by Scott Rister | |||
| Sometimes you can't see the forest for the trees and so maybe your approach in real estate needs some "outside the box" thinking. Have You Ever:
Now, Options are not anything new creative real estate but they may be on the way you should be using them. One thing I have learned and that was impounded in my head through the school of hard knocks is now my one motto: on This Deal if My Offer is Accepted?" If the answer to the above posed question is "no" then I either don't do the deal or change my offer. I only want deals that are no-brainer and can't lose. In fact I would rather do one great deal, versus ten marginal deals if my "worst-case" scenario would have a possibility of happening. So, here we are and to my entire point and teaching that is absolutely necessary for you I feel to become a truly successful creative real estate investor. You definitely MUST use Options when they are needed to minimize your risk and those dreaded "worst- case" scenarios that eventually happen to us all. There is one sentence you can use in your contract that can turn in ordinary "Offer To Purchase" into a straight option minimizing your risk: "Seller grants buyer exclusive 30 day (60,90) option to purchase property at said price and terms." If I feel a deal is marginal at best but still think there may be a possible opportunity then I will use my Option clause on any offer I make. For example I may be concerned about the length of time it will take me to find a qualified tenant/buyer or if there is enough equity in the property to wholesale it. In fact for all those wholesaling properties I feel this is an absolute must clause that you must utilize. If I can take another section in here that in whole- saling using total Options is critical. Many of those wholesaling properties simply are cash strapped which means you really have to utilize Options just like I have outlined here for you since you aren't in a strong financial position to buy/hold properties. I'm simply NOT going to get stuck with a deal that doesn't lead me to profits and cashflow…..and neither should you! If the deal doesn't make total financial sense minimizing your risks, then put a total limit on your risk with a straight Option on your offer. Now, don't let your fear and even lack of knowledge limit your ability to make significant wealth in real estate. Good hunting as luck has absolutely nothing to do with it! | |||
Saturday, December 18, 2010
Make Thousands With One Sentence
Tuesday, January 19, 2010
Lease Option Tips & Strategies
by: Bill Bronchick
Lease/Options can be fun and profitable, but there are certain pitfalls. The following are some practical, legal and tax tips I have learned from doing many lease/options deals over the years.
Protecting Your Option
Lease/options are great, except when the seller decides not to live up to his end of the bargain. Sure, you can always sue the seller to force him to sell you the property, but this can cost you thousands of dollars in legal fees and take years to accomplish. You need to be in a better position if you want your investment to be protected.
Here are three good ways to protect your option:
Avoiding The "Equitable Mortgage"
Tenant/buyers who default on a lease/option do not always go away quietly. Sometimes, they fight the eviction and go into court kicking and screaming, "I HAVE AN EQUITABLE INTEREST IN THE PROPERTY." What they are arguing is that the lease/option is not a landlord/tenant relationship, but rather a seller/buyer relationship. If the Judge agrees, your lease/option is "re-characterized" as an installment land contract. This may require you to foreclose the tenant, not just evict him.
Here are some tips for avoiding the equitable mortgage:
Sell Your Option for Capital Gains Treatment
If you lease/option, then sub-lease/option, we call this a "sandwich." When your subtenant is ready to buy, you simultaneously "buy and flip." This profit is taxed as ordinary income. If you held the option more than a year, you may qualify for capital gains treatment. Instead of selling the property, sell your option and let your subtenant exercise it directly from the owner.
Take A Loss On Your Personal Residence
As you may know, you cannot write off a loss on the sale of your personal residence. However, if you lease/option the property you may be able to convert it to a rental and take a capital loss when the buyer exercises.
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William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney, author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real estate since 1990, having been involved in over 600 transactions. He has appeared as a guest on numerous radio and television talk shows including CNBC Power Lunch. He has been featured in Who's Who in American Business, Money Magazine, the Los Angeles Times and the Denver Business Journal. William Bronchick has served as President of the Colorado Association of Real Estate Investors since 1996
Lease/Options can be fun and profitable, but there are certain pitfalls. The following are some practical, legal and tax tips I have learned from doing many lease/options deals over the years.
Lease/options are great, except when the seller decides not to live up to his end of the bargain. Sure, you can always sue the seller to force him to sell you the property, but this can cost you thousands of dollars in legal fees and take years to accomplish. You need to be in a better position if you want your investment to be protected.
