Creative Real Estate Investing

Fishing Question

2008-06-04T19:20:00.004-05:00

Hi All:

Just a quick post. Some of you know that I love fishing; actually that's what I do with most of my free time from real estate investing. That being said, some of you have asked me where I go for my fishing info?

I use http://www.thefishingsearch.com , I find more relevant links here then on the search engines.

Hope this helps.

TOP 10 REASONS TO BECOME A BETTER NEGOTIATOR IN REAL ESTATE & EVERY OTHER ASPECT OF YOUR LIFE! Part 4

2008-05-25T20:50:00.000-05:00

Number 4 of our 10 points deals with: Avoid being cheated or ending up on the short end of the stick.

This tip is straight forward – do your homework. What I mean is, before you enter into any negotiation do some research on your opponent or the person or person (s) that represent their interests. Let me explain …

When lawyers get ready to defend a litigation, one of the first things they do after reading the case file or complaint is research where the opposing attorney went to school, when they graduated and what firm they work for ( this is done via a lawyers state resource known as “The Red Book” ).

Why is this done? Simple, get a leg up on their opponent! Let’s break it down so you will be able to apply it to any venue.

Question: Why does the lawyer care where his opponent went to school?

Answer: All education is not the same, or at least in the eyes of some. Say a lawyer from Harvard is going against a lawyer from a local, small town law school; even though you and I know some of the best people in the industry are from small schools and do laps around Ivy League graduates – they don’t!

So therefore, the Harvard graduate is going to point out where he or she graduated at every juncture, hoping this will psychologically affect their opponent causing them to roll over because they are out of their league- AKA “their out of their league”.

Question: When they graduated?

Answer: Again the opposing attorney wants to know whether he is dealing with a seasoned veteran or someone wet behind the ears. Can you see how important this information can be; remember novices make foolish mistakes.

Question: What firm they work for.

Answer: Once again if their opponent is from a small firm or hang their own shingle, the experienced lawyer, if part of a larger firm asks the opposing counsel over to their firm for the negotiations. Why? The psychological factor – home court advantage, along with the intimidation factor.

I think by this example you can clearly see how you can add this into any situation or industry you are negotiating for or in so you don’t end up on the short end of the stick.

Be well,

James Gage

TOP 10 REASONS TO BECOME A BETTER NEGOTIATOR IN REAL ESTATE & EVERY OTHER ASPECT OF YOUR LIFE! Part 3

2008-05-10T11:27:00.000-05:00

Number 3 of our 10 points deals with: Maximize financial returns, while creating the edge in negotiations.

The person who mentions price first always ends up on the losing end of the stick. Let’s think about that for a moment. Is it a true statement? Over my 20 plus years of negotiating for a living and real estate investing I can say without reservation absolutely Yes!

Let me explain. When you make the initial offer you give up the ability to see how flexible your opponent is regards to the issue being negotiated, in addition your first offer may be too high and your opponent may accept it on the opening round.

If you are forced to put an initial offer on the table, make sure it is a low ball offer which will demand a counter offer from your opponent.

Be well,

James Gage

TOP 10 REASONS TO BECOME A BETTER NEGOTIATOR IN REAL ESTATE & EVERY OTHER ASPECT OF YOUR LIFE! Part 2

2008-04-22T16:12:00.001-05:00

Number 2 of our 10 points deals with : "Achieve Desired Outcomes". This is where most negotiators go wrong and settle for whatever they can get in the negotiation process. The number one reason negotiators do not achieve the desired outcome they hope to achieve is because they fail to stick to their negotiating plan, and default to their opponents agenda. The kiss of death to any negotiator is to allow your opponent to take control from you during the negotiating process; it’s better for you to either stop the negotiations or ask for a break! You could use a ploy such as: “ I would really like to postpone this meeting until I have assembled some more information or documentation, so I may provide the most up to date and correct resources or numbers etc……”.

If you would rather just have a break use something like this : ask for a bathroom break, tell them you have to make an important phone call or start talking about something that has very little to due with the subject matter at hand – this in the legal arena is called a “side bar”.

The ploy or break allows you time to get back on track with your agenda and start with a clean slate. This will hopefully break or interrupt your opponents stride and or thought process and allow you to get back on track.

In conclusion, in order to achieve the desired outcome : 1. Never loose control of the negotiations; if so use a ploy or a break technique.

2. Always stay on track with your plan and never give control of the negotiations over to your opponent. Keep these 2 points in mind and you will always achieve your desired outcome.

Be well,

James Gage

TOP 10 REASONS TO BECOME A BETTER NEGOTIATOR IN REAL ESTATE & EVERY OTHER ASPECT OF YOUR LIFE! Part 1

2008-04-05T18:30:00.002-05:00

Number 1 of our 10 points deals with : "More Personal & Professional Profitability". Plain and simple, it means the better negotiator your are the more your bank account will increase.

The first mistake people make is thinking that sales and negotiating are 2 different animals - nothing could be further from the truth. We need to treat negotiating as if we are a commission based sales person, that every step of the negotiating process is a matter of putting food on the table.
With that in mind we must change the way we approach the negotiating table and forget about getting to "yes" and get to "no" as soon as possible in order to make maximum profit and leverage time to our greatest benefit.
Instead of dealing with prolonged negotiations, determine upfront whether your time invested will bear fruit or establish whether you are on a hopeless quest leading no where. If you probe your opponent, you sound be able to know based on pointed questions, within 5-7 minutes, if you will be able to accomplish a winning negotiating session; this holds true in real estate, business transactions and personal venues.

" Negotiating is a "Million Dollar Skill".

Until next time be well.

James Gage

TOP 10 REASONS TO BECOME A BETTER NEGOTIATOR IN REAL ESTATE & EVERY OTHER ASPECT OF YOUR LIFE!

