Ask The Guys – Cash Offers, Crappy Properties, and More

We’re back again to tackle the questions we missed in our last Ask The Guys episode. We love these episodes and the opportunity we get to talk through some of YOUR real-world investing opportunities and challenges.

We hear from listeners dealing with tenant damage and security deposits, 1031 tax-deferred exchanges, nontraditional lending ideas and TONS more.

First, the ground rules.

We talk about ideas and information. When you’re dealing with real money in the real world, you want to consult a professional. We don’t offer legal, investment, or tax advice.

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your problem-solving host, Robert Helms
  • His trouble-making co-host, Russell Gray

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Question: How soon can I move in after a cash offer, and how low can I go under the asking price?

Joseph in Tacoma, Washington, asked this question. The important concept to understand here is price versus terms.

Whether or not you offer cash or take out a loan, the outcome is essentially the same for the seller. What cash offers is a quicker payout with certainty.

But, this isn’t attractive to every seller. In some cases, a quick closing isn’t what a buyer wants at all, so the promise of quick cash won’t be an incentive.

When you’re negotiating with cash, make sure what you’re offering lines up with the seller’s priorities. A cash offer doesn’t automatically mean a 20 percent discount.

Question: I rehabbed a rental property in Detroit, and now I’m ready to sell. My tenant wants to purchase the property, but she has limited cash on hand. How can I find a lender to do the deal?

Wilbert in South Field, Michigan, brings us this question. He wants to sell the home for $38,000, but the appraisal came back at $20,000. That price gap, as well as the location has made it difficult to find a traditional lender.

The first problem is that many banks won’t do a loan for less than $50,000. If the lender is going to go to all the trouble to do the paperwork for a percentage of the loan amount, then the loan amount needs to be enough to get their attention.

Here are a couple alternatives for Wilbert to consider:

  • Find a private lender. This might mean a higher interest rate for the buyer. But, that higher interest rate will be more likely to attract a lender.
  • Be the private lender. Rather than finding an outside investor, work a deal with the tenant to have them pay the loan to you instead. If they pay off the mortgage, you’ve still had that steady stream of income. If not, you’ll get the property back to rent or sell to someone else.
  • Find a different buyer. If finding a private lender isn’t possible, consider finding a different buyer who is able to get financing or purchase the home for the price you want to sell.

Question: When a tenant in our out-of-state rental moved out, they caused a lot of damage. Why don’t tenants take care of their rentals better, and why are they surprised when they don’t get their deposit back?

Renters view their home differently than an owner. How else do you explain that it feels like no renter owns a vacuum cleaner?

Damage to property is part of doing business as a landlord. But, Lauren in Charleston, South Carolina, did a lot of things right. They documented all the damage with photos before the tenant moved out, had a third-party realtor do a final walkthrough with the tenant, and got estimates from contractors to repair the damage.

Here are a few other things you can do to deal with damage:

  • A picture is worth a thousand words. Take photos of the property BEFORE the new tenant moves in and get their initials on the photos. Then, when they’re ready to move out, you can use those photos to justify the cost of any damage.
  • Open up a pet policy. Many landlords are hesitant to allow pets in a rental. But, with a hefty pet deposit and even a little higher rent, you can come out on top.
  • Get a read on your renters. As you screen applicants, be perceptive. We’ve also known people who will meet with potential renters at their current residence to see how they treat their current space. This may not be possible for everyone, but get creative and thoughtful about how you screen new renters.

At the end of the day, renters are more likely to treat a rental home with less care than you do. Damage and repairs are a cost of doing business, so make sure you build that into your budget.

Question: I want to sell my rental home in California, and I’m interested in the 1031 tax-deferred exchange to buy a new property in Texas. I’m confused by the IRS form and want to know if this will eliminate my taxes in California?

Cindy in Fort Worth, Texas, is definitely an A student!

First of all, we want to be clear that with this kind of complicated tax question, you need expert opinion and advice. A 1031 tax exchange intermediary will be well worth the cost and can answer all your questions.

The intent of the 1031 tax-deferred exchange is that if you sell a property and then purchase another property, you can defer the tax. As you buy and sell properties, you can continue to defer the tax, but there isn’t a way to eliminate the tax completely.

Finally, try not to let the tax tail wag the investment dog.

Real estate offers many great tax benefits, which is one of the reasons we love it! But, when you’re dealing with real money and the IRS, you need a team of experts to guide you.

Life is short, and you don’t want to spend your valuable time reading an IRS form.

Question: How can I learn more and get coaching on real estate syndication?

Addie in Seattle, Washington, brings us a question that is near and dear to our hearts!