Here are three good ways to protect your option:
- Record the Option. If your option was signed before a notary, you can record your option in the public real estate records. This will give the world public notice of your interest. If the option was not notarized, you can sign an affidavit called a "memorandum of option" and file it in the real estate records where the property sits. Keep in mind that this does not create a lien, it only creates a "cloud" on the title.
- Escrow the Deed. If your seller has died or disappeared, you will have a big problem getting him to sign a deed. An escrow should be created up front in which a title company or attorney holds an executed deed. When you are ready to exercise, you simply tender the money to the escrow agent and collect the deed.
- Record a Mortgage. Typically a mortgage is recorded to securepayments on a promissory note. A mortgage can be recorded to secure performance of any agreement, even a purchase option. You as optionee (buyer) will now be a lienholder, in the same position as a secured lender. If the seller refuses to sell the property, you foreclose. Now the seller has to go to court to protect himself, rather than the other way around.
Tenant/buyers who default on a lease/option do not always go away quietly. Sometimes, they fight the eviction and go into court kicking and screaming, "I HAVE AN EQUITABLE INTEREST IN THE PROPERTY." What they are arguing is that the lease/option is not a landlord/tenant relationship, but rather a seller/buyer relationship. If the Judge agrees, your lease/option is "re-characterized" as an installment land contract. This may require you to foreclose the tenant, not just evict him.
Here are some tips for avoiding the equitable mortgage:
- Use Separate Agreements. Give your tenant a lease and a separate option agreement. Make certain the lease does not refer to the option. More than 75% of the time, the tenant loses his paperwork.
- Keep Your Term Short. Do not give tenants more than one year lease/options at a time. If the tenant insists on three years, give him a one year with 2 rights to renew. Draw up a brand new lease and option agreement each time he renews. If you give a cumulative rent credit, raise the purchase price each time.
- Take a Security Deposit. Sellers don't take security deposits, landlords do. Make it look like a landlord/tenant relationship, even if the security deposit is small.
- Pay the Taxes and Insurance. Do not let the tenant pay the taxes and insurance. This makes it look like a sale.
- Don't Give Large Rent Credits. The more "equity" the tenant has, the more likely a judge will favor an equitable mortgage.
- Watch Your Language. Refrain from using the words "credit," "seller" and "buyer" in your agreements. Instead, use the words "non-refundable option," "landlord" and "tenant."
If you lease/option, then sub-lease/option, we call this a "sandwich." When your subtenant is ready to buy, you simultaneously "buy and flip." This profit is taxed as ordinary income. If you held the option more than a year, you may qualify for capital gains treatment. Instead of selling the property, sell your option and let your subtenant exercise it directly from the owner.
As you may know, you cannot write off a loss on the sale of your personal residence. However, if you lease/option the property you may be able to convert it to a rental and take a capital loss when the buyer exercises.
------------
William Bronchick, CEO of Legalwiz Publications, is a Nationally-known attorney, author, entrepreneur and speaker. Mr. Bronchick has been practicing law and real estate since 1990, having been involved in over 600 transactions. He has appeared as a guest on numerous radio and television talk shows including CNBC Power Lunch. He has been featured in Who's Who in American Business, Money Magazine, the Los Angeles Times and the Denver Business Journal. William Bronchick has served as President of the Colorado Association of Real Estate Investors since 1996
Friday, November 27, 2009
Why Some People Are Richer Than Others
By: Robert Kiyosaki
I was speaking on financial intelligence a while back to a group of university professors in Singapore. At the end of the talk, one of the professors asked me:
"Where did you learn about business and why do some people make more money than others?"
Responding to the first half of his question, I referred to my book Rich Dad Poor Dad and explained to him that I had a father who was just like him, a respected and highly intelligent career educator.
My other dad, my best friend's father, who also spent many years raising me, was a school dropout, but was a natural financial genius. My business education came from him.
Thinking Rationally vs. Thinking Emotionally
To the second half of this question I replied: "The best business school I attended was Vietnam. In Vietnam I learned what I believe to be my most important life skill."
"And what is that?" the professor asked.
"To know if I am thinking rationally or emotionally," I replied. "While in combat, l learned to be a master of my emotions and to think clearly, even under extreme pressure."
I went on to tell him of a day in 1972 when the engine of my helicopter gun ship suddenly quit. There was a loud bang and then deathly silence followed by the most horrible of sinking feelings. We were falling out of the sky like a huge rock.
Every part of me was screaming, "Pull back on the stick and add power." But my three years of pilot training had taught me to think rationally and override my emotions.
