.  Since the American dollar was created in 1792, we’ve had 44 recessions.  But, we never printed money like we’ve done in the last 27 months.  The implications to our future buying power in America are terrifying and there is no one rich enough to bail out Uncle Sam.  Washington has already spent 3.7 trillion in bailouts and stimulus with more to come.

Bank failures are at pandemic levels far worse that 2008-2009 with more than 2000 teetering on the precipice with hundreds falling off the cliff.  In no way can the FDIC bail all of these banks out.  When you take into consideration that over 16% of the American work force is unemployed or underemployed, you know we have a problem.

To preserve what you have and increase what you’ve got, read on…

  1. 2.      Investments You Must Dump to Avoid Catastrophe

 

States, cities and counties throughout the US are broke and are laying off thousands of employees.  Look around you – they are speeding toward the greatest debt disaster in history.  Their debt loads have destroyed their ability to raise money through bonds and the value of municipal bonds has tanked.

The massive cut backs they must make will gut police forces, firefighters, libraries and every other sector of State, City and County workforces.

California is $28 billion behind the eight ball with predictions of $20 billion shortfall for the next five years. 

Arizona sold off the Supreme Court building, the Capital Building and Legislative Building and has become a tenant.  Illinois has already raised state income taxes.  Other states in deep trouble and fighting for survival are New York, New Jersey, Michigan, Connecticut, Maine, and Mississippi.

What should you do?

Get out of the bond market of every kind as fast as you can.  Don’t even consider investments in municipal, corporate, government agency or Treasury bonds.

Your Federal, State, City and County governments are broke and in the shitter and the first thing you need to do is dump or stop investing in their worthless paper.

  1. 3.      What  You Should Do Right Now

 

This is America’s day of reckoning and by acting now you could pile up more money in the next three years than you did in the last ten.  Crisis creates opportunity and while there is economic pain for many, there is incredible opportunity for those that heed these words.

More than ever you need to personally oversee your investments and use your own logic to make decisions.
Never buy into the FALACY that over time the stock market will earn returns of 12% or 10% or anything.  The world is full of horror stories of investors that needed their money when the market tanked and you don’t want to be one of them

The Dow Jones is hovering around 12,000 and it wasn’t that long ago it plunged to 6500.  Could it happen again?  You betcha!

CEOs would never want you to know the real truth of how their stocks are performing because the value of their shares would suffer if everyone sold.

Rating companies of stocks, like Moody’s and S&P, have a conflict of interest as their ratings are bought and paid for by the very companies they rate.

Here’s what you can do to save yourself right now:         

-          Raise cash

-          Dump bonds

-          Dump stocks

-          Get your money out of weak banks

-          Buy hard assets

-          Keep reading

  1. 4.      What Should I Do with My Retirement Account?

 

The first thing you have to do is take responsibility for your financial future.  No one cares more about your money than you do, so why would you ever listen to a stock broker or someone advising you to buy mutual funds?  Mutual funds are for people who don’t want to think and hope they picked a good mutual fund manager.

Hope is not a strategy.

If you have an Ira or 401(k), then make sure you can self-direct it into the investments that you select.  The idea that Merrill Lynch allows you to pick between different funds is not self-directing at all.

Most of the people in power to manage your money have a powerful incentive for you not to know the truth.

 

A self-directed IRA or pension plan allows you to lend money, buy options and buy real estate.

We can help you create or rearrange your IRA or pension plan so you can be completely self-directed.

Keep reading about these…

  1. 5.      Three Ways You Can Prosper in Real Estate Right Now!

 

Real estate is a hard asset and it is on fire sale right now in the good old USA.  That doesn’t mean you should throw a dart at the board and hope for the best. 

First of all, there are several types of real estate and we flat out like houses for cash flow and growth.  Well-selected, well-managed houses will provide a dividend every month in the form of rent.  But knowing what to buy is not nearly as important as “where to buy”.

The greatest long term benefits of real estate are created by acquiring properties in the path of progress.  If you are looking for long term growth and safe, predictable income, you buy where people are moving to – not from.

Avoid houses that are in old neighborhoods with declining populations and in high property tax states. 

Buy in climates that attract the 10,000 baby boomers that are retiring every day for the next 19 years, where job growth is attainable because of a variety of factors like weather, location, transportation and state fiscal business. 

OK, OK we love the areas around Atlanta, GA for all of the above reasons and more.  Low property taxes, low insurance in a pro-business state makes it an easy choice.  But there’s more; a plethora of newer houses that can be bought for pennies on the dollar with high cash flow has our attention.