We recommend our Secrets of Successful Syndication seminar as your first step. Whether you want to be a syndicator and learn how to leverage money with a group of investors or invest passively in real estate, this is an event you’ll learn a lot from.

In this seminar, we’re teaching the strategies that have been a part of our investments for years.

We do have a coaching program, but you can only learn about it at the seminar during an OPTIONAL session after the two days are done.

If you want to register for the event and see if syndication is right for you, we’d love to have you!

Question: My wife and I have a real estate investment company with 23 doors under rent. We’ve found traditional lenders to be slow and cumbersome and want to simplify our lending process. How can we do this?

John and Karen in Troy, Ohio, are having trouble scaling their business because of lenders. They write that they’d be willing to pay a higher interest rate to make the process easier and more streamlined.

For traditional banks, the process is often necessarily slow. They need to do due diligence to make sure the investment is a good one.

Private capital is easier and faster, but it comes at a higher price. This can be done through syndication or networking to find interested investors. Make sure you’re well advised and working with big deals, and you’re well on your way.

We’d also suggest that with the rollback of some of the Dodd-Frank provisions, some of the restrictions on community lending have eased. If you haven’t checked in with your community lender recently, it’s worth getting to know them. They’ll get to know you and your entire portfolio of properties and could be a valuable resource.

Question: I wasn’t able to attend your events for the Future of Money and Wealth in Florida. But I’d sure love to get access to that information. How do I do that?

A listener in Hawaii wants to learn from the incredibly faculty we brought in to talk about how to keep up with the changing times in the economy.

This was a one-off event, and it was an incredible gathering of some of the best minds in a variety of subjects all focused on how to protect your wealth.

We recorded the event with a professional video crew and now have 20 different panel discussions and presentations available to watch.

You can visit the Future of Money and Wealth website to learn more or send us an email to future [at] realestateguysradio [dot] com. We’ll get you all the details on how to access these videos.

Question: My schedule seems to be always booked up by the time I hear about the Belize discover trips. Do you know the future trip dates for later in the year?

Tim in Silverton, Oregon, like many of us, has a busy schedule and needs to plan ahead!

To find out events as soon as possible and to get them on your calendar, get on our advanced notice list. Head to the events tab on our website. If you find an event there, and the date doesn’t work out, get on the advanced notice list and you’ll get an email letting you know about future dates.

Our next Belize discovery trip will be August 24-27, and registration is open now! We hope to see you there.

Question: What is the definition of a performing asset?

Matthew in Nacomin, Florida, asks us the shortest question in our inbox!

Simply put, a performing asset is something that puts money in your pocket. The more cash flow, the more equity. If you have something on your balance sheet that doesn’t put money in your pocket, it’s not a performing asset.

When you consider an asset you can go for a fat cow, a performing asset that will come at a premium but continue to deliver, or a skinny cow, a non-performing asset that needs some work to get it performing again.


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.

8/22/10: What is Your Risk Paradigm? A Life or Debt Decision

Protecting your money in today’s highly uncertain economy is surely very challenging. Remember when real estate equity and bank accounts were considered among the SAFEST places to keep your savings?  Today, real estate equity has disappeared – and for many people even getting access to whatever equity they still have is next to impossible.  Boy, do we miss those equity lines of credit with their checkbooks and debit cards!

And even though you can still write checks on your cash deposits at a bank, with record bank failures even that old saying “sure as money in the bank” seems a little outdated.  Add horribly low interest rates and, to compound the injury, taxes on your meager interest earnings, it’s enough to make you wonder what this financial world is coming to.

Well, we have good news. There’s a new way to look at an old product – one that is time tested and has survived its fair share of economic turmoil.  And we got such a positive response to our first foray into this topic, we decided to re-visit it with a new guest.

In the radio lifeboat for another voyage into broadcasting brilliance:

  • Host and head lifeguard, Robert Helms
  • Co-host and lifeboat inflater, Russell Gray
  • Seasoned sailer of stormy economic seas, the Godfather of Real Estate, Bob Helms
  • Special guest, “infinite banking” expert, Patrick Donohoe

Right out of the gate we need to set the table, which is no small task with the lifeboat bobbing on the waves:  what does life insurance have to do with real estate investing?

Think about what a bank account has to do with real estate investing and you’re on the right track.  But unlike a bank account, our guest explains that certain types of life insurance – thought greatly misunderstood – offer far greater flexibility than bank accounts.  And though they aren’t FDIC insured, insurance companies are arguably more stable and conservatively run.  Unlike banks right now, you don’t hear a lot about record number of life insurance companies failing.