2008-03-30T17:33:00.003-05:00

Why become a better Negotiator? The answer is SIMPLE !!

When you improve your negotiation skills and techniques, you will gain the ability to increase your value in every aspect of your life simply by increasing the effectiveness of your communication skills. Contrary to popular belief negotiators are not born, they’re made through real world training! Here are just 10 reasons for you to improve your negotiating skills, especially in these uncertain financial times…

1. Improve personal and professional profitability.

2. Achieve desired outcomes.

3. Maximize financial returns, while creating the edge in negotiations.

4. Avoid being cheated or ending up on the short end of the stick.

5. Out smart and maneuver around difficult negotiators and their tactics.

6. Enter into every negotiation whether in person or on the phone with confidence.

7. Know when and how to walk away from a negotiation, while leaving the door open to future negotiations.

8. Learn to get to the No’s, before you get to the Yes’s.

9. Turn every cultural, economic differences into assets rather than liabilities.

10. Earn a six figure income on a part time basis by using your negotiating skills.

For the next 10 blog posts I will expand on each one of the above reasons, which will take your negotiating skills to the next level!

Be well,

James Gage

Question of The Week: Lease Options and Repairs

2008-03-22T12:23:00.003-05:00

I received a question from one of my mentoring students today, so I thought I would share my answer with you my faithful blog readers.

The question was this “can we, as lease purchase investors require our tenant/buyers to repair items that break or need maintenance during their option period?” The simple answer is Yes; if you structure it properly! The reason this question came up is that my student went to his local REIA club meeting, and heard an attorney say it was illegal to do so. It is only illegal if you include such language in the traditional residential lease, but since we are sandwiching the property, we always use 2 contracts – an option, and a residential lease. Within the confines of the option agreement we place language that states that repair/maintenance issues of x amount are the responsibility of the Optionee, and in order for them to be able to exercise their option down the road they must agree to the language of the contract. If they default they not only lose their option consideration, but they are on the hook for the repair and eviction procedures could follow.

I hope this was useful information.

James Gage

Would You Like To Know Why Lease Options, AKA Rent to Own Are Excellent For Real Estate Investing?

2008-03-13T20:12:00.000-05:00

By James Gage

As the real estate market evolves and changes, there are fewer mortgage loans available and fewer people who qualify as the factors for qualification become more stringent. Having less than perfect credit puts, a cramp on the ability to obtain the necessary financing for a traditional home purchase, but that does not mean that fewer people want to settle into a home and become a homeowner. Real estate investors are learning that they can benefit from this situation and make a profit by offering nontraditional means of obtaining a home to those with credit that is not well established or is less than satisfactory to a mortgage lender.

Lease options, aka rent to own homes, are a great source of income for the creative real estate investor who wishes to make money while helping those who cannot get into a home with their own credit to realize their dreams of owning a home. Lease options work much like a leasing a vehicle, only on larger terms. It benefits the tenant buyer who cannot obtain a mortgage to purchase the home by offering them the opportunity to build their credit and make the choice to purchase later while also assisting the investor by maintaining an additional source of income for the duration of the lease period.

When a car is leased, there is a nonrefundable deposit paid to the dealership that equals a percentage of the car's value. This is also done in a lease purchase or rent to own agreement and is referred to as the Nonrefundable Option Payment, securing the tenant buyer's ability to choose whether or not to purchase the home at the end of the lease contract agreement. As with a vehicle, there is a lease contract signed in which the tenant buyer agrees to make a payment of a certain amount each month for a predetermined length of time, usually 12 months. This can be done in a manner that includes payments to be credited toward the purchase of the house or not, depending on how you want to set up the lease.

Finally, at the end of a car lease, the driver has the option to finance the remainder of the "balloon payment" owed on the vehicle in order to purchase it or to turn it back over to the dealership. In real estate, when working with a rent to own or lease option contract, this is referred to as the Option to Purchase contract, in which the tenant is given exclusive rights to purchase the real estate property without you offering it to the highest bidder first without obligating them to purchase when the lease is up.

If the option contract was signed so that the payments made during the lease period were credited toward the purchase of the home, the tenant buyer will need to obtain a mortgage loan equivalent to the remainder of the purchase price originally agreed upon. If there were no rental credits, the tenant buyer will need to obtain the entire purchase amount.

Lease options and rent to own housing are excellent ways for a real estate investor to make a lot of money because there are three different sources of money coming in, all of which add up to a sum greater than the original investment by far. You put little money into the purchase, and in exchange, you receive an up-front payment, monthly installments, and finally a purchase payment equal to an amount greater than you paid. I structure all of my deals so I get paid at the beginning of the deal, the middle of the deal, and at the end of the deal – what more could an investor want !

Dave Ramsey Part 2 : Horrible Advice

2008-03-03T16:47:00.002-05:00

Hello All:

I was hoping not to re-visit this subject again, however, I received a phone call from a fellow investor (Darlene M.) who received some real bad advice from Dave Ramsey’s radio program.

First, let me state I’m going by what she told me and I am basing my comments on the substance of the phone call to me, but I can tell you that I strongly disagree with what Mr. Ramsey teaches – more about that later.

Darlene explains that she called Dave’s radio program to refute what he has been saying on his radio program about now is a “great time to buy a house”. She did get on the radio to ask the pointed question, but as soon as she asked the question, Mr. Ramsey became angry and coarse, and stated anyone with a half of brain can see what great opportunities are out there for home ownership! What a great posture for a national radio personality to take when the general public calls in with a request for help and clarification, Darlene said she decided to take Dave’s advice and by a house (pre-foreclosure) 3 months ago, and since that time she has lost 5 % in value!

She read my back issues on my blog and noticed I was not a fan of Dave’s, and have clearly stated for the past 15 months that you should not be buying anything in this market, rather you should be using leveraged strategies such as lease options for investments and personal residences.