Investors are able to make double digit returns with limited risk and high expectations of additional significant profit on sale.

Contact us today at RJP@BuyCashFlowPropeties.com or (813) 435-1551 Ext 1010 to find out more about:

  1. Buying turnkey, hassle-free properties completely managed for you,
  2. Transitional financing using your money for 24-28 hours earning annual yields of over 300%
  3. Partnering up on large REO pools or individual properties.

 

I hope you found this report useful, but it’s only as good as the action you take. 

Call me today at (813) 435-1551 Ext 1010 for a free personal consultation on every aspect of the information contained herein.  Whether it’s helping you create a self directing IRA account/Pension Plan or getting you involved in turn-key properties, or lending, we can help.  Visit the website for an abundance of information.

About the author

RJ Palano has been investing in property in the US for over 30 years and has been involved in over 2000 transactions. He continues to be successful by being informed and studying the market for changes that he can exploit to his favor. His current advice is buy when everyone else has to sell, and he does this daily. You can hear more advice from him on his Live Weekly Video Blog on Tuesday nights at 7PM eastern The RJ Show  

For a schedule and  lineup of his high profile guests text in RJ SHOW to 53295.

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3 Things to Avoid & 5 Things You Must Do When Buying Property in Your IRA

The 3 Things You Must Avoid When Buying Property in Your IRA

1.      Taking Title in Your IRA Administrator’s Name

Most savvy investors never put a property in their own name.  The reason is very simple:  you don’t want anyone to be able to go to the local court house and be able to see everything you own.  Why?  Potential lawsuits and liens.  If something should ever go wrong with a property that gives rise to a lawsuit; the first thing an attorney will do is see if you have any assets.  They do this by doing a name check on you at your local county hall.  A dog bite, lead base paint, a slip and fall – whatever; it can happen when you own property and I have had all three happen to me.

It’s even more important not to own property in the name of your IRA administrator or custodian.  If something goes wrong, even if you have liability insurance, your IRA is still exposed to creditors and sue-happy attorneys.

The simplest preventative measure is to have property placed into a land trust and name your IRA administrator as the beneficiary.  The trustee can be a person, or in most states an LLC, but you don’t want the administrator of your IRA or Pension Plan to be the trustee because you don’t want their name on the county records.  The land trust is not a recorded document so no one knows who the beneficiary is except you, the administrator and the trustee.  This is the simplest form of asset protection when buying properties personally or within your retirement accounts.

You can also sell and transfer your beneficial interest without doing a full blown closing and the recording fees that go with it.  Many of the investors we know want to avoid the liability of house ownership in their IRA all together.  They do this by using options, lease hold interest and equity participation notes.

An equity participation note allows you to receive net rents and future profits on a property without the liability of ownership.  Your IRA affectively becomes a lender on the property and your percentage of income is identified in the note.  It could be that you get 50%-90% of the income and the remaining percentage stays with the current owner or manager.  Your position can be secured by a recorded mortgage or a security deed or deed of trust, depending on the state the property is located in.

2.      Lack of an Overall Plan

If you are buying houses or holding any assets in your self-directed IRA, then you must have an overall plan.  Is it cash flow?  Is it upside potential?  Future growth?  How will you finally cash out; that is sell your assets and recoup your investment dollars plus profit.

Many well intended investors bought properties and they never thought through the exit plan.  Anyone can buy stocks, CDs, mutual funds and that is what traditional IRA custodians will do for you; like your local bank, or Merrill Lynch.

The purpose of having a self-directed IRA is so you can direct it to make above average profits utilizing other investment vehicles.  Just make sure you know what you are buying and how you will get out of it and make sure it is worth the extra effort. 

Think twice about acquiring low income housing that requires on-going maintenance and is management intensive.  These properties are hard to insure and difficult to re-sell.  The liability they create is not worth the potential upside you might receive.

3.      Do Not Involve Yourself or Disqualified Parties

 For gosh sakes, never do the work on a house you buy in your IRA.  That includes rehab work and property management.  Stay arms length away and that goes for all disqualified parties.  Sub contract out everything and direct your IRA administrator to make the payments.  Never use the property for personal use or any disqualified parties.

 

The 5 Things You Must Do If Buying Rental Property in Your IRA

 1.       Use a Land Trust

A land trust is your first line of defense for asset protection involving real estate.  Once you understand the benefits of using a land trust you will never buy real estate in your name or your custodians name ever again.  A land trust keeps your name or your custodians name off the public records.  We live in a very litigious society and you never want the public to know what you own.  It’s like having your will when you die put on Facebook.