We also address why so many CONSUMER financial gurus are down on cash value life insurance, yet corporations like Wells Fargo and Wal-Mart buy tons of it.  Could it be there are BUSINESS purposes that make it very useful for BUSINESS people?  We say all the time that real estate investing is a business, so it makes good sense to see how businesses are using this financial tool.

For example, how’d you like you to take a tax deduction for making a deposit in your bank account?  Hmmm….that’s an interesting concept!  What about getting a loan against your equity without having to qualify?  Try doing that with a property!  And unlike property, the value isn’t determined by market forces, so your equity doesn’t disappear in a market downturn.

The point of this episode is that insurance can do a lot more than manage risk and pay a benefit. Our job is to expose you to some of the possibilities.  Your mission, should you choose to accept it, is to explore those possibilities, learn how to use this powerful tool, and decide when and where to use it to advance your real estate investing program.  It seems the economic storm isn’t over yet, so it might be a good idea to know how to operate the lifeboat.  It’s a matter of life and debt.

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed.

4/4/10: The Brave New World of Finance – How to Master Your Debt with Jordan Goodman

We’ve heard estimates that every man, woman and child in the US is currently saddled with $40,000 to $170,000 in debt – just for the Federal government!  Then tack on state and local government debt, and before you even get your first credit card, debt has a dominating hold on your finances.  As we boldly go where no one has gone before, it’s more important than ever to be strategic in managing your debt.  To help us explore the galaxy of information on this topic, we beamed a best selling author into The Real Estate Guys’™ studios.

On the bridge of our radio starship:
•    Captain, Chief “Helmsman” and Host, Robert Helms
•    Pointy-eared Co-Host, Russell “Mr. Spock” Gray
•    Ship’s Financial Doctor and Godfather of Real Estate, Bob Helms
•    Best selling author, the Money Answer Man and ship’s Financial Engineer, Jordan “Don’t call me Scotty” Goodman

“Debt, the endless frontier.  These are the continuing escapades of a spendthrift society.  It’s apparent mission: to encumber itself beyond any hope of repayment; to seek out new debt ceilings and then monetize that debt; to boldly go where no one is sure we should.”  Da ta daaa, ta da ta da DAAAA!!!! Swoosh!!!!

Sorry.  We got carried away.  All this may sound like a tee up for political commentary (we are soooo tempted), but it isn’t.  Our point is that debt, both public and private is a major part of every person’s financial future.  And as we attempt to break free from the gravitational pull of the Great Recession, we find ourselves looking at a brave new world of finance – one with new rules that it behooves each of us to learn.

At its core, debt involves getting other people’s money (which we like!) and paying them interest (we like that less).  The motivation of the lender is, like a drug dealer, to get you hooked on debt and forever paying interest.  The motivation of the addict…we mean borrower, is to enjoy now and pay later (or never).  So where does an investor fit in?

As investors, we want to borrow cheap and invest high – just like the banks.  But since there are no bailout programs for us, we need to be more careful.  The first step is to understand the rules – and then to implement effective strategies.  Sound easy, but when the rules change, we need to examine our strategies.

We launch the show talking about the new realities of debt in the post meltdown economy.  For the older folks, we’re getting back to “normal”.  For younger people, free and easy credit was “normal” and the current environment is no fun at all.  We talk about where things are now and where they might be headed.

With the new Credit Card Act of 2010, the rules of credit cards have changed.  Credit cards, like light sabers (we know we’re mixing sci-fi metaphors), are powerful tools in the right hands – while they can be equally dangerous when used by the untrained.  Since the rules are changing, investors and consumers alike need a little training on the state of the art.  Our special guest and prolific author Jordan “Mr. Money Answers” Goodman, brings us up to speed on some of the need to know items.

As the US and the world is coming out of their bunkers and beginning to explore the economic wasteland, governments, industry and individuals are all making adjustments.  For many individuals with unsustainable levels of debt, professional help may be the best answer.  Jordan shares with us his insights about the important differences between Debt Settlement and Credit Counseling Services.  You’ll want to hear what he has to say.

For some people, the aftermath of the meltdown means foreclosure and perhaps even bankruptcy.  Does that mean game-over or is there life after debt?  Once again, Jordan brings in great practical information and insights to help you chart your personal course.

For the two of you who are facing the brave new world with good credit scores and equity, Jordan reveals an AWESOME strategy for accelerating your mortgage.  Long time listeners – and especially readers of Equity Happens –  know The Real Estate Guys™ have never been big fans of mortgage acceleration.  But Jordan shows us how to use the power of cash flow to accelerate the pay off of a mortgage without amortization.  We know it sounds like science fiction, but it’s real.  Check it out!

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