That being said, and being fair to Dave Ramsey, Darlene did not elaborate on the details of the deal that she did, so we can not bash Dave Ramsey if she got into a bad transaction on what she perceived to be his counsel. However, when it comes to the generic advice of “now is the time to buy real estate” – in the words of Dave Ramsey “have you been living under a rock”?

We have only seen 1/3 of the foreclosures that are going to happen according to financial pundits and Federal Reserve. In addition, these foreclosures have caused increased housing inventory forcing property values to sink 15-20% from all time highs. My question to Dave would be, what do you think is going to happen when the other 66% of people facing foreclosure comes into view? Can you say another 30% downward progression, and if you buy now as Dave suggests, you will be in a upside down property and be forced to stay in said property for the next 10- 15 years, while the market tries to gain value.

The other problem I have with Dave is on his investing advice! After becoming debt free, by the way this is the only thing I agree with him on, he encourages people to invest in mutual funds. Are you crazy Man!!! Have you seen how our dollar has been devalued? In 2002 the Euro was at .88 against the dollar, today the Euro is 1.51 against the dollar – you do the math!

Our country is being bought up by foreigners, who look at the US stock market as a flea market due to the strength of their currency; they are literally gobbling up everything in site. By the way many would say that a weak US dollar is good for our economy and will bring foreign investors in to buy our products, thus helping to stabilize our devastated economy. My question to those folks is – what products? Last time I checked the US didn’t make anything anymore; we have been referred to as a service based economy which subs everything out oversees.

OK, many would say that I’m jealous of Dave Ramsey because he has a successful radio program and I have a blog. Nothing could be farther from the truth. I just want people to stop drinking the cool aid and start listening to the voices of reason, whether that be me or someone else, who can document and substantiate what we preach!

So what’s my take? The only way you should be in the stock market is with stock options. If you’re stuck in the market due to company related 401 Ks, consider moving into a money market fund or precious metal fund – gold has tripled in the last 5 years and is almost $1,000 dollars an ounce. Look into become a leveraged investor in the Forex trading market – leverage at it’s best if you do not have those restrictions mentioned above. And of course, become a short term investor through lease options, and assignments with short sales and probates.

In the words of Forrest Gump;” that’s all I have to say about that”.

Be well,

James Gage

Article of The Month : Probate Investing

2008-03-01T18:41:00.000-05:00

Probate Investing Made Easy !

To make money in real estate you need an advantage over your competition, especially if you are looking for whole sale deals. So why not just eliminate them! Now I don’t mean you need to go out and create a bunch of probate by whacking all your competition. What I do mean is that you need to play real estate the same way I would like for my favorite team to play baseball—move to another stadium. What I mean is that you need to go looking in hiding places that nobody else is looking in to find those hidden treasures. That is where probate comes in. I’ll never forget when I was interviewed by a local television station in Florida on my course, Probate Investing Made Easy, at the probate courthouse. The reporter asked me how much competition there was at the courthouse. As the camera panned around the room, there was nobody else in the whole office except the two ladies who worked there.

First, let me explain some things about probate. A statistic that may shock you is this: 100% of Americans will die. That’s right, according to the Center for Disease Control, about 2.5 million people will die each year (are tax dollars hard at work).

Now here is the thing about that statistic. 70% of those folks will die without a will. Even more important is that regardless whether you have a will or not, your estate will go through probate. The only way to avoid probate is to have your estate in an entity. But ask yourself this question. If so few people even have a will, how many people do you think will put their assets in an entity? To give you an idea about how huge that is, of all the cases coming in to the court system, 24% will be probate cases. In Boston, MA in 2003, there were more than 6000 probate cases. In Worcester, MA in 2006 there were about 4500. Many of those cases had real estate involved. That is where you step in. Most people don’t want to work this market because they think it is morbid. It is not morbid. The estates that I have worked with have been some of the most appreciative people I have ever worked with. I will never forget the lady that thanked me for buying her mom’s house at fifty cents on the dollar; which by the way I immediately flipped for a nice profit.

So why do all of these estates go through probate? The government requires it for a few reasons. First, the state wants to make sure that the assets are divided according to the will. And if there wasn’t a will, then the state takes care of that too. Most states have heirship succession laws in place that says which relatives get what percentage of the estate. The other reason that the law requires estates to be probated is to let any creditors who may have an interest in the estate know that the person has passed away and the creditors will need to file in order to get paid from the assets of the estate. The final reason that the law requires the estate to be probated is that the tax man wants to be paid. It has been said that the only two certainties in life are death and taxes. With probate they both apply. Not too long ago the federal government made some changes to estate taxes that remove most people from getting taxed. But the local governments still want to get paid either estate taxes or property taxes. By forcing the real estate in to the probate courts, the government makes sure they get their fair share.

Your challenge is to find some deals in probate. You can see from the facts above that there can be a lot of motivation with people dealing with an estate in probate. By far, the easiest way to find the deals is to send some marketing to probate attorneys. There are better and faster ways, but I had to write a whole manual to explain those techniques. I simply can’t fit them all here in this limited space. In some states, you can even get pre-printed labels for probate attorneys from you state bar association. That way, half your work is already done. Now you just need to come up with a good letter to send them.

Now you know why you really need to be working the probate market, and you know a great shortcut to the market. All you need to do is go out and put it to work!!

Happy Investing!!

James Gage has been investing in Real Estate for more than 20 years. James is the author of Probate Investing Made Easy, in order to help investors- both new and seasoned-to get a leg up on their competition by finding deals in a niche area that nobody else is looking in. The website is www.JGage.com It is our sincere desire that everyone who wants to get in to real estate investing will succeed beyond their wildest dream. It is our mission to help them get there. “Discover the Power of Two !”™

3 Things You Need to Succeed in Real Estate

2008-02-28T11:53:00.001-05:00

3 Things You Need to Succeed….

There are just a few musts to succeed in real estate …..

