What Do Lenders Look for Before Funding Investors? How Can You Determine What a Property is Worth?

Audio Transcription

Business coach Clay:
yes, yes, yes and yes. Thrive nation. I am fired up today and it’s not just because uh, Landon Robert’s number 52 for the Patriots switched from linebacker to fullback in dominated. But no, seriously, that is why I’m fired up today. I just love that we have another injury and I’m sure the show is going to come out after the season’s over, but yet another injury. So bill Bellacheck, the master switches a linebacker to fullback and this dude is just clearing a path. He’s like a bulldozer knocking other linebackers out of the way who are not used to being hit by other linebackers. And it was a thing of beauty. He was just telling people it may make sense to clay cause it like all the years I played football for somebody went both ways, both ways, offense and defense. Then lot of times they were linebacker to fullback.

Business coach Clay:
They that goes hand in hand in Paul, you’re nuts. You’re a big football guy. Think about this. I was watching their, their first drive of the game. Uh, again, I don’t know the actual stat in front of me. They had for the, for the, for the first 15 minutes of the game, I think the Patriots had the ball like for 13 minutes of it. And that’s for Debbie. You’re watching with me that quarter, man. They’ve just ticked down the clock every time. Going down to the final two seconds before hiking it. Just methodical. Just, Oh my gosh. It was Tom Brady. Hands off to whoever and then he gets six yards. Yep. Tom Brady, hands off to whoever and he gets six yards. Then Tom Brady and the game. Did you see, did you hear about his block? He threw a block. I saw that he got fired up.

Business coach Clay:
I think he lost his mind. And for a second time, I’m not Tom Brady, I’m a Landon Roberts, you know, and boy trying to throw a block and he did it. He did it. He lost his mind. He got all caught up in the run game and he’s like, well I’m going to run it into, and he made a dash for the corner of the end zone and he gets about two yards out. Devin, you did, you did you see this play? Not see this play but it’s like, gosh, it’s so funny. He’s about two yards away from the end zone and he’s coming into contact with linebackers and he fakes left. But the announces were giving him a hard time cause he faked, he tries to juke. But the a a a Rick, uh, Kurt Warner who was a quarterback who was also very slow as a player.

Business coach Clay:
He says you have to have some kind of speed at all otherwise of fake. Does it really work? Tom tries to fake and the other linebacker I could tell you almost felt bad for him, just falls on him cause he couldn’t do anything and Tom gets up and he’s just laughing. It was awesome. It was awesome. Well anyway, I love, I have fun playing the game of business. It’s fun for me. I like it. Uh, probably in the way Tom Brady likes a football. I know you love accounting and helping your clients. And so we’ve got some Thrivers out there that have quite a few questions for you. We’re going to do this. This will be kind of the rapid fire show. So I’m going to ask you a question and then we’ll see how, uh, quickly and succinctly we can answer the question and we’ll do another one and another one. And then we’re going to pick on a Charles Cola from time to time to tap into his entrepreneurial brain as well. So here we go. Let’s give it first question. Are there any common legal tax shelter vehicles or accounts that I should be aware of as an employee?

Paul Hood:
As an employee? Yes. Yeah, that, that, that last little part makes it tough because, uh, probably 90% of the, the tax code is written for people in business for themselves. So any more being an employee, there really are very few tax planning opportunities. Um, and, and so what I obviously with the world that I am in, and what I try to preach to people is, you gotta own your own business. I think it was, if you’re working for somebody else, they’re paying you about a third of what you’re worth. So there really are none. I mean, put money in your 401k, uh, start investing maybe in, in not only in, in traditional investments, but real estate because you can get some, some time value of money. You know, you’re, you’re getting to deduct the interest and the depreciation at the same time. Um, and, and so that, but that, there’s a few,

Business coach Clay:
no, I have a quick, I want to rightly divide what Paul just said. I don’t disagree, but I do want to add a little caveat. Let’s get it. Uh, according to inc, 96% of people fail in business. 96%. And, uh, if you’re a scare, if you’re scared of 4:00 AM wake up calls and you’re scared of not having a day off for like a Charles, how long did you go without having a day off when you started colo fitness? Oh, I have no idea. But a long, long, more than a year. Oh yeah, for sure. Two years. Five years.

