There seems to be no shortage of articles on how to start investing in real estate or taking your business to the next level. What you don’t often see is a post on how to wind down your career. To someone just starting out this may be something they aren’t worried about. But they should be. Just as you want to have an exit strategy for a particular investment property, you should have one for your investing career as well.
Last week I was having lunch with several seasoned real estate investors. One of them broached the subject of packing it in. Though he had made a lot of money, the fire in the belly had gone out. It was time to move on to something else in life. Sounds simple, but is it?

A Myriad of Complications
This investor had a few problems to deal with. He had successfully laddered a number of properties as buy and hold investor. When the value of a property had increased sufficiently, he would refinance and use the proceeds to buy more property. It was always done with an eye on cash flow, if the rental income couldn’t service the debt and expenses he wouldn’t refinance. Cash flow wasn’t the concern, equity was. He wasn’t upside down on the mortgages but he was on the income taxes. Huh?

The double-edged sword of depreciation had reared its ugly head. Investors often tout the tax benefit of being able to take a depreciation write off to reduce income taxes. That’s all well and good – until it’s time to sell. This investor has owned a number of properties for a long time. That means the cost basis for capital gains has been greatly reduced and there is the seldom-talked about issue of recapture. You know all of those lovely depreciation deductions? Well the IRS wants them back. That is why they call it “recapture,” the IRS is going to recapture those deductions when you sell. The problem for this investor is that when liquidating many of his properties he would have to put money in to cover taxes. That’s a downside of pulling out equity along the way.

One Solution
Many of you are saying, “just do a 1031 exchange to defer the taxes.” While that is a solution, this investor wants to move on from real estate. After several decades of investing he wants to do other things with his life. His biggest complaint is that he didn’t plan for this sooner. He is working with his accountant and attorney on a liquidation plan. It won’t happen overnight. He figures it will take three to five years to accomplish, if not longer.

So what’s the plan? The easy part is to simply liquidate the properties that don’t have a tax problem. For the ones that do this investor is exploring the use of a Charitable Remainder Trust. Wealthy people that have stock portfolios that have appreciated significantly frequently use this. It can also be used for real estate to minimize taxes. In simple terms, a charitable trust is set up and highly appreciated and/or depreciated assets are “gifted” to the charity via the trust. The property can then be sold tax-free and the proceeds reinvested in income producing instruments. The grantor (person who set up the trust) receives the income but the assets of the trust given to the charity upon death of the grantor.

There are certainly drawbacks to this plan. Not the least of which being loss of access to the principal. To this investor that isn’t an issue. When that is an issue other avenues need to be pursued. The main point here is that your business plan needs to include an exit strategy. You do have a business plan, right?
Richard Warren

One of the key skills you’ll need to learn as an investor is how to structure deals. When you get really good at this, you’ll be able to pull some real magic tricks out of your hat and profit from deals that other investors wouldn’t touch because they can’t figure out how to make it work. I’m not there yet…I’m definitely still in the learning stages. I spent my first year in real estate investing only making offers on bank owned properties, but once you deal with private sellers it is an entirely different ball game. In fact, I’ve dealt with lots of rejected offers from private sellers over the past several months. Sure, sometimes the sellers simply aren’t motivated enough, but I also have to consider how I can structure and present my offers in such a way that I can increase my number of accepted offers.

In case you’re in a similar boat, I thought I would share a few tips that I’m putting into practice that I’ve received from my mentor as well as fellow investors with several more years of experience under their belts working directly with home owners:

#1: Always provide a written offer

It’s easy to think that you’re saving time by giving sellers verbal offers, but frankly everyone likes to “see it in writing.” Regardless of whether you think your offer will be accepted or not, put the offer in writing and allow the seller a chance to review it and give it due consideration.

#2: Remember cash isn’t always king – give options!

In the beginning, all I would make are low cash offers thinking “Cash is king, right?” Well, yes and no. It can be king for some sellers, but not for others because it really depends on the seller’s situation. Be sure to give the sellers options. If you ask the seller some key questions (e.g. how much is owed on the property, why they are looking to sell, what they plan to do with the money after they sell) you will be able to determine what types of deal structures could possibly work. For example, your written offer can include a few different options:

■Cash
■“Subject to” (liens remain in place and you take over the payments)
■Seller financing
■Combination of “Subject to” and seller financing

#3 Consider an option contract

If your intent is to assign the contract and the seller just doesn’t seem to want to meet you at a number you’re 100% confident with, consider an option contract at the sellers price and just go out there and see if you can find a buyer within the option period (get at least 90 days). There’s no risk! If the seller’s price is completely unreasonable, you don’t need to waste your time….but if its just a little bit too high for your comfort level, go ahead and get that option agreement signed and see what you can do with it.