1. Most importantly, you must have the desire to succeed. Desire is the seed for any type of success!

2. You need to have a few hours a week to dedicate to this. It can be at night or on weekends, or during the middle of the day if you don't work 9 to 5. The flexibility is great. You can do it when it's convenient. But like anything worthwhile, if you do nothing, you'll get nothing.

3. You need to have confidence! You need to realize you will never be left alone as you learn how to do this. We will guide you along so you are very comfortable and knowledgeable. Confidence — that's how you can make a six-figure income working from home!

On the other hand, there are a lot of things you DON'T need to succeed …

5 Things You Don't Need to Succeed ...

1. You don't need a lot of money. You can start your own business with very little money upfront. And because there aren't any clocks to punch, you can keep your day job while you learn.

2. You don't need a college degree or a license or certification. But you do need to understand the specifics of this business — the kind of knowledge you'll gain from this program. We don't care about your education or training.

3. You don't need previous business experience. In fact, it'll probably be easier for you to master this program if you don't have a business background.

4. You don't need to be a salesman. This is not a job for only a few, lucky individuals. All you need is some time and desire to make more money. We'll teach you the rest.

5. You don't need "connections" in the real estate industry. Contrary to popular belief you don’t need connections to be successful, just specialized knowledge.

Real Estate Investor ALERT !

2008-02-26T10:49:00.003-05:00

Hello All:

James Gage here with a real estate investing alert:

According to CNN Money released just a few minutes ago, January 2008 Foreclosures up 57% country wide !

As I have stated before, news such as this is unsettling for the vast majority of Americans, however as leveraged investors knowledgeable in short term real estate strategies and techniques, we can turn a negative into very profitable positive - if you possess the knowledge! Please stop by my web site and sign up for my Free newsletter with up to date tips and strategies http://www.jgage.com

Be well.

Here a few things you should know before you buy a foreclosed home.

2008-02-22T14:13:00.002-05:00

RIGHT NOW, IT'S anyone's guess when the housing downturn will finally hit bottom. But if you're looking to buy a home now - and plan to stay in it for a while - there are plenty of bargains to be had on a foreclosed property.

Banks are often willing to sell foreclosed homes for up to 20% below market value just to get these troubled properties off their books! With foreclosures at an all-time high in the past year, there's no shortage of these opportunities to pursue. However, prospective buyers should know that closing on that super-cheap distressed home is often a lot more complicated and risky than buying a home that doesn't have all of that financial baggage.

Finding Properties in Foreclosure

The biggest bargains can be found in areas where there's a large concentration of distressed properties. The banks with the most exposure to these areas are typically the most motivated to cut a deal since they don't want to get stuck with a glut of real estate. But before you snap up the cheapest home you can find, make sure to do some research. Find out if the property is located in a decent neighborhood with good schools and healthy employment rates. (Local real estate web sites are a great place to start your research.) If you buy in an area that's losing jobs and is riddled with crime, home values are likely to take a lot longer to recover.

Avoid Auctions

While there are a number of safe ways to buy a foreclosed property, bidding on one at a court auction isn't one of them. That's because you're buying a home sight unseen and without an inspection, and 99.9% of the time the 1^st mortgage holder buys it back any way.

Some of these properties also owe back taxes, a headache that's transferred to the new owner. And finally, in most cases, you'll need to pay cash for the home.

If you really want a property and come up empty on your short sale offer you can wait until the bank has put it back onto the real estate market. These properties are called bank-owned or real estate-owned (REO). Before a bank hangs a "For Sale" sign, it pays off all the existing debts and taxes, and in many cases, repairs the home to bring it up to the standards of the neighborhood. Best of all, you should be able to buy a bank-owned property with a traditional mortgage.

Research Home Values

Just because a home is being sold by the bank, doesn't necessarily mean it's a bargain. Home prices have fallen dramatically from their peaks in 2006, a time when loose-lending practices allowed people of all credit ranks to easily obtain mortgages. Now, many homeowners going through the foreclosure process owe more on the mortgage than their property is actually worth; this is known as an “upside own property”.

If you fall in love with a home in pre-foreclosure that's overpriced, then you can see if the bank will allow a short sale. This is when the bank accepts less for the home than the amount owed on the mortgage. While not an ideal scenario, accepting a lower price is often in the bank's best interest. Banks typically spend $25,000 to $50,000 during the foreclosure process..

Line Up Financing First

While it's always a good idea to get pre-approved for a mortgage before you start shopping for a home, it's even more critical when you're shopping for foreclosed properties. Even if you have stellar credit, some lenders won't make a loan on a distressed property, others will require an approval letter rather then a pre-approval letter – especially if you are doing a short sale.

If your loan officer is willing to make a loan on a foreclosed property, find out what criteria the home needs to meet in order to qualify for a mortgage. You can expect the lender to allow cosmetic repairs, but be unforgiving of termites and other serious fixes. However, if you are going to live in the property yourself check out the HUD 203K program; if you will be the owner occupant, because repairs can be rolled into the loan and down payments are very low – Hud.gov.

Get It Inspected

Even if a home is brand new you want to get it inspected. But inspections are especially important when you're dealing with homes in foreclosure. When people have trouble paying their bills, they typically put off the regular maintenance on their homes. Once a home is seized by a bank, it then sits vacant and falls even further into disrepair. In a worst-case scenario, a homeowner could be so angry he lost his home that he actively destroys a property before he moves out. Without an inspection, you won't be able to estimate the cost for repairs or be able to report the home's true condition to your lender.