Paul Hood:
Uh, no, probably not. I probably started to have, I’d take a day off or go on a trip or something. Maybe after three years, probably three years. You’re just, you’re literally

Business coach Clay:
so you were sick, but you still were, you still showed up. Oh yeah, for sure. Absolutely. So if you’re out there and you’re somebody who likes to celebrate 102 days off a year, you know the day before Thanksgiving and just for five years when you’re self employed, get to choose whatever, 80 hours a week you want to work. And so I will tell you, we’ve had some people who have come back to my office after, after leaving to become self employed and they’re like, can I come back please? Because they’re like, yeah, it happens a lot. So just be careful before I, I do agree with what he said about the tax advice, but I would also say if you are not ready for the 80 hour work week, you better to love what you do. If you want to play linebacker on the Patriots and you’re worried about getting bruised, don’t go on the field. The best thing you can do is just do not get on the field. Don’t if it’s like fan appreciation night and they announce, ladies and gentlemen, if you’d like to play linebacker for the next two plays, come on down. Don’t go down there. I’m in. No, if you have, if you are afraid of bruising. Okay, can you help me understand the 10 31 exchange? The listener asks Paul Hood, can you help me understand the 10 31 exchange? What is it?

Paul Hood:
Okay. Section 10 31 exchanges in the area of what’s called a like kind exchange. So it was put in the internal revenue code that says, okay clay, you have a tractor, I have a tractor, we trade, we don’t have to pay taxes. But it’s morphed into a three party thing to where you have, I have a tractor and I sell my tractor to this guy and he has a tractor and he sells it to you. So like kind exchanges says if you’re, if you’re selling something and you’re buying something else, that’s like kind real estate, rental property, whatever. You can defer your gain from the first sale into the, the, uh, the acquired property. Now there’s certain stipulations you have to identify your replacement asset or prides. Typically in real estate is where it happens. So if I sell a house for, let’s say this, let’s say I have a $200,000 house, and if I don’t take the profits from selling the $200,000 house and roll it into the purchase of another piece of real estate, right?

Paul Hood:
I have to pay gains tax. That’s right. How long do I have to own the first house before I can sell it at a profit? Well, typic well that, that’s irrelevant. You sell it immediately, you get the first house. So if you sell a property for it, no matter how long you own it, unless it’s your personal residence, and then there’s some exclusions there. But if I’m selling a house or a rental house and I don’t want to pay taxes on it, but I just want to sell this one, but I want to get a different one. So what what you do is you sell it, but you use a facilitator, you can’t touch the money and then you have 90 days to identify the replacement property and another 90 days to acquire the replacement property. And so when it gets complicated, you can have what’s called a reverse light count exchange where you buy the replacement property prior to selling the, the first property.

Paul Hood:
But you, you, you just, all it is is you’re rolling. So if I’ve, if I’ve selling it for 200 grand of my gain is 100,000, I have to buy another $200,000 property to roll the entire gain over to it. This listener now asks, what type of information do lenders want to see before they will lend you money on an investment property? Okay? They want to know one. Uh, do you have skin in the game to, do you have any experience in know if you don’t have experienced and it’s a little harder sale, they want it just like they’re going to go at it as if they’re investing their own money. Got it. Um, and so they’re going to go and say, is it the right place that, you know, what are you putting into it? How much work does it have to have and what can you rent it for?

Paul Hood:
The cash flow and all of that. I have also found, and you can tell me if I’m incorrect cause you’re a CPA and this is what you do. I have found that most of the time banks want to see a personal balance sheet, like a net worth statement that is certified audited, right. They want to see that they also want to see your credit score and they also want 20% down. That’s right. And they also want to know can you finance the property? Should things go bad? Right, right. I mean if you don’t have a renter. Yeah. So what they want is, I mean, of course best case scenario for a bank cause they want to know if the, if the property just goes caput then they can come. You have other assets on the side that they can come get. But that’s why they want you to have money into it.

Paul Hood:
Because if they have a house, if you buy a property for $100,000 and they loan you 80, in theory, if they repossess it, they can sell it for at least 80 to get their money back. Next question from the listener. What are the most common or main types of financing available for new investors? Financing for new investors? What are the most common in real estate types of financing available for new real estate investors? Yeah. Okay. Yeah, so it’s the same thing. There’s, you know, there’s, there’s some, uh, you know, um, SBA types of situations. Um, there’s banks, um, will, will they, they typically are going to go 75%. Um, I do a lot of owner carry, uh, now that I’m on the selling side. Um, and so we’ll use whether, you know, when I was buying properties that a lot of times I’d have the owner carry it because again, it’s a tax advantage to them not to get all their money up front.

