All Forum Posts by: Joel Owens

Charles I definitely agree and I am not even close to being a tax person.

When I do commercial short sales the sellers ask about the 1099 phantom gain and how that will be huge to deal with.I tell them if they can to try and do a loan mod or interest rate reduction first.

Some bought at the height of the market and are pouring money into an over leveraged property. In these cases they don't want to keep pouring money into a property or do a workout on something where even when the market recovers it will be worth less than their mortgage balance.

In other words there is no reason for them to go down with a sinking ship.

In these cases I tell them to consult their tax accountant for legal advice and that I am not a tax person.

I do tell them if they do nothing and it forecloses the 1099 will likely be higher than in the short sale.The reason is markets continue to decline in value and unemployment is still high. Usually once the tenants get wind of a foreclosure the occupancy drops as tenants jump ship to another landlord close by.

So usually by the time the bank forecloses and takes over the complex the value has eroded even further.

I am not a tax expert but it would seem easier to mitigate a small 1099 versus a large one.

Also if it forecloses depending on what type of loan it is they won't be able to get financing for xx numbers of years moving forward.

So as you say many things to consider.

Sellers are always looking for a totally clean break from a bad situation and it doesn't exist.I tell them you have options and have to try to make the least painful and most in your favor as you can.

The bank is trying to get what they want and the seller is trying to get what they want and both have to give to get somewhere.

With taxes some are very risk adverse,some test the waters a little,and others swim with the sharks and hope not to get eaten.

At the end of the day it's a personal choice for everyone how they conduct business and live with the choices they make.

Charles do you have a blog on taxes and planning on BP that you do??

Yes sorry Charles I just quoted the wrong form.

There are so many! :)

If part of the forgiven debt doesn't qualify for exclusion from income under this provision, is it possible that it may qualify for exclusion under a different provision?
Yes. The forgiven debt may qualify under the insolvency exclusion. Normally, you are not required to include forgiven debts in income to the extent that you are insolvent. You are insolvent when your total liabilities exceed your total assets. The forgiven debt may also qualify for exclusion if the debt was discharged in a Title 11 bankruptcy proceeding or if the debt is qualified farm indebtedness or qualified real property business indebtedness. If you believe you qualify for any of these exceptions, see the instructions for Form 982. Publication 4681 discusses each of these exceptions and includes examples.

Man this is a HOT topic ! LOL

I will throw my hat in the ring.

I talk to generally about 50 investors a month to sometimes 75.Most are calling off my apartment listings I am marketing for my sellers.

I will tell you for an initial calculation many use the 50%. Now some smart ones will look at properties that are overpriced which aren't ones I take.

You can do due diligence and find hidden profit centers and ways to fix problems to increase value that the current seller didn't think of or doesn't have the current capital to do.

Generally the smaller investors keep very poor records and we have to go by the schedule E's. If as a seller you want to drive top market price than you have to have all your books perfect.

Anything questions you can't concretely explain away and show numbers will reduce your sales price to adjust for the buyer on the unknown risk. "They will not just trust YOU"

Usually with smaller properties books are poor and questions are many with the minority keeping perfect records. On the flip side larger units of properties generally have professional managers in place with excellent books and then occasionally you will have a few sellers that self-manage and keep poor books or a bad PM company.

I have seen tally's of 25% to 60% in ranges on the 50% average used.

I tell sellers when I list there property that they need to think about the buyer.Even though you manage the property and save 10% on property management doesn't mean the buyers will not use one.

Example: Property at 100,000 NOI is 1,000,000 at a 10 CAP but put in management instead of self managing to reduce by 10k in costs now the property to achieve the same 10 cap is at 900k sales price.

I find this happens often in the 10 unit to 30 unit apartment complex range where a seller can manage themselves.Anything above that in unit size usually a PM company is in place.

So I tell sellers we have to price according to what the costs will be to the majority of buyers looking to purchase your property.

As other investors have told me.Corporations say the seller does a great