Loss Mitigation and Foreclosures

2008-02-18T15:40:00.002-05:00

by James Gage

Loss mitigation is the process of trying to stop a home foreclosure before it occurs.

The loss mitigation process can be led by a representative of the lien holder or a third party that is working for the home owner.

It is often better for a disinterested third party to handle the situation as they can work with a lending company without any emotional feelings.

Loss mitigation was introduced as a collaborative effort between the federal government and the mortgage industry many years ago; contrary to popular belief it wasn’t something started because of the sub-prime melt down! The program was established to help home owners that were facing the loss of their homes due to delinquent payments and hardships.

It is nearly impossible to complete a successful short sale without dealing with the loss mitigation department at the bank How you deal with loss mitigation department is critical to a successful transaction.

Some bank customer service reps may say that the bank does not have a loss mitigation department. Keep trying! They have the department you are looking for, just under another name. Ask if the bank has a work-out department, foreclosures department or short sale department.

There are several options when it comes to loss mitigation but the main focus must be to keep the home owner in their home if possible. A loss mitigation professional will first seek to set up a loan modification plan or a repayment plan ( aka forbearance) that is realistic for the home owner as well as agreeable to the lending institution. With the repayment plan, it is imperative that the plan be realistic when it comes to the home owners ability to repay the amount that is delinquent. Obviously there has been a prior financial situation so the solution must be beneficial to the homeowner.

Loss mitigation is about keeping the home owner in their home. If that does not seem like a possible out come, every attempt should be made to help the home owner get the most for their home; hopefully avoiding a foreclosure sale. This may include deed-in-lieu of foreclosure or a short payoff if a qualified purchaser can be found.

Once your deal is accepted, get it in writing immediately. Find your buyer or arrange financing and get the deal closed. You don't want anything to happen between the acceptance and the closing to make you lose your deal.

Take the time to know what your rights are in the foreclosure process; it is possible to use the loss mitigation process to get back on track with your mortgage. Lenders ultimately want to keep the home owner in their home and it is up to the home owner to show that they will be able to catch up or maintain the mortgage payment in the future.

Today's lenders have more foreclosures than ever. They don't want properties, and as a result are very willing to help, if the documents and numbers make sense.

Treat them with the respect they deserve and you might be surprised what might happen!

Taxes and Lease Options

2008-02-14T11:35:00.002-05:00

There are some interesting and lucrative advantages of using options as both an optionor and optionee of real estate. Generally speaking, option money is not taxable to the optionor until the option is exercised, expires or is abandoned. I.R.C. Section 1234 (subject to "dealer" rules, discussed below). If it expires or is abandoned, it is taxable to the seller as ordinary income at the time it expires or is abandoned.

A personal residence sold under lease/option may still qualify for capital gains exemption. Under the 1997 Tax Reform Act, gains from the sale of a personal residence seller are exempt so long as the gain is less than $250,000 ($500,000 for married couple). So long as the lease was incidental to the sale, court decisions have held that the property would still qualify as a personal residence and not a rental. See, Solaris v. Commissioner, 776 F.2d 1428 (9th Cir 1985).

The lease and option payments made by the tenant are not tax deductible if the property is used as a residence. If tenant purchases the property, his option payments (including monthly rent credits) become part of his tax basis in the property. The tenant's option payments may be deductible as a capital loss if the buyer is an investor. For example if you lease/option a home to live in, consider using your LLC to take the lease/option, then sublease to yourself individually. If you don't exercise the option from your corporation, have the corporation treat the option money it paid as a loss.

Take A Loss On Your Personal Residence

As you may know, you cannot take a loss on your personal residence if you sell it for less than your basis. You can, however, take a capital loss on an investment property.

Move out of your house and lease/option it to a tenant/buyer for a few years. Report it on your Federal income tax return as a rental on schedule "E." You may now be able to take a loss when the tenant exercises his option to purchase.

Make certain that you make this transaction it look legitimate; the IRS is keenly aware that people in down real estate markets try to "fudge" rental agreements to accomplish a loss on their personal residences.

Watch Out For "Dealer" Classification

If you are an active real estate investor, you should be aware of what the IRS calls "dealer status." If you also buy and sell real estate on a regular basis, you may be considered a "dealer" in real estate properties. A dealer is one who buys with the intent of reselling rather than for investment.

There is no magic formula for determining who is an investor and who is a dealer, but the IRS will balance a number of factors, such as the purpose for which the property was purchased, how long the property was held and how many deals the investor did in relation to other income. If you take option consideration on a "dealer" property, you cannot defer taxation of option consideration under Section 1234 of the Code.

IRS Reclassification

Occasionally, but rarely, the IRS will reclassify a lease/option as a disguised sale. This is more common with equipment leases where the lessee makes rental payments for a number of years then has the option to buy at the end of the term for a nominal amount, such as $1.

The IRS looks at the terms of the deal and the circumstances surrounding the deal to determine whether a sale was intended. For example, if the tenant is paying the taxes andinsurance, this looks more like a sale. If a substantial part of the payments on the lease are credited towards purchase, this also looks like a sale. If the option price declines each year rather than increases with the market. . . well, you get the idea - it if looks like a duck and it quacks like a duck, it’s a duck!

Most of the reported cases wherein the IRS reclassified a lease/option as a sale involved long-term leases. Thus, a lease/option of only a few years with your tenant is not likely to be re-characterized as a sale. That is why we give our tenant/buyers 1 year leases to avoid any problems down the road with the IRS.

Hope For Home Owners Facing Foreclosure?

2008-02-12T14:11:00.000-05:00

Hello All:

Once again we see the government coming out with another smoke and mirror program to try to convince us, the general public, that they are trying to help the catastrophic number of home owners facing foreclosure.