Paul Hood:
Can you explain what owner carry is now that you’re on the selling side? Just so people can understand that, that terminology? Sure. So I started off in it in um, what’s called seller finance mortgages. I had a bunch of condos and I would say the weird thing is as people have extra money during tax season and, and if they’re not, excuse me, if they’re not getting boob jobs, they’re, maybe they’re buying real estate because I find I’d rather a client that’s in that business. He said that’s what they spend their refunds on real quick. We know the same man. Yes, this is true. He is great. This Justin. Okay. So it’s validating that it wasn’t just a hyperbole that is a real thing is amazing. So for me, I would have a condo that was probably worth, you know, $35,000 and I could sell it if I was selling it just with a realtor, I could sell it to somebody for $40,000 and have them give me $2,000 down and I would carry the note on a 20 year amortization and, and they would make payments to me and I would, you know, maybe make eight 10% interest.

Paul Hood:
And if they defaulted they, they typically would come back to me within six months and saying, here, will you take this back? And then I could just do it again. Now I’ve morphed into, now most of my properties are sold to one couple. And because I got tired of taking them back and everything, I made my money, I did my thing and now I’m making the interest on it. So I’m making a spread on the interest. Plus I’m getting a little bit of profit as I go. You keep selling the properties to the same couple? No. Different people, different people or different people. Okay. Okay. Now if I said same, same [inaudible] I’ve sold, I’ve got 35 condos I’ve sold to one person now and they are just making the payments so they’re not going to give it up. They’re there. They’re not one that will churn it prior to them.

Paul Hood:
I sold those many, many, many times. The next question our listener has is how do you have confidence in your estimation of the value for a home once it has been repaired? Like once you’ve bought a house and you want to flip it, I’m okay. I’d like to tee off on this and then we’ll, we’ll move into it. What you do is you don’t, don’t, please don’t, don’t do this. Do not buy a property in an area where you’re not familiar with it. Right. Okay. So I’m just going to do an example I live in, in broken arrow. So let’s just do this. Uh, we’ll go, uh, I’m gonna look up 1925 West Memphis and broken air. I’m looking up the address in broken arrow if you live there. I’m sorry for putting your name on blast, but I did live there for a portion of my life, so I’m going to queue it up here. So it’s 1925 West Memphis. I see it. There it is. Oh man, that tree is big. Now it’s a of the

Business coach Clay:
tree, but you look it up here, and a Zillow will real quickly tell you what the house is worth, what they estimate it to be worth. Now some people say, man, Zillow’s always too high. Some people say it’s always too low, but it’ll give you a, an estimate of what the house is worth. And so you look it up, you click on it, you look it up. But if you’re not familiar with the area, you run yourself a big risk of not understanding the dynamics of the neighborhood. That’s right. Because if the neighborhood is now hood, that’s a problem. That is, or if the neighborhoods now, great. That’s a cool thing. So as an example, like if you were to buy the Mayo hotel back in the day, which uh, I’ve been told it was purchased for $250,000. Wow. Because downtown Tulsa was doing poorly and it sat vacant forever.

Business coach Clay:
But if you knew the knowledge that division 2025 had just passed our big plan to rejuvenate Tulsa, to build the gathering place, to put in the low water dam to build the bok. And you knew that this dilapidated part of Tulsa that had been vacant Tulsa was forever. If you knew this, Oh, and if you knew this, you would be a big buyer on the vacant downtown Tulsa. So a buddy of mine, John Snyder, he picked up the old YMCAs building. Homeboys started buying, I think he bought like 6% or something of downtown Tulsa. But then what am I biggest clients? Maurice Kanbar who invented sky vodka, that homeboy Maurice Kanbar look that guy up. Maurice Kanbar, the inventor of sky vodka. He bought 26% of downtown Tulsa in a week. Wow. 26% because he knew the area. So he bought the Atlas life building for nothing because it was vacant. These things were vacant. Then they cleaned it up, sold it to the Marriott hotel. I mean it’s unbelievable. You’ve got to know the area. So you say, how do you have confidence? You got to know the area area and he, Paul, don’t you have to kind of get in the parking lot and look around and see what’s around.

Paul Hood:
What I’ve done, clay in the past is, so you typically, comps are based on square footage, price per square footage. And so what we would do is look for homes that I could buy that are 36 you know, less than $40 a square foot. But the area was selling for, you know, 85 to $90 a square foot at a minimum. And based on what we knew we needed to put into them, that was our parameter. And, and because that, that, you know, we could buy a house at at $35 a square foot, put $50,000 into it, turn around and sell it at 85 $90 a square foot and put, you know, 40 50 grand in our pocket. So, you know, you can quantify it just like anything else.