#4 Consider a partnership

My mentor gave me an example of a deal he did where there was substantial equity in the property but the home needed a lot of work. After a rehab, it was going to be an excellent home to sell to a retail buyer. What he did was set up a contract with the seller and they agreed to rehab the property, market it, sell it, and split the profits. The seller paid the mortgage and carrying costs while the rehab was completed and they both made a nice profit when the property was sold. A win-win for everyone.

#5 Always follow up

Persistence pays. Even if the offer is rejected now, the seller may have a change of heart later. Be sure to follow up a few months after you’ve made the offer and check in to see how things are going. I’m currently working on a deal with a seller I made an offer to back in November! This is more common than you’d think. Don’t miss out on deals because of a lack of follow up.

by Shae Bynes

By: Heather Peck, Rosen & Company West

Every state is different when it comes to foreclosures. And in times like these, things have changed. Even here in Las Vegas, it used to be if they foreclosed on your house, the sheriff showed with someone from the bank up a day to two later to evict you, lock you out and then make arrangements for you to come back and get your stuff.

But these are troubled times, and there are large numbers of homes being foreclosed on every day. Currently, at least in Las Vegas, if your house is not purchased at auction by an investor or new owner occupant, the bank will assign your property to an asset manager. This could be a real estate agent or an asset management company who takes care of the property until the bank is ready to list the house.

The asset manager or agent will come by and do an occupancy check to see who’s living in the house. If its a rental tenant, they have different rights than the previous owner.

If you’re a tenant with a lease, the bank has to, by law, give you at least 90 days to make arrangements to move. They may offer you cash to move sooner, or if you have a lease that doesn’t expire for a longer period of time, they are supposed to honor the terms of your lease. This doesn’t mean you don’t have to continue to pay rent, it just means you’ll pay it to the asset management company or whoever the bank chooses while you make plans to move. Another alternative is to go get prequalified and buy the house you’re living in.

If you are the previous owner, the process is a little different. After they do the occupancy check and discover you are still living in the house, they will probably still offer you a cash for keys offer, giving you 30 days to move and also offering you up to $1500 to move and leave the property in good condition. But make no mistake, you have to move out. You have no rights, and the bank is just trying to protect their interest by offering you cash so you won’t trash and strip the property when you move. They could call the sheriff and have you evicted if they wanted to. Once the title went back to the bank (and it usually only takes 1 day to record back into the banks name), you’re tresspassing and subject to immediate eviction.

Another scenario is when an investor buys the house. They may actually come and try to make a deal with you, offering to rent the property to you for a couple of years, and possibly sell it back to you on a lease option. Depending on your current financial situation, this may or may not be a good option for you. Rent may be less than what your house payment was, and you don’t have to move. They will probably want an option payment, but you haven’t paid a mortgage payment for 6 or 7 months so hopefully you now have a little cash set aside.

Lastly, a new owner occupant may have bought the property at the auction. This is now beginnning to occur more frequently. They have the right to evict you. They too may offer you a small financial incentive to move or they may show up with the sheriff. Its their call. Remember, once the property sold to someone else, you’re trespassing.

Foreclosure is a difficult situation and no fun for anyone. This process as I described may or may not work in other states or even cities across the country. Take the time to find out how it works where you live. Talk to a couple of agents who specialize in foreclosures in your town.

Please don’t put your head in the sand. No one wants the sheriff to show up and tell them they have to get out NOW!

If you’re behind on your mortgage, or you think you’re going to be, call a professional and find out what your options are. The sooner you do, the more options you have. They may include a loan modification, forensic audit, deed in lieu, short sale or foreclosure. Some processes are just bandaids, some are real solutions depending on your situation. There is lots of help out there, and a lot of it is free.

Contact Heather: 702-595-7380 or email: LasVegasExpert@yahoo.com