The program is titled "Life Line" and will give an automatic 30 day stay to homeowners facing foreclosure as long as they are 90 days past due. They say this will give individuals time to negotiate to keep their homes - as long as they qualify! Here is the deception - "as long as they qualify"! I did a little investigating and this will do nothing for people who are upside down in their mortgages ( def: individuals who owe more to the bank/mortgage company then the property is worth). This program will work only for people that have more than 10% equity in their homes or willing to come to the closing table with a lump of cash to offset the difference in the spread.

So as you can see this is just another feeble attempt by the government to show that they are trying to something to stop the financial tsunami that is upon us.

We as investor continue to have an awesome opportunity to make a boat load of cash, if we have the proper knowledge and use the proper leveraged techniques and strategies ie: lease options and short sales.

Until next time, may all your deals be profitable.

James Gage

Good News For Short Sale Investors

2008-02-09T22:46:00.000-05:00

Hello All:

This just came to my attention, so I thought I would pass it on to you my fellow real estate investors and friends.

In late December, President Bush signed the 2007 Mortgage Foregiveness Debt Releif Act, which provides tax help for homeowners facing foreclosure or who sell their homes in a short sale.

Previously, if the value of your home declined and your bank or lender forgave a portion of your mortgage debt, the tax code treated the amount forgiven as income that could be taxed, according to the IRS.

In other words, if your lender forgave $20,000 in mortgage debt because your house was worth $20,000 less than your mortgage balance, the IRS treated this debt forgiveness the same as income that you earned from your job -- and required you to add $20,000 in phantom income to the amount of your annual income and pay tax on it at your marginal tax rate.

So as you can see this will be an added benefit you can explain to the homeowner, which in days gone buy became another devastating event to losing their home. It should be noted however, that if a bank or mortgage company decides not to 1099 Misc an individual, but rather decides to seek a "Short Fall Judgment / Summary Judgment" the above act will not be of use.

I hope this was of value.

James Gage

REOs : Real Estate Owned Property

2008-02-03T16:23:00.000-05:00

When a property is sold through a foreclosure auction, its owner usually owes more to the lender than the market value of the property itself. This is often a barrier to selling the property, and sometimes such foreclosure auctions do not draw any bidders.

Note: Its is my experience and opinion that auctions are a waste of time! The bank or mortgage company buys the property back 99.9% of the time; your time can be used more effectively in other venues.

As a result, not many foreclosure auctions end with the sale of the property, rather the title reverts back to the financial institution holding the lien. Properties in this category are referred to as REO (Real Estate Owned) properties.

After the bank takes possession of the property, the mortgage loan disappears and the financial institution deals with any items owed by the prior borrower, such as homeowner association fees. The financial institution also tries to get the IRS to remove any tax liens against the property. The current owners are usually evicted and often repairs are made to damage on the property in order to make it more attractive to potential buyers.

The best parts of buying a REO property are that buyers have significant leverage and may be able to turn the property around quickly, making money by speculating on above average returns. Banks are trying to get the maximum return when they sell an REO property directly. They want to sell them quickly for two main reasons: first, they don't want to tie up their money in capital reserves they are required to set aside for a foreclosed property, and second, the management of such properties is a headache they would rather not have.

However, banks are very sophisticated when it comes to managing REOs and foreclosures, often having a department dedicated to them. The selling process starts when a potential buyer makes an offer to the financial institution, which is gone over by its management. Often, the institution will make a counteroffer, and the buyer may respond with another offer. After they have agreed on the price, terms, and conditions, a contract for the sale can be made.

When preparing to make an offer, a potential buyer needs to look at what comparable properties in the area are worth, along with the cost of any needed repairs. Financial institutions usually sell such properties as-is, which makes the buyer's inspection even more important. If they discover damage that they did not anticipate, which the institution will not repair, they can then cancel the transaction.

Investors dedicate much to buying REO properties in terms of funds (often cash), work, time, and effort, thus the price needs to be far enough below market value to justify the risk. Foreclosures are properties that already have had problems that often include tax issues, a lack of maintenance, substantial repairs, and often needed improvements that cost a significant amount of money, and any investor looking to buy such a property needs to keep this in mind at all times.

Finally, I must state I was never a big fan of buying property in the REO stage, however our investing environment has changed! Since foreclosures have doubled over the last year and since most investors do not know how to do a short sale properly, REOs are now a viable investing option due to the over abundance of bank inventory.

Be well,

James Gage

Getting Organized For The New Year - Part 2

2008-02-02T21:58:00.000-05:00

In part 1, we discussed a system you could use to organize your office. In this article we will discuss what material is needed to implement that system.

You will need the following items for your office system. Calendar/Daily Planner; Accordion File (1-31); Manila Files with the Months of the Year (Or you can make them up yourself - a lot less expensive); Hanging Files; Manila Files; Boxes and Envelopes (9 x 12).

The calendar/daily planner will contain all appointments, meetings and deadlines for project.

The accordion file dated 1-31, along with the Manila Files with the Months of the Year will contain materials you have tickled. The tickler file is a very popular system in legal offices. Any materials you need to act on by a certain date are tickled, usually one week in advance. It is also used for standardized meetings. For example, if staff meetings are conducted on Friday, place a Manila folder entitled Staff meeting in the Friday slot, and place any agenda items or meeting items in the folder. Remember to tickle it for the day before the meeting, if you need to make up the agenda, or give agenda items to someone else. This system is also excellent for gathering information for client meetings. This system will also serve to give you a clean desk, as you can place To Do items for the next day in your tickle file. It is also used to put in notes to yourself to follow up on certain items.

The hanging and manila folders are for your files. Boxes are for your records and files to be stored in at the end of the year.

