The 1 Year Closing- IRS, Great relationships, Humor and Perseverance

It was a dark and stormy Friday afternoon in late October 2015 in Anchorage Alaska. My wife Natalie and I had just attended a presentation of "Hold" by Steve Chader. This was a great class where Steve walked through the principles in his book on how to buy and hold residential real estate. Steve is a great speaker, great teacher and an all-around great guy. On our way home from this event we got to talking and realized we needed to create a plan. We were stoked!

At that point we lived in our first investment property. It is a wonderful 4plex that we have done some conversions to and made into a 6plex. The unit that we lived in was AWESOME!!! We had a large garage (important in Alaska), plenty of storage (important for Natalie), a beautiful yard, large bay windows, southern exposure, paved driveway etc. It is a very very comfortable home.

So, we sit down at the kitchen table and do what we love best. Break out a flip chart and whiteboard and start mapping out our goals. We realized that at that point, we had 7 units and were very comfortable. We really wanted to stay in that home for a few more years and then buy a single-family home and continue our investing career after that. As we sat down and looked at what we wanted to accomplish in our investment career, we knew that plan had to change. We have big goals, big dreams and aren't ashamed of them. We fully intend on being great stewards of the resources and opportunities that are given to us.

We did a "gap" analysis. What did we want to accomplish? Well we wanted to have enough income from our investments to pay for our living expenses. We want to achieve financial independence through real estate investing. Where were we at that moment? 7 units and the mindset in place to keep us there for at least 3-4 more years under the current plan. At that moment, we realized we needed to change our plan. Were we willing to trade "comfort" in our current situation for the future comfort of our goals? We weren't willing to make that trade so we agreed that we would need to buy another 4plex and move into it. We agreed that we would need to do that in the Spring of 2016. We agreed that for us to feel good about our trajectory we needed to have 20 units by the year 2020. So, we agreed on it, put it on the wall and started the process.

I am a real estate agent and have great connections with our local lenders etc. and I called my friend Justin Harris who is a local mortgage broker and got prequalified. Done.

Then we started looking. We had some criteria.

1. We didn't want something old that needed a ton of work.

2. We didn't want to live far away from our office.

3. We didn't want to live on a dirt road.

4. We needed a garage.

That was basically it. So, we started looking. Thankfully, since I was my own agent, I was able to coordinate schedules with myself and view everything available.............in one afternoon. At that moment, we realized we needed to build. So then I started looking at new construction and we found the perfect spot, close to town, paved streets, garage, would be done in 120 days, beautiful!

My brother in law Jay and my sister Courtney were looking at the same time, so we all went in and met with the builder, drew up the plans, and wrote the offers and had them accepted. Jay is also in real estate and very good at his job. We went under contract on identical buildings right next to each other on the same day. This was in April of 2016. WE were set to be done around the end of September, early October.We were all so excited! Neighbors, new neighborhood, new building, should cashflow about $1200-$1400 after all expenses are paid etc.

Driving by the construction site each day on my way to work it was amazing how fast the builders got to work. They were out clearing land, putting in the road, marking out where the buildings would go and generally looking very busy and industrious. Then one day, there were these strange pink flyers all over our new neighborhood. Being the great agent that I am, I looked at the flyers, became outraged, fell back into maturity, and called the listing agent. Turns out the city had a problem with how the builders cut down "to many" trees on the property and the builders would need to submit a "reforestation plan". No problem, right? Well it shouldn't have been, but sometimes (in my town at least, yours is probably flawless) we experience something called "bureaucratic constipation" For some reason, it took almost 2 months before construction could begin again due to this issue. At the end of it, the builder agreed that they would plant some more trees after all the buildings were in.

Ok, no problem, now we are moving on! The construction began again, foundation in, walls up everything is cruising along!

Right in mid construction, a great deal on another 4plex in town comes up and it is owner finance! Natalie and I talk about it and we are pretty excited to move forward on it. We of course run all the numbers, determine it will work and then call our lender. Even though it is owner finance, we wanted to make sure it didn't mess up our new construction 4plex that we were working on. Our lender is great and ran all the numbers for us and told us exactly how to structure the deal so that we would remain eligible for the new construction purchase. We were so thankful for that deal since we weren't really looking for it, but it fell right into our plan and seemed to find us once we knew what our goal was. Funny how that works! Ok back to the new construction process.

I'm going to skip some months here, from August-February there were continual delays with the builder, subcontractors, utility companies, basically anything that could get delayed did. Some of this was totally under the builders control and I know they learned a lot on this deal. Some of it was not in their control and just strange events. I'll skip the details on that. Here are the 2 items that were really highlighted here.