The trustee of your land trust should be someone or some company that you trust.  Land Trust can be formed in all 50 states with minor changes in language to comply with each state.  I remember the first Land Trust I created around 1988.  To me, it was like a mystery because there is no reporting to the State or the Feds, you simply draw up the paperwork and have the property that you are buying deeded directly into the name of the Land Trust. 

For tax reporting purposes, the beneficiaries of the trust report the income on their return because the Land Trust is a flow through entity.  That is, the benefits of ownership, income, depreciation and expenses, flow directly to the beneficiary.  If the beneficiary is you personally, then you report it in your personal tax returns as if the deed was in your name personally.  If the beneficiary is your corporation, then the corporation includes the income and loss on their income tax return.  If the beneficiary is your IRA, there is no tax return to prepare because your IRA is either tax deferred or tax free (as in a Roth IRA).  The same holds true for a pension plan.  An example of how the deed should be written as grantee going into your IRA if you have a self-directed custodian could be as follows:

John Smith as Trustee for 123 Main St. Trust.

That is, of course, if your Trustee is John Smith and you can name each trust whatever you want.  It doesn’t have to be the street address.

Never title a deed in your IRA or pension plan as follows:

Entrust Administration as Administrator for Joe Blow Roth IRA # 2076

By doing this, everyone in the World will know that Joe Blow’s Roth IRA owns this property and you never want the public to know your business.

Keep your custodian or administrator’s name out of the public records and avoid becoming a target of some sue-happy attorney looking to line the pockets of himself and his clients because your tenant’s dog bit the mail man in the ass.  Think it doesn’t happen? Guess again.  I’ve had the mailman-dog-bite episode and because I used a Land Trust and had other created measures in place, the potential lawsuit went away because the attorney couldn’t easily find any deep pockets to go after.

2.       Record a Lien

Record a lien against the property.  You want to protect yourself right?  I sure hope so, because I’m detailing some of the best asset protection strategies that you can implement now. 

This is a must if you buy property in your IRA or Pension Plan, even if you own a property free and clear.  Record a mortgage, deed of trust or security deed to your trustee of a Land Trust or the property.

Let’s review:  You have the cash in your IRA or Pension Plan and you want to buy a house that’s worth $125,000 for $75,000.  You put the contract in the name of the Trustee you are going to use and make your IRA or Pension Plan the beneficiary of the Trust.  Your custodian has the paperwork to buy an asset and title it this way and if you’re still unsure how to do this; call me. My contract info is at the bottom of this letter.

So, the deed goes into a Land Trust with John Smith as your Trustee and your IRA or Pension Plan as beneficiary.  Have a lien recorded against the property for $75,000 or more and have the Trustee sign it as borrower and make your IRA the lender.

This accomplishes two things:

  • Your Trustee, even though you trust him, cannot deed the property out with good title because you have a lien recorded on it.  Depending on your state that lien would be a mortgage, deed of trust or a security deed.
  • Any attorney looking to sue you will go to the county records and first see who owns the house.  He will then check to see if there are any liens on it.  When he sees that the property had a purchase price of $75,000 and there is a recorded lien against it for $75,000 he is less apt to sue you because there is nothing in it for him.  Remember, attorneys usually sue on a contingency of 1/3, which means whatever they get in a lawsuit, they keep 1/3.  If there is nothing to get, they look for lowering hanging fruit because this isn’t worth their time or effort.

This is a practice you should follow on houses outside your IRA and Pension Plans when holding properties.  It is an advanced technique and should be an arrow in your quiver to protect the hard earned money you’ve made for you and your family.

3.       Get Homeowners Insurance

This is really self explanatory. I am personally not a fan of insurance of any kind because it’s a waste of money in most cases.  That’s why Insurance companies make so much money and that’s why they constantly modify policies to insulate themselves from claims.  In fact, I hate fire insurance.  Every time I look at a house to buy I ask myself, “When was the last time this house burned, or even a house on this street?”  It’s so infrequent it’s alarming. 

But, you must get liability insurance in case you have a mail man walking around with some beef jerky in his pocket, hoping your tenant’s dog bites him in the ass.  Believe me folks, for some people, especially low income tenants, suing someone is a way of life.  In fact, on all your tenant applications it should ask if they ever sued someone.  If they sued their last landlord would you rent to them?  The short answer is no.