The 9 x 12 Envelopes are used to hold your receipts, canceled checks, expenses and income sheets. You should label one envelope Income and place your income sheet in the file and note when any checks come in. Label one other envelope as Expenses and put in it all receipts for purchases, canceled checks, and any other expenses you generate. At the end of the month tally up the monthly totals. I place the month on the envelope and separate my expenses into categories, such as supplies, telephone, utilities, copying, postage, etc., put the total cost next to the category and then a final total. At the end of each month's tally, paper clip or staple that month's receipts together, place them back in the envelope and file for the following month. Since most self employed individuals pay estimated taxes every 3 month period, the envelopes will have 3 months on them, for example, October, November, and December. Remember bundle each month's items separately. Seal the envelopes, file them, and then you are ready to calculate the amount to pay the IRS for the next estimated period.

In December of each year:

Box up last years files.
Make up new hanging files and manila folders for the New Year. If you are need of a label program, Avery Pro for the laser is excellent. It is easy to use, you can import files from popular word processing programs and it has its own database manager, which will allow you to re-run these same files for the next year.
Enter all standard meetings in your calendar or planner for the coming year.
Put all your income, expenses and other records you need for tax preparation in one box. Run your spreadsheet program or financial program to see what your income and expenses came to for the year. Do up a budget for the coming year, a projections sheet to determine how many clients you need to increase profits, and cut any extraneous expenses.

Following this system will enable you to spend more time on growing your business. Good luck

Getting Organized For The New Year : Part 1

2008-01-29T22:32:00.000-05:00

The following procedures will insure an organized and well run office.

1. Have a daily To Do sheet. This is made up at the end of the day. You might have items left over from the previous day, put those items first and work from there. If you make deposits on a daily basis, add them to the list. Plan to file at the end of the day or before/after lunch breaks. Doing this daily will avoid the "pile syndrome". This list should also include any marketing strategies you employ. This will insure you set time aside to implement them.

2. Have a weekly goal sheet that you review at the end of the work week and finish off any projects hanging, check supplies, make deposits, do invoicing, review the goals you set up in your business plan. This sheet will also include phone calls left to make, marketing or mailings you need to finish.

3. Your monthly goals and routines should include: making deposits, invoicing, bank statement reconciliation, mileage costs, copier costs, postage costs, and income and expenses for the month. Check your supplies and order, if necessary. Comparison of your income and expenses for the month will indicate whether or not you need to make any changes or adjustments to your marketing plan for the following month. Calendar any upcoming events. Make up new income and expense envelopes. Pull your tickle for the following month and place materials in the appropriate day. Make up your chron file for the month.

4. At six month intervals check on your competition. Are they increasing their prices? What kind of marketing are they employing? Are they offering new services?

5. Do one of the following things with each piece of paper that crosses your desk: act on it, read it, file it or toss it. Be sure you need it, before you file it.

6. Set up a mail system. Use different colored folders to categorize the mail you receive. For example, Red - you need to act on (write a letter, make a telephone call, etc.); Gray - for your information; Yellow - meetings, upcoming events; Green - minutes of other meetings, newsletters, reports, etc.; Black - flyers, advertising materials. Remember stamp the date received on all mail, and follow up as quickly as possible, if necessary. This system can be modified for those companies that do not receive a large volume of mail. This system will help staff members set up work priorities.

7. Make up a reading folder. Read or browse this material during lunch, breaks, during slow or off hours. Make up files with specific categories for those articles you want to keep as a reference. Check on these periodically (every 3 months) to see if the information is still up to date.

8. To cut down on filing and paper costs. Set up a chron filing system. A chron file contains any correspondence you have generated for a specific period of time. They are usually made up on a monthly basis. For example, label a file January Chron, and place any correspondence you generated for that month in the file. For most offices, this system avoids having to make up client files with one piece of paper in them. However, some offices keep an additional copy in the client file. Do this only if you have to.

Part 2 of this article will discuss what you will need to implement this system.

Short Sale Myths

2008-01-26T22:13:00.000-05:00

If you're looking to create big results in your real estate investing business (even in a bad market) this is probably the most important message you'll read.

Here's the reason. Most investors are missing out on a huge number of potential deals that SHOULD be theirs.

They're missing out because they don't have the right tools to get the deal done and profit from them.

One of those tools is knowing how to do a Short Sale.

Just to make sure we're on the same page, a short sale is simply when a lender accepts less for a home than is currently owned.

Now a few years ago, doing short sales was an optional skill to have. These days, things are quite different. And if you don't do short sales, you could be in for a pretty rough ride.

So if short sales are so powerful, why aren't more agents doing them?

Because there's a huge obstacle in the way. And based on my experience, the biggest obstacle to doing short sales (and putting more money in your pocket) is simply that there is a TON of misinformation floating out there about them.

The good news is most of the information is just myth. It's not true. And it's time you got the facts.

So here are the "Most Common Myths Keeping You From Doing Short Sales."

Let's jump right in...

Short Sale Myth: Banks Won't Do Them...

A few years ago, when the market was hot, this was largely the case. Banks had no financial incentive to do short sales. There was simply no need.

Today, things are different...

Banks are in business to make money. And they can't make money when their customers default on their mortgages. Plus... when a bank is forced to foreclose on a property, that inventory prevents the bank from lending a certain amount of money. And a bank can't make money if it can't lend money.

A foreclosure is bad business for a bank. That means there is a huge upside for doing short sales. And these days, banks are motivated to minimize risk as much as possible. A short sale does that for them.

Short Sale Myth: Not All Banks Do Them...

This one is simple. ALL major lenders do short sales. In fact, they have entire departments dedicated to that very thing. It's called the loss mitigation department.

It's just that sometimes what they SAY they'll do and what they'll actually do are two different things.

When you know the facts, you're in the driver's seat.

Short Sale Myth: Lenders Won't Pay Real Estate Agents Commissions...

