From Good to Great: Taking Your Deals to the Next Level

So you think you’ve found a good deal? Awesome. But before you make a quick buck, make sure to first see if you can turn a good deal into a GREAT deal. Here are some not-so-comprehensive suggestions.

STEP 1: NETWORK

                Every deal – seriously every single one – reach out to your network. You want to do this for multiple reasons. Go to every event and talk about your deal. Put it on every Facebook page.

Your network may have someone with a specific need that matches your deal. Everyone in this market is looking for something: a lot, a rehab, a personal residence, a partner, a place for their business, a 1031 exchange property, you name it. You never know. They may understand the zoning/use better (we’ll get to this), they may have a better deal structure in mind (we’ll get to this, too). Lean on the experience of others. It’s amazing how many ideas I’ve gotten in a five-minute phone call with someone in my network.

In addition to potentially making your deal go from good to great, this also helps you grow your network and your credibility (if you’re trustworthy and competent).

STEP 2: MAXIMUM USE

I’ve made hundreds of thousands of dollars buying and selling property being marketed by investors and real estate agents (as opposed to off market). Many have made millions. Yes, even in this Nashville market. How? Because they see value other real estate investors/professionals do not. This is where the quickest money in real estate can be found. So, study up and learn the zoning, codes, land use, etc. for your counties and markets.

Real world example: Investor A sells a single-family home to Investor B. Investor A bought this off market (or has it under contract) for $235,000 all in. Investor A sells this to Investor B for $250,000, making a $15,000 profit. Not bad! Investor A is happy, and a quick and easy $15,000 is amazing. And Investor A needs the money. But WAIT… (cue the screeching tires track). Investor B realizes that if he HPRs this great corner lot, he can sell the house for $225,000 and separately sell the additional building pad for $75,000. Awesome! By having one crucial piece of zoning knowledge or by using step 1 (network), Investor B found an extra $50,000 in value!!!

Go back to your network on this. Sometimes a single idea can dramatically increase the value of what you’re selling.

STEP 3: CREATIVE FINANCING OR STRUCTURING

                Check out the article on our new commercial building for this one.

I almost always ask about seller financing. Just ask the seller casually, “do you need all of the money now or would you be open to paid over time?” People tend to focus on price. But smart investors know that price doesn’t matter if you control the financing terms.

Also, explore all the creative structures in your toolbelt to see what fits and could make a good deal a great one: subject to, lease options, tax strategies, seller financing, BRRRR, house hacking, etc. If you don’t know/understand any of these, then study them.

STEP 4: STAY IN THE DEAL

                Sometimes you need cash. I get it. I’ve been there many times. It’s ok to leave meat on the bone to sell a good deal, make some money, and allow another investor to take the property forward and also have a good deal. This is what happened in the A to B deal above. Everyone made money and is happy. That’s a win-win, and it’s always a great thing.

                But… don’t do this always or forever. Wholesaling is a not a long-term wealth builder. You have to keep some real estate to create long-term wealth. Find ways to stay in deals when you can. This may mean that you need to find partners who have cash, construction experience, lending relationships, or other sources of value you are lacking. It is worth it to keep a percentage of the deal to stay in sometimes.

                Let’s go back to the Investor A and Investor B scenario. Investor B sold the lot to a contractor friend and sold the house to someone who rehabbed the house. After a short-term capital gains tax, Investor B probably pockets about $35,000 cash.

Investor B could have instead, for example, just sold the lot for $75,000. B could have then used the money from the lot sale to fund the rehab the existing house. Investor B could have then refinanced the house with a local bank and kept the house a rental – potentially paying no taxes, with no money out of pocket. At the end of the day, B owns a nice, rehabbed property with equity and little to no money out of pocket. We could run the numbers on this, but even if the property does not cashflow much, with the principal paydown, appreciation, and tax benefits B will make A LOT more than $35,000 in the long run. This is just a simple example – there’s an almost unlimited number of ways Investor B could have stayed the deal.