4.       Use an Attorney or Title Company to Close

 Never buy a house from someone and not have an accountable third party oversee the closing.  In fact, have someone that has errors and omissions insurance so if they do something wrong, you are protected.  Some states, like Florida, use title agents.  States like Georgia use attorneys.  This author prefers attorneys because not only do they have errors and omissions insurance, but they have a license with their state along with ethics committees on how to conduct business.  Always have your money sent to them for tracking purposes and never give it directly to a seller.

5.       Begin With the End in Mind

 If you’re not sure why you’re buying a house, don’t buy it.  Look, there are plenty of reasons to buy property, but you need to consider your purpose and have a plan on how you will exit the investment.

It’s the greatest time in your lifetime to buy for cash flow, but how long do you want to own the property?

In some cases, it’s very easy to “flip” a contract or buy, rehab and sell a house.  Right now, financing is stringent for end users, so if this is your strategy, it may not work.

Buy where others have to sell and sell where the market is conducive for profit.  Just don’t go into something fool hardy without realistic expectations.  We constantly learn about people buying low-priced older homes in the Northeast and Midwest.  The question is, when will you sell, to whom and what will the market be like when you do?  If you’re buying in declining populations you had better sell sooner than later.  If you’re buying in high property tax and high insurance states, just remember those fixed expenses will impact the value you can sell for because those expenses count against the mortgage debt service of your future “hoped for” buyer.

For more information on How to Find Great Cash Flow Properties and How to Properly Structure Transactions in Your Pension Plans, contact me direct at : (813)435-31551 ext 1010 or email me at RJP@buycashflowproperties.com

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Global Real Estate Investments

The 3 Things You Must Absolutely Avoid Buying Property Globally and the 5 Things You Must Do

 

There are a plethora of real estate global investment opportunities available today.  Even the non-sophisticated investor can find tremendous bargains in this economy.  The purpose of this report is simply to educate you to put safety first and foremost in front of your investment dollars.  Whether you have 100,000 or 10,000,000 to invest, no one likes to lose their money.

                If you purchase a solid investment, it will produce income for years to come and provide more wealth for you to invest.  A poorly selected investment will rob you of principal and much more importantly; the loss of those investment dollars to earn money for you forever.

Don’t be blinded by greed and with promise of exorbitant returns.  Nothing takes the place of your own due diligence and a few simple rules here will protect you from yourself and unscrupulous sales people.  I also stuck a little bonus at the end for you.

 

The 3 Things You Must Avoid

 

  1. 1.      Non Traditional Closings.

Never send a down payment or any money to the seller of property.  Always use an attorney or a title agent that has errors and omissions insurance.  Believe it or not, some people will try to sell property that they don’t own and once you give them the money – they’re gone.

It’s imperative for you to be able to sell a property at a later date and that’s why you need title insurance when you buy.  Avoid a quit claim deed as this only gives you whatever title the seller has.  If he had bad title; and there are recorded liens on the property – then that’s what you get.  An attorney that has their license on the line is always your best bet to make sure that you are getting what you paid for.

  1. 2.      Avoid Declining Areas of Population.

 

Just like after the Great Depression, there are tremendous opportunities available for cash buyers today.  The key is to be selective on your target area.

Some areas were hit harder than others in valuation drops and others will bounce back much quicker.  And some will continue to drop.  A key is to avoid areas of declining population because without demand for properties, there will be no reason for values to increase.  In fact, what is happening in many parts of the world is that real estate taxes increase because there is not enough revenue to support local governments.  This further depresses values in that area.  Then, when you take into consideration that state governments can and do increase their income tax, you further drive people out of the area to tax friendly states.  The result:  a further eroding of future values.  This just happened in the state if Illinois in the United States as they increased their state income tax.

Declining population usually translates to older cities, which means older housing stock.  Old houses always mean older problems.  There is no reason to buy old houses with problems that can’t be seen, especially the problem of lead base paint.  Lead base paint, which is found in houses built before 1978, has been the primary lawsuit against landlords in the USA.  Avoid houses built before 1978 like the plague!

  1. 3.      Beware of Estimated Rates of Return

If an opportunity sounds too good to be true – it probably is.  This author has personally experienced the “grass is greener on the other side,” lure that cost me hundreds of thousands.

