Hello fellow investors,
I hope you enjoyed the 4th of July last month and took a moment to think about the fact that this country has fought many wars to give each one of us independence and the ability to create and do business as we wish with unlimited income potential. In this country our income is only limited to our vision and our determination to succeed at what we choose.
As the year goes on I am getting reports that many of my students are doing deals and starting to make some serious money, and I’m not talking about doing short sales or wholesale deals exclusively. One of my students found a seller who has 80 free and clear houses they want to sell and are willing to do seller financing terms. My student is cherry-picking the deals she wants and is finally deciding that sending letters is a good thing not a laborious waste of time. Three of my other students who are working together have bought 40 properties since the first of the year all with seller financing terms and many with zero percent interest rates and monthly payments as little as $200. I had lunch with another student from Missouri yesterday who has four properties ready to close in less than a month and one of the properties doesn’t have a monthly payment due for 12 full months and zero interest. All of these deals my students are doing are coming from their letter campaign sending letters to “Non-Owner Occupied – FREE & CLEAR” Property Owners.
As many of you have heard me say, that Less than 20% of all of the properties in this country are in some stage of the foreclosure process, but between 30% and 40% of all of the properties in this country are FREE & CLEAR. Think about this… when you are trying to buy a property that already has existing financing in place, in most cases the least you are going to have to pay for that property is what the seller still owes, and the least monthly payment you can get will be what the sellers monthly payment is. When a property is Free & Clear the seller can make a deal. What do I mean by that? I mean they can accept any type of payment for the property they are selling that suits them. They can accept cash, they can accept another property if they like, they can accept bubble-gum if that’s what they want.
Another VERY important point, if the seller doesn’t live in the property they are selling they face some serious tax issues if they were to accept ALL CASH. Many sellers who have owned a property for 30 years or more held their property and dealt with stopped up toilets and renters so they could eventually sell the property and use the money they get from the sale as all or part of their retirement plan. First of all if they got ALL CASH they would have to re-capture all of the depreciation they have claimed for the years they have owned the property (up to 27 ½ years) and pay the taxes they didn’t pay for those years in the year of the sale. The seller will also have to pay the Capital Gains they received from the sale of the property, (the difference between what they paid for the property and what they sold the property for) at 15% tax rate, in the year of the sale. And then what will they do with what little is remaining, put it in the bank at ¼% interest rate. This is not a good retirement program for the seller but is a very good bonus for the government.
The reason I focus on Non-Owner Occupied FREE & CLEAR properties to buy is exactly for those reasons. Because of the taxing of the seller if they get all cash I use this information as my most effective negotiating tool to convince the seller my plan can be far better for them than if they got all cash.
On the contrary, If the sellers have lived in the property any two of the past five years, IRS section 121 says that the sellers can take up to $250,000 for a single owner or up to $500,000 for a couple of their profits TAX FREE. Because of this IRS ruling if the sellers have lived in the house recently I have lost my negotiating leverage because the sellers do not face the same taxing issues and I lose my advantage.
Always study what your strategy will be when you are determining what type of properties you will be buying. Think through the deals and always do things on purpose like I do. Talk to you next month.