Instead of pulling the nose of the aircraft up, I pushed the nose of the aircraft down and dove the aircraft straight for the ocean below me. To this day, my mind is burned with the vision of the deep green ocean coming up at me at blinding speed.
As we faced what appeared to be our certain death. If I had done what I felt like doing, which was pull the nose up, I would have died that day, taking four other people with me.
Most People Live in Fear of Losing Money
"And how has being the master of your emotions been important to your success?" the professor inquired with even greater curiosity.
Wanting to stay in his world, I replied using his frame of reality, "Have you ever had very smart students with great grades go out into the world and not do well financially or professionally?"
The professor nodded.
"When it comes to money," I replied, "it is the emotion of fear that keeps most people poor. Most people live in fear of losing money or risking money so they say things like 'play it safe’ or 'don't take risks.'"
The professor immediately interjected, "Are you saying be careless? Live dangerously?"
"No," I replied. "all I am saying is that you need to know when you are thinking emotionally and when you are thinking rationally. When you are emotional, thinking rationally is often the hardest thing to do.
"Money, sex, religion, and politics are emotional subjects. So when it comes to those subjects, most people are not thinking rationally. When it comes to money most people are so afraid of losing that they wind up losing. That is not too intelligent."
The professor was beginning to nod his head.
I continued on, "Another example of emotional thinking versus rational thinking is when someone says, 'I don't feel like doing it.' Many people are not successful because they let their feelings do the thinking for them.
"For example, every morning I get up and say, ’I it feel like going to the gym,’ but hopefully my rational mind overrides my emotional mind and sags. 'Come on, one hour, and it’s over.' If my rational mind wins I ride my bicycle to the gym, and if my emotional mind wins, I snuggle up in bed for another hour."
How You Respond to Fear Makes The Difference
"And to you, that is the primary difference between successful people and unsuccessful people?" asked the professor.
I nodded my head. "When it comes to money, I am often going in when most people are getting out. Or I take risks, while the masses are playing it safe.
"I feel the same fears they do, I just use my mind differently. That ability to do what is necessary, in spite of my feelings screaming at me to do otherwise, is the single most important life skill I have learned."
"But aren't you afraid?" asked the professor.
"Yes." I replied strongly. "I have the same fear as everyone else. It’s how we respond to that fear that makes the difference. As I said, most people would have pulled back on the stick when the engine died, and l was trained to push the nose forward.
"The same thing happens financially. People pull back, play it safe, terrified of making a mistake, while life’s opportunities pass them by."
The professor seemed to be understanding so I kept going. "There is another aspect of fear that also causes people to lose money, and that is the fear of ostracism, reportedly the number one fear of most humans."
"Why the fear of ostracism?" asked the professor.
"Ostracism is the fear of being different, or standing alone, or being ridiculed by peers. That fear causes people to conform rather than risk being different. In Australia it’s called the 'Tall Poppy Syndrome.' In investor language, the fear of ostracism leads to the 'thundering herd' mentality.
"The fear of being different causes people to band together, so they wait for social proof that what they are doing is right. It is also called the 'madness of the crowd.'
"So they enter markets late, buy what their friends are buying, and get slaughtered. After an experience like that, they spend the rest of their lives living in perpetual fear, continuing to go along with the rest of the crowd that is not going anywhere financially."
"So how does that affect financial intelligence?" asked the professor.
"Financial intelligence is a 50/50 proposition." I began to summarize slowly. "50% of financial intelligence is what you learn in business school, or in my case what I learned from my rich dad. It is the so-called technical knowledge about money, accounting, finance, investing, and business.
"The other 50% of financial intelligence is knowing when you are thinking rationally and when you are thinking emotionally. To simply say, ’play it safe’ is not a rational thought because it is a thought that is generated out of emotion. To say, ’play it smart’ is a thought coming from the rational brain.
It is that 50/50 relationship that is the basis of financial intelligence, and to answer your original question, why some people make more money than others."
I was speaking on financial intelligence a while back to a group of university professors in Singapore. At the end of the talk, one of the professors asked me:
"Where did you learn about business and why do some people make more money than others?"
Responding to the first half of his question, I referred to my book Rich Dad Poor Dad and explained to him that I had a father who was just like him, a respected and highly intelligent career educator.
My other dad, my best friend's father, who also spent many years raising me, was a school dropout, but was a natural financial genius. My business education came from him.