No one can guarantee the future and no one can say with complete assurance of when a house will sell.  If you are buying houses and someone is offering cash on cash rates of return over 20% – RUN!  High rents on low purchase price usually mean a “low income area” or worse; the ghetto.  You’ll never get out what you had hoped for.  The problem with these houses is that the tenant usually will never qualify for a mortgage and you’re left selling to another investor – for a lot less than you hoped for.

Use common sense analyzing the anticipated rates of return on a specific property and consider, the age of the house, the area it’s in and the likelihood of it going up or down in value.

The 5 Things You Must Do

 

  1. 1.      Buy in Safe Stable Countries.

 

Let’s be honest.  The USA is one of the safest harbors for investment in the World.  The government is stable and the rebound of property values, while it won’t be the same in all 50 states, will certainly happen as it does in every business cycle.

The thing is; trillions of dollars of wealth has been lost in the USA over the last four years and 55% of the American population is living paycheck to paycheck.    The Americans don’t have the money to buy their own depressed real estate.  The other reason is lenders have tightened their lending policies, which have further driven values down.  This is the opportunity of a life time to buy USA property for anyone with cash.  Those seeking financing need not apply.

 

 

  1. 2.      Buy in the Path of Progress. 

 

Demand for property reduces supply and increases prices.  If you are buying for safety and a long term hold position, then always buy in the path of progress.  That is:  buy where people are moving to, not from.  Avoid declining rust belts and look at areas that are attracting people, growth in business and newer houses.

Areas of growth always have new housing stock and today these properties can be acquired for a fraction of what it cost to build them.

Regardless if an area has a current short term over supply of properties on the market – if it’s a growth area – they will be absorbed quicker and prices will rebound once the supply is absorbed.  The climate of an area absolutely plays a huge factor for future growth.  It’s not a surprise that many people in the North East and Mid West of the United States of America are moving south when they retire.  In fact, the baby boomers are retiring at a rate of 10,000 per day for the next 19 years.  Additionally, as folks retire, they tend to leave high property tax and high income tax states and move to where the climate is warmer.

 

  1. 3.      Have an Exit Plan.

 

Never buy a property unless you are clear in your purpose.  Rates of return, preserving wealth, future growth, are all good reasons to buy real estate.  But, how long do you intend to hold it and how will you ultimately cash out?  The easiest property type to sell is a house.  Really, it is.  You can sell it to a person that will live in it, an investor, or in most economies, they are easy to finance.

Not the same with office buildings, shopping centers, mixed-use buildings or apartments.  These require a sophisticated buyer and are more difficult to finance.

The point is; you can have a much more predictable exit plan with a house than commercial real estate.  With the abundance of foreclosures in the USA, there are a lot of ex-homeowners that are now tenants.  Most would like to own again, and with credit restoration and the future resurgence of mortgage money, there is a gold mine of future buyers.  Many of these former owners/now tenants are thrilled at the idea of a lease with an option to buy later.  This allows the investor to get a predictable rate of return from rent, with a built in buyer, while the market improves.  Worse case; the tenant can’t get a mortgage in three years and you either allow them to stay and give them an extension and continue to collect rent or place the house on the open market.

  1. 4.      Know the Income Tax Consequences on Foreigners Owning Property.

 

Every country has different guidelines and it is imperative that you follow the rules or the penalties can be severe.

In the USA, a foreigner must file a form 1040NR to report their activity on rental property.  The USA has imposed a 30% withholding of rental income rule by the property manager which can be avoided as long as the investor has made an election to treat the rental activity as affectively connected to a USA trade or business.

Beyond that, the investor pays income tax just like residents of the USA and is entitled to all the deductions as such.

It is prudent to hire a local CPA (certified public accountant) that is familiar with foreign investors to prepare these simple forms and to do the tax return.

  1. 5.      Work With Professionals at Every Level.

Always use an attorney or title company to close.  Only buy properties from real estate specialists that are familiar with every aspect of acquisition to disposition.  The same is said for property managers.  Be wary of buying from real estate agents that are simply working for a commission.  Once they get paid, they are off to get another commission.  And when at all possible – inspect the property yourself.

Bonus

 

                Don’t buy commercial real estate in the USA at this time.  Many are in foreclosure and many more are coming, but the underlying problem is: who will occupy the space?

                With a contraction in the economy, businesses are closing, offices are downsizing and there is a lot of “see through” office space and stores available.

                The thing about houses is this:  when people close their stores or their offices get shut down; they still go home to sleep and that usually means a house.  Bought right, a house will provide a safe haven for investment dollars with a dividend every month and upside potential as the market comes back.