The bank doesn't care about commissions. The bank cares about their bottom line.

Don't fall for this myth. It could be a very expensive mistake.

Short Sale Myth: Short Sales are HARD...

This is one of the most dangerous myths keeping real estate investors from profiting from short sales.

Short sales are fairly straightforward. You don't need special connections with the lenders and you don't need any "secret sauce."

To do short sales, you have to learn the process. It's a new skill that most investors simply don't know... yet. But there is a simple step-by-step way to do it.

Of course, you can't take two steps without tripping over the newest "we'll close your short sale for you" company. They charge a fee for this "service." And it's often non-refundable.

Some mortgage loan officers have also thrown their hats into the game. They smelled profits and became overnight "short sale" experts. Also, starving real estate agents have now crowned themselves as short sale experts” nothing could be further from the truth. Actually real estate agents usually cause a deal to die with the lender or in committee due to their inexperience. Note: There is an exception to every rule, including the last statement I made, so let me qualify my statement; 99% of agents don’t know how to do a successful short sale which will benefit the investor.

Here's the problem with that:

There really is no good reason to leave money on the table or pay someone else to close your short sales. Doing short sales is something that any investor can learn... quickly.

Short sales are not rocket science; however, they are an “Art”! That’s why I call my course “The Art of The Short Sale”. And once you know how to do them, you'll wonder why you didn't learn a LONG time ago.

Please visit my website for more details http://www.jgage.com

To your success,

James Gage

The Three Cardinal Rules of Negotiating Real Estate Transactions

2008-01-20T20:09:00.000-05:00

You can find hundreds of books on the art of real estate negotiation . . . but pardon my frankness, many of these books offer stale strategies and tactics that just do not work.

For example, in many books you can find the ABC rule – “always be closing.” That is, you want to have a bunch of deals in the works and you want to get to “yes” as quickly as possible in order to close that deal.

However, getting to “yes” ASAP means you leave out a bunch of steps in the middle, such as carefully pre-qualifying your prospect by asking lots of questions. (I call this process “Getting to ‘no’ first – meaning, you weed out those who aren’t serious about a deal).

It’s also why I’ve simplified negotiation down to three cardinal rules: the person who mentions price first loses, get to know your opponent before meeting with him or her, and always get your agreement in writing.

Negotiation Cardinal Rule #1: The person who mentions price first loses

When I first started doing lease options, I had a woman call me to see if I had a specific type of property that she could then lease to own. She had $8K put aside but unfortunately at the time, I didn’t have anything in inventory that met her requirements. A few weeks later I found a property and called her about it and said that if she liked what she saw after doing a drive by, we could do business that very day.

She ended up loving the property. We did the walk through and as she and I talked, I knew that $8K was sure money in my pocket.

“Jim,” she said. “I have a problem. Remember how I said I had $8K? The problem is I don’t have $8K.”

My heart fell clear to my stomach and my knees went soft. “Uh oh,” I thought.

She then went on to say, “I don’t have $8K, I have $10K. Is that ok?”

Now, I if had opened my big mouth and had said at the beginning of our negotiation talk, “I’ll need a check for $8K,” I would have never learned she had an additional $2K in her pocket. The moral being – never be the first person to talk about price.

Instead, ask lots of open-ended questions that will give you solid information in order to determine where people stand. For example, when I’m talking to a person who is looking for a house or a lease option, I ask questions such as, “It sounds like you’re living in a great place. Why do you want to move?” (What I’m really asking is, “Are you a deadbeat?”)

Or, if I’m sitting at someone’s kitchen table and he’s spilling his guts to me about his house going into foreclosure, I ask, “If you’re able to sell the property, what you would you be comfortable asking for it?” Having the property owner tell me first what he wants for the property is akin to him showing me his cards before he makes a bet. In other words, it gives me the advantage.

Negotiation Cardinal Rule #2: Learn about your opponent before meeting

One of the first things lawyers do when preparing to negotiate is consult a lawyer’s directory. They want to know which school the opposing lawyer attended, what firm they work for, if they’ve made partner, etc. And, if you’re the lawyer who works for a larger firm, you’ll have the opposing lawyer come to your office in order to intimidate him or her.

The same principal – know you opponent -- works in real estate negotiations. For example, if you’re working with a bank on a short sale, you’ll want to get to know the bank and its methods of operating and whether its personnel are “user friendly” or they’re a bunch of pit bulls. One bank I work with is very confrontational and negotiating with them is like pulling teeth. I learned very quickly that I have to have all my facts, comparables, etc. ready and at hand when dealing with them because if I screw up, I do not get a second bite at the apple.

Knowing your opponent also means learning what kind person he or she is. For example, analytical people or number crunchers will want you to substantiate and document everything. Touchy-feely people, on the other hand, will want to talk things out.

To learn more about your opponent, talk to people in your network, do some online research (i.e. do a Google search), and attend your local REIA meetings – people love to talk and by asking questions and being a good listener, you’re sure to pick up some good “off the record” data.

Negotiation Cardinal Rule #3: Always get everything in writing

Although we all want to believe other people are good and honest, the sad truth is that disagreements can and do occur in real estate negotiations, which is why you need to put all agreements in writing. This is especially important in Massachusetts, where verbal agreements are not enforceable.

If you do get a verbal agreement, at the very least follow it up with an email or letter outlining the conversation and what was agreed to by each of you. If you’re dealing with a bank regarding a short sale, send a quick fax to whomever you spoke with stating something like “These are the parameters of the deal and this is what we agreed on” and then list everything discussed in the conversation. Be sure to sign and date it and call the person to ensure he or she received your fax.

Developing your negotiation skills takes time but is well worth the effort. In order to negotiate your way to better profits, don’t blurt out a price first, get to know your opponent before you step into the negotiation arena, and always get everything in writing!