STEP 5: MOVE ON, BUT ALWAYS LEARN

                Investors may or may not have regrets about potentially missing an opportunity to make a good deal a great deal. Investor A, if paying attention, will learn the HPR trick for the next deal. Investor B might wise up and keep the house or lot next time. BUT, they both had the opportunity to learn a lot from this deal. I learn something from every deal – especially the ones I make mistakes on (which is pretty much all of them).

                Take every opportunity to learn from you mistakes in every deal. Then move on to the next one. Those of us with abundance mindsets understand that there’s always another deal. And next time, we will have learned one more lesson to help us turn a good deal into a great deal.

Notice to Vacate Letters & How to Use Them Effectively

CLICK HERE to Download our Notice to Vacate & Acknowledgement Letters

Have you ever had a tenant that just won't leave? How, in this new landscape of COVID-19 protocols, court orders, and, in some cases, excuses, are you supposed to get them out?

Generally, the rules Landlords need to follow have not changed. What has changed, however, is the number of excuses tenants can use to overstay their welcome and the length of time it takes to get in front of a judge. Because of these extended timeframes, you want to be extra careful to get everything right the first time to avoid starting all over from the beginning.

What you need to understand when using a Notice to Vacate Letter (don't worry, you're about to get it soon) is something called service of process. This is just a fancy term for saying you can prove somebody got something. In this case, we need to prove your tenant got your Notice to Vacate Letter.

Since most residential properties are rented to individuals, we'll discuss service of process on an individual (there are extra methods for serving businesses).

Generally, the Courts accept service by United States Certified Mail and "personal service." When sending something by Certified Mail, it's a great idea to also send a return receipt. Certified Mail will provide a tracking number and prove that something was delivered. The return receipt will be mailed back to you, often with the addressee's signature.

The caveat to the above is that, with the rise of COVID-19, many U.S.P.S. employees will sign the return receipts with "COVID 19," "C-19" or some other vague signature that would indicate the intended recipient did not actually sign the receipt themselves. As you can imagine, this can bring into question the perfection of the service before the Court. A potential evicted tenant has a strong argument that they were not served otherwise.

That's why we recommending sending your Notice to Vacate Letter by U.S.P.S. Certified Mail with a return receipt (usually costs around $7-$8) AND personally serving the intended recipient.

What's personal service, you may ask? Personal service is a lot like it sounds - personally delivering the documents to the intended recipient or someone over 18 at the residence to accept service on behalf of the intended recipient. The gold standard is when the intended recipient agrees to sign something stating they received the document. Anyone over 18 years of age and not a party can personally serve documents.

In the absence of the above (some people just aren't comfortable serving papers on their own tenants), we recommend posting the notice on the door of the property, and taking a photo with a time stamp to prove it was left there. This is in addition to mailing by U.S.P.S. Certified Mail with a return receipt requested. Another option is to hire a professional process server, which usually costs less than a few hundred dollars.

Doing all of the above helps make your case look better, should you ever need to present it in front of a judge.

We've also included an Acknowledgement of Notice to Vacate you can leave with your Notice to Vacate. Some tenants will voluntarily fill this out & mail it back to you (we recommend leaving them with a prepaid envelope).

This also lets you set the final date, since technically the statute says 30-days from receipt. We recommend adding 10 days to the date the notice was posted on the home, just in case they were away for an extended period of time.

Commercial Building Case Study

We will be closing on a commercial building at the end of June. We are pumped! This is a mini case-study to explain our thought process and analysis on why we think we have found a way to make a good deal a great deal.

For the purposes of this mini case-study, we will not get into all the details. But we wanted to share some of the unique features of this deal that have caused it to be great for us.

                This is a 16,500 sq. ft. office building in Madison TN (15-20 mins to downtown).  The purchase price is $1,400,000. The entire building is completely vacant! Yes, that is pretty scary. And it is one of the reasons why the seller could not find a buyer at this price.

                If you know someone who needs a good deal on office space 15 minutes from downtown Nashville, I know a guy….

                But below are some of the ways that, without changing the price, we made the deal so much better for us than any other potential purchaser was able to do prior to our offer.