1. Be proactive- I would call and email and visit the jobsite each one time per week to see if I could speed things up. Not so in this case, but I did have a great relationship (I think) with the listing agent and builder all the way through the process.

2. Chill out- One of the greatest things that helped my wife and I through this deal was our ability to roll with the punches and just keep on trucking along.

Now on to the interesting stuff. We are in February, about to close. Everything is looking good; the building is done and beautiful. So, we are all good, ready to close on Friday of next week. Wednesday I get the call from the lender that we need to get the appraisal recertified. No problem at all. I call up the appraiser (The listing agent and appraiser had a falling out and weren't enjoying speaking with each other) and let her know about the recert and that it would be great if we could get that done by next week in time to close. Problem was she was on spring break and wouldn't be back until after we were set to close. Ohh I forgot to mention. Since we were supposed to close in October we had our interest rate locked in at 3.25% and the builder had covered the rate lock extension until the end of February. So I call the appraiser and she won't be able to get it done in time. I let the lender know and they agree to get it assigned to someone else. Phew... all in the clear again. Now we just need to get the recertification of value in, then we are good to go.

Then I get another call from the lender. Since we have been under contract for almost a year at this point, one of the laws regarding owner finance deals have changed. It was now the case that if you owed on private mortgages (owner finance deals, we had 2 of them) that your debt to income ratio had to be lower. I can't remember the exact numbers, but the point is, when we structured our deal in June for the owner finance 4plex we did it exactly using the old numbers. We were golden and everything was going to work, but now with the new rule change we no longer qualified! 1 year under contract and we have too much debt and not enough income to complete our purchase.

You might be thinking, "well that is easy, go pay off some debt and you will be fine". Problem with that is we don't have any debt. We have paid for cars, no toy loans, no student loans, no credit cards. We are very thankful for that, yet in this situation it left us with 2 choices that I could see.

1. File our 2016 taxes immediately.

2. Sell one of our buildings.

I was game for #2. I could sell one of my buildings immediately to a family member and have it record tomorrow. Problem with that was the lender believed the underwriter would think that was "strange and not allowed". So many rules in these people’s lives!

So it was Friday AM and we decided we just had to file our taxes, immediately. So I called my CPA and after explaining what was going on, he agreed he could have them done by the end of next week. After some more talking (pleading) we agreed that first thing Monday morning would be great. I am so thankful for the relationship with my lender and my CPA! Come Monday morning, I had the rough draft of our taxes, sent it to the lender. He gave us some things to change before filing and then we were good to go. Thankfully since I have business income since I am a real estate agent, and rental income etc. there is lots of room on our tax returns to claim deductions, or not etc. In this case, the rough draft showed that we owed $17K in taxes for 2016. The final draft that we had to file to qualify for the loan showed that we owe $28K :S. I am a strong believer in using a great CPA as a partner in my business and this is a great example. 3-day turnaround time, and the way he normally would do it saves me $11K this year. (we are going to amend the returns now that we are closed). The lender warns me though that we absolutely can't file these electronically though because of some strange 6-week processing time or something. At this point, I quit listening to the problems and only focussed on the solutions. (1 year will do that to you!) So now I knew I needed to walk it in to the IRS and have it filed there. No problem, right?

I showed up at 12:04pm. I had an appointment that I needed to get to by 3pm. Plenty of time! I am growing in my maturity and delivery of my thoughts to other humans, so before I went in, I stopped and took 10 deep breathes and repeated in my mind. "no matter what happens I will not have any ferocious verbal outbreaks, no matter what happens I will not have any ferocious verbal outbreaks, no matter what happens I will not have any ferocious verbal outbreaks". Prepped and ready for the battlefield, I opened the tall double doors and breathed in the stale air of bureaucracy and frustration. To my surprise, I was the only client!

I approached the front desk with a new sense of confidence and a positive outlook!

"hello, I am here to file my 2016 taxes"-Me

"Ohh no problem, do you have an appointment?" Marge at the front desk

"No I don't, do I need to?"

"No you don't need to, you can actually just file those online"

"I understand, I need to file them here in person. How do I do that?"

"Well if you need to file them in person, you could set an appointment, but really it is so much easier to file them online, or you can even mail them in. Would you like a preaddressed envelope?"

"No I am sorry, I really need to file them here in person today. If I don't have an appointment and don't want to file them online or through the mail, how would I go about doing that?"

"Ohh you would just take a number and wait for our next associate to help you"

"Perfect can I have a number?"
"Sure here you go" then she hands me the number and stares at me

"Thanks...... now what do I do"

" Ohh, you are going to want to go have a seat around the corner and wait until your number is called"

Thankful that this painful interaction is over I happily take my number and cautiously look around the corner. To my surprise, I am the only one in the waiting room! This is going to be no problem! I take a seat and start to wait. There wasn't much going on and about 24 minutes go by with no numbers being called. So I approach Marge at the front desk and inquire.