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Passive Investing

Passive Investing

Passive investing is like owning a business.  You put up the money and leverage the efforts of everyone else.  Think about it.  You hire someone to find the properties, someone to manage the properties and you recieve the money.  What a concept!

That’s what money can do for you and once you have some, it’s important to keep it invested and make more.  The idea of Passive Investing is to have your money work for you.  You can still be involved but the idea of having money in a savings account is ridiculous because it gets eaten away by inflation.  If you can see your money on a bank statement than it’s not invested.

The key as always is to buy the right investments.

We like real estate – plain and simple and we especially like houses.  Everyone needs a place to live but they don’t need an office or a retail store.  Everyone sleeps in a bed and those beds are in houses.  Houses have a utility purpose which we like a lot better than a bar of gold, stock, or CD’s.  Houses pay rent.  Gold collects dust.  Stocks are volatile – Houses, well located continue to pay rent.  CD’s pay 1% interest.  You can pay all cash for houses and you should get double digit returns.

In today’s economy, there is nothing better than houses for Passive Investing.

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Real Estate IRA’s

Real Estate IRA’s

This has become the new buzz word in the IRA industry.  Believe it or not, it’s really nothing new; it’s just finally becoming well publicized.  The reason:  Most IRA owners have no idea what to do with their money and some are afraid to make a decision on what to do.  Remember, self-directed means exactly that; self-directed.  The responsibility/burden is up to the IRA owner to make profitable investments.

So what is this idea of real estate IRAs?  The simplest explanation is that IRAs can own real estate.  That is; you can buy houses for all cash and you can also buy houses with debt financing in your IRA as long as you are not personally liable.

The real question begs; Should you?  Most authorities or self appointed gurus suggest that investors should not own any property in their IRAs because of the liability that comes from the ownership of houses, like lawsuits.  If your IRA owned property, you just exposed your entire IRA to a lawsuit.  Not only that, your IRA could be subject to UBIT (unrelated business income tax).  UBIT is not the worst thing in the world but there are better ways to CONTROL real estate without owning it.

Before I get into the “control of real estate” let me first say that many investors put their IRA funds into LLCs and then acquire real estate.  While this sounds good in practice, on information and belief the IRS will be looking into these private placement entities that are not publicly traded.

Am I trying to scare you? Heck no!  I’m trying to educate you to have all the benefits of real ownership without the liability.

Here’s what we have done for ourselves and countless others:

Instead of exposing your IRA to the liabilities of ownership, you can have them be a lender and do an Equity Participation Note (EP) secured by a mortgage.  This EP can be written so that you are entitled to a percentage of the net rents and future sale of the property.

Think about it: your IRA cannot depreciate the property and there are no tax advantages available to your IRA.  What you want is the cash flow and this can all be done with EP notes or Options.

Real estate IRAs?  You bet!  Just don’t own the houses.

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Cash Flow Properties

Cash Flow Properties

There is nothing like the real game of monopoly buying and owning properties while others pay you rent.  Really, what a great way to create wealth to have others pay you rent.  The thing about rent is that it gets paid while you’re in town or out of town, awake or asleep.  What a concept!  Getting paid while you sleep.

Isn’t that what business is all about?  The idea of a business is not to be a slave to the business but to have it operate without you.  If you have a business and you are working in it ten hours a day then you really are a wage slave – not a business owner.  Businesses should operate without you in the long run. Just like CASH FLOW PROPERTIES.

Now, the idea of cash flow properties is nothing new but the way we go about finding them has changed considerably in the last five years.  Most investors use to buy properties by putting a down payment down and taking out a mortgage to finance their acquisition.  They added risk to the equation the minute they took out that financing.  Ideally, the rent would cover all the expenses of the property; management, real estate taxes, homeowners insurance and repairs.  What is left over is called cash flow or in problematic situations negative cash flow.

You see, many well intended investors from a far would invest in the hot spots like Florida and all was good while prices escalated and the rent was coming in.  Then came the real estate crash.  These well intended investors were upside down on their mortgage because prices dropped and expenses went up.  That is; they owed more than the house was with worth and they were losing money every month.

Today’s market is different.

Astute investors are taking advantage of the steep decline in values and buying houses for cash!  Obviously, properties cash flow a lot better when you remove the risk of financing.  Not all properties cash flow the same.  You must be diligent not to get mislead on high returns on junk properties in bad neighborhoods.  Now is the time to buy quality houses in good neighborhoods for CASH!

Cash flow only counts when you get it.

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