To the second half of this question I replied: "The best business school I attended was Vietnam. In Vietnam I learned what I believe to be my most important life skill."
"And what is that?" the professor asked.
"To know if I am thinking rationally or emotionally," I replied. "While in combat, l learned to be a master of my emotions and to think clearly, even under extreme pressure."
I went on to tell him of a day in 1972 when the engine of my helicopter gun ship suddenly quit. There was a loud bang and then deathly silence followed by the most horrible of sinking feelings. We were falling out of the sky like a huge rock.
Every part of me was screaming, "Pull back on the stick and add power." But my three years of pilot training had taught me to think rationally and override my emotions.
Instead of pulling the nose of the aircraft up, I pushed the nose of the aircraft down and dove the aircraft straight for the ocean below me. To this day, my mind is burned with the vision of the deep green ocean coming up at me at blinding speed.
As we faced what appeared to be our certain death. If I had done what I felt like doing, which was pull the nose up, I would have died that day, taking four other people with me.
"And how has being the master of your emotions been important to your success?" the professor inquired with even greater curiosity.
Wanting to stay in his world, I replied using his frame of reality, "Have you ever had very smart students with great grades go out into the world and not do well financially or professionally?"
The professor nodded.
"When it comes to money," I replied, "it is the emotion of fear that keeps most people poor. Most people live in fear of losing money or risking money so they say things like 'play it safe’ or 'don't take risks.'"
The professor immediately interjected, "Are you saying be careless? Live dangerously?"
"No," I replied. "all I am saying is that you need to know when you are thinking emotionally and when you are thinking rationally. When you are emotional, thinking rationally is often the hardest thing to do.
"Money, sex, religion, and politics are emotional subjects. So when it comes to those subjects, most people are not thinking rationally. When it comes to money most people are so afraid of losing that they wind up losing. That is not too intelligent."
The professor was beginning to nod his head.
I continued on, "Another example of emotional thinking versus rational thinking is when someone says, 'I don't feel like doing it.' Many people are not successful because they let their feelings do the thinking for them.
"For example, every morning I get up and say, ’I it feel like going to the gym,’ but hopefully my rational mind overrides my emotional mind and sags. 'Come on, one hour, and it’s over.' If my rational mind wins I ride my bicycle to the gym, and if my emotional mind wins, I snuggle up in bed for another hour."
"And to you, that is the primary difference between successful people and unsuccessful people?" asked the professor.
I nodded my head. "When it comes to money, I am often going in when most people are getting out. Or I take risks, while the masses are playing it safe.
"I feel the same fears they do, I just use my mind differently. That ability to do what is necessary, in spite of my feelings screaming at me to do otherwise, is the single most important life skill I have learned."
"But aren't you afraid?" asked the professor.
"Yes." I replied strongly. "I have the same fear as everyone else. It’s how we respond to that fear that makes the difference. As I said, most people would have pulled back on the stick when the engine died, and l was trained to push the nose forward.
"The same thing happens financially. People pull back, play it safe, terrified of making a mistake, while life’s opportunities pass them by."
The professor seemed to be understanding so I kept going. "There is another aspect of fear that also causes people to lose money, and that is the fear of ostracism, reportedly the number one fear of most humans."
"Why the fear of ostracism?" asked the professor.
"Ostracism is the fear of being different, or standing alone, or being ridiculed by peers. That fear causes people to conform rather than risk being different. In Australia it’s called the 'Tall Poppy Syndrome.' In investor language, the fear of ostracism leads to the 'thundering herd' mentality.
"The fear of being different causes people to band together, so they wait for social proof that what they are doing is right. It is also called the 'madness of the crowd.'
"So they enter markets late, buy what their friends are buying, and get slaughtered. After an experience like that, they spend the rest of their lives living in perpetual fear, continuing to go along with the rest of the crowd that is not going anywhere financially."
"So how does that affect financial intelligence?" asked the professor.
"Financial intelligence is a 50/50 proposition." I began to summarize slowly. "50% of financial intelligence is what you learn in business school, or in my case what I learned from my rich dad. It is the so-called technical knowledge about money, accounting, finance, investing, and business.
"The other 50% of financial intelligence is knowing when you are thinking rationally and when you are thinking emotionally. To simply say, ’play it safe’ is not a rational thought because it is a thought that is generated out of emotion. To say, ’play it smart’ is a thought coming from the rational brain.
It is that 50/50 relationship that is the basis of financial intelligence, and to answer your original question, why some people make more money than others."
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