Business coach Clay:
Paul, I’ve got, we have you have time for one more question before you have to go to your super important meeting. So here we go. Uh, he writes, I purse, I purchased a personal primary residence and March of 2019

Paul Hood:
the value has increased significantly, right? And I’m considering selling. What do I need to know about capital gains tax? Well, you just got to know that if that was your personal residence, um, what they’ll do is you, if you’re single, it’s $250,000 exclusion for selling your personal residence. If you’ve lived there for two years, if it’s less than two years, then that 250,000 is indexed. In other words, if you’ve been there a year, there’s 125,000 of gain you can exclude. If you’ve been there for six months then, then it’s, it’s whatever, a fourth, a half of 125,000 of what? 70,000 or 30 sixty thousand seventy thousand dollars gain. So they, they index the gain if you don’t live there the entire period. So unless it’s in a year’s time has gone up more than 125 and if you’re married, that’s 125 for each of you sell that bad boy and put the money in your pocket.

Paul Hood:
You pay no capital gains tax. Paul, if somebody goes to your website hood, cpas.com yes sir. And they schedule a consultation. You give everybody a free copy of Warren Buffett’s book snowball. We do. Why? Well, so in this world, we live in the greatest country on the planet, but we don’t teach our system of economics. We teach people how to, how to get a job, be a good technician. And Warren Buffett’s just one of those guys that thinks outside the box. And we, we, we teach people to think outside the box, to think different than your neighbor, different than your family, different than your college professors. And so that is a book. You can either use it as a doorstop, cause that sucker’s huge or if you read through that, you’re going to get a perspective on life, different parts of life that’s going to open your mind because like what we said before is your best choices, your best decisions has gotten you where you are today.

Paul Hood:
And so you need help. Um, if you’re going to try to lose weight, I think you called Charles Colon his group because you need help. If you’re going to grow a business, then you need to call clay Clark and his group because you’re going to need help. If you want to keep more of what you’re making, then you call us because we’re going to help you change those choices that you’re gonna make. Paul, at this year’s Christmas party, elephant in the room, we have some expert stylists there. And I thought, what better way to celebrate the Christmas pageantry than to Roundup experts? You know, you’re an expert in accounting. Charles is an expert in fitness. We’ve got hair experts. So we did the haircut Olympics to see who could cut the person someone’s hair the fastest. Oh wow. And the best. And this is what I ended up with here.

Paul Hood:
This is where I ended up with. And they chop this mop down and like, I want to say like seven minutes and look at that and subs to seven minutes. And I did not, I did not win. My stylist did a great job, but uh, uh, so if you’re looking for a speed mop chop, you know, I mean that’s not our thing. We want me to take 30 minutes. Sure. And I think that’s, I think that you can’t rush a good haircut. Really. You can’t rush it. You can try with my hair. You can [inaudible] it’s gonna take about a 30 minute consultation with you right here. You can’t, is it a 30 minute consultation or how long of a free consultation do you want to give an hour for free? An hour, hour, not a speed cut. Not a speed cut. This is dig deep. Ask whatever question you got. Well, Paul, we’re going to end with the boom. All right, Charles, are you ready to end with the boom? Yes, Devon, are you feeling it? Let’s do it. Here we go. And now without any further ed, do

Speaker 5:
Frank what? Whoa.

Speaker 2:
My name is Janet Ramos and I am from Amarillo, Texas. So I heard about the conference through place podcast and I learned about play dough or our church. She came to speak at our church. The atmosphere here in the conference and very high energy. I mean, they’re playing music. You walk in at six 45 in the morning, you’re still kind of dragging and they’re in the band playing and it’s just really loud. People are talking, they’re applauding, they’re welcoming you. Very high energy here. I really enjoyed place presentation. Now I know visit meetings can be very long, drawn out and boring, but his energy is really high and he keeps you intrigued. He keeps you engaged. Um, he’s very, uh, very, uh, busy with the audience and so, um, I, it’s just been been interesting from beginning to end. Just not one dull moment. The most valuable thing I’ve learned so far is just to implement.

Speaker 2:
And a little things such as Google review goes a long way. And so really just, um, planning your time, breaking it all down, making time for it. Then you know, the F six in your life and just really implementing it and sticking with the program. If someone decides not to come, they’re missing out on number one, just a really gate great conference. I mean, I’m learning so much, I’m intrigued but to lots of valuable information that I’m not a business owner, but there’s lots of information that I can just apply to my day to day life in general as a mom and as a wife and as a working professional. So rate you’re getting a great deal for it and you’re meeting lots of good people and you’re kind of just taking in everybody’s advice from kind of seeing how it’s worked for them, how they’re implementing things, and just learning how to be better as a person. [inaudible]

Speaker 5:
10 the world’s best business workshop led by America’s number one business coach for free by subscribing on iTunes and leaving us an objective review. Claim your tickets by emailing as proof that you did it, and your contact information to info at thrive time. Show dot

Speaker 2:
[inaudible].