1.       SELLER FINANCING

First off, we were able to negotiate seller financing on this purchase which was great for us. The seller was sticking to her guns on price. She was not accepting anything but a full price offer. So… I made a full price offer.

But here’s the catch!!! After we walked the property, had built some rapport, and genuinely expressed admiration for the building and a desire to purchase, I asked one question: “Do you need all of the money for the building now, or would you be open to taking some payments over time?” Guess what she said? “We really don’t need the money. We just want to sell, go back to Florida, and not have to worry about this building anymore.”

Here’s what my initial full price offer looked like - $1,400,000 with $75,000 down, $5,000 a month payment, with a balloon in 5 years.

Here is approximately what we agreed to: $1,400,000, with $100,000 down, $6,500 a month payment with about 4.5 % interest and a balloon in 5 years.

If we were going to buy this building with typical commercial financing, it would have probably required $280k - $350k as a down payment (20-25%). And the monthly payment would have been more than $1,000 higher. It may have been even worse terms since the building has zero income.

So, by allowing her to have her price, but by controlling the other terms of the transaction, we turned a decent deal into a great deal for us with seller financing. It turns out, no one had ever asked her about seller financing until I did – despite numerous interested buyers and multiple cash offers. It never hurts to ask, and sometimes it pays off bigtime.

2.       UNIQUE MARKET ADVANTAGE – BUSINESS “HOUSE HACK”

We have done 5-6 “house hacks.” This is where, by my definition, you either rent out part of your personal residence, rehab your personal residence for extra equity, or do something else creative to turn your primary residence purchase into a great investment. Here, we plan to use this as a business house hack. While we will own the building (in a separate entity), one of our businesses which needs office space will also be the first tenant!

While under contract, I spoke with several local commercial investors who had looked at the property and even made offers. They were looking to buy the property for a little less than what the seller was asking - in the ballpark of $1,250,000 to $1,300,000.

Here is the thing though … they all had the same plan. They were budgeting to turn the entire building over and lease it up to 100% ASAP. This means they had to account for a significant amount of holding costs and risk (in the hundreds of thousand of dollars) in connection with the building being entirely vacant.  Imagine buying ten single-family houses at once and all of them are completely vacant. You are going to need a steep discount or go broke.

Since we knew we would have a tenant on day one that could cover the entire debt on the property, we did not have to account for the property being completely vacant on day one. We also did not have to account for the same level of holding costs or risk that any other interested buyer did. We had a distinct advantage over other potential buyers in this regard.

3.       AMAZING TAX ADVANTAGES AS OWNER AND OCCUPANT

*Preface – I am not a CPA. I do not give tax advice And I don’t know what I’m talking about*

If you do not have a CPA, reach out to Clinton Hauser. He taught us this trick. Based on my extremely limited tax savviness, I’ve come to believe that this is the greatest tax trick with the exception of the tax-free sale of a primary residence (google 121 exclusion).

                Our business needs to pay rent somewhere. So, now we are paying rent to ourselves - technically to another entity. We have converted what was only an expense for our business and turned it into income for another business that we own. But we will pay no taxes on this additional income!

The income will be offset by depreciation and debt payments going towards the principal. What an amazing tax advantage! Once the income for the holding company becomes significant enough, a cost segregation can be done to further defer taxes on the rental income.

                Also, this means we can afford for our business to lease up a bigger space – or as much as is needed to help initially support the holding company. While this does raise expenses for the tenant business, it increases income for the holding company. AND… the tenant business no longer must pay taxes on what we are now turning from income into an expense. We will save about $35 in taxes to offset every additional $100 in rent, because this normally would have been reported as income.

Finding Public Records on Real Estate Agents

Tennessee is wonderful in that public records are often very inexpensive or even free to find.

In this short video, you'll learn how to submit a Public Records Request through verify.tn.gov, and some of the information you may be able to receive that way.

This is a great (and free!) tool for finding more information on real estate agents, contractors, home improvement licensees, and other types of licenses.