" Say, I have been sitting over there for awhile, and no numbers have been called. I'm sure I'm up by now but I must have missed them calling my name."

"Ohh no, everyone is at lunch, they should be back in about 5 more minutes" Then smiles and looks back at her computer.

I will not have any ferocious verbal outbreaks.

I go and sit back down and patiently wait. No problem at all. 5 more minutes. Easy. Then a nice couple comes into the waiting room and sits down. I nod at them, they smile at me and wait their turn. Ohh they are in for a surprise. They are at least 45 minutes out to get any attention. Based on my seasoned experience at this point. As I'm thinking about this the intercom comes on and a number is called. I get up without hearing what was said. So does the couple that just got there. Then I look at the screen and look at my card. I was number 42. Number 26 was called. The other couple who just got there was up! Defeated I sit back down and wait a few more minutes. Then it keeps happening, people show up after me, a number gets called, and they get helped. Now I know you are supposed to mind your own business, but I can hear what is going on in the other cubicles and what each of the clients are doing. All I need is to hand someone my stack of papers, get them stamped and leave. Some of these clients are getting 28 minute dissertations on what taxes are and how the IRS makes their laws............

I will not have any ferocious verbal outbreaks.

I approach Marge again.

"Hey, so I must be missing something. I have been here for an hour or so and all these people keep getting helped before me even when they show up after me. What is going on?"

"Ohh they have appointments"

"Oh, can I set an appointment?"

"Yes you sure can, but really you should just file online......................"

"I get that, we've gone over that. If I didn't want to do that, and wanted to file today, right now, in person, how much longer do you think I would have to wait?"

"Well that just depends on how many appointments are scheduled ahead of you"

"I see, is there any way for us to know that information?"

"Ohh yes, I have a list right here of all the appointments this afternoon"

"What? Ok well based on what you have right there, how much longer will I have to wait?"
" Ohh anywhere from 2-5 hours depending on if more appointments get scheduled while you are waiting. Appointments have precedence over walk ins"

"Ok I see. Can I please set an appointment in the next available time please?"

" Well really you don't need to, you can just file online"

"Yes. I want to set an appointment, how do I do that?"

"Ohh here, call this 1800 number and they will schedule it for you"

Thankfully I grab the number, take some deep breathes, thank the Lord for the new-found maturity and ability to not have a ferocious verbal outbreak and pull out my cell phone. I dial the number and the kind lady in Texas asks me if I can hold for 10-15 minutes. No problem at all. It is 1:45 and I am doing good. All part of the process. This will make a great story. I am building so much character. Then I get a tap on the shoulder interrupting my internal reflection the beauty of the growth process. I turn to find the security guard kindly towering over me. He points to the sign I am standing next to. "no cell phones" I look at him, look at Marge. Growl and then walk into the hallway. As I am out there waiting for my turn to schedule the appointment, I start to have moments of doubt. "how much longer can I take this? Will this ever end? Does God not want us to buy this 4plex?"..... then before I get to far down that thought process, the security guard excitedly opens the door and yells "hey man! your number just got called!!!" I hang up and run in to meet my destiny. I excitedly tell the associate "I know that I can file these online, I know I know I know. Can you please just file these here and now and give me a stamped copy?" In between smacking her gum and staring at me she says "yea" shuffles in her desk, takes my stack of papers and in 28 seconds comes back with a stamped copy of my taxes.

Elated I take that golden ticket right over to my lenders office and hand it directly to him. He looks at it and starts flipping through it. "Blake, they only stamped the first 2 pages, where is the rest of it?" I look at him and say "Justin I am not going back over there, make it work!"

Then I get a call from the lender, the Appraiser that was hired to do a recertification actually accidentally did a whole new appraisal, and it came in $8,000 higher! In this situation, that meant that we had to bring $8,000 less to closing.

2 days later we closed, and at this point my wife and I are moved in and loving it. What a long long funny process!!!

1. 1 year process

2. Beautiful building

3. 3.25% 30-year mortgage

4. $10Kish brought to the closing table

5. Lots of laughs and frustrations along the way!

My encouragement to you

1. Find humor in your circumstances. Life is way too hard not to enjoy!

2. Have great people in your life. There is no way that deal could have been done without my great relationship with my lender, my CPA and my wife!

3. Be proactive

4. Focus on the solution, not the problem. So often the problem only needs to be considered long enough to find a good solution!

If you are in a really long painful arduous transaction right now, remember why you started it in the first place, and keep on pushing! If it was good enough to start, it is good enough to be finished! I certainly hope our next purchase doesn't take so long, but if it does, we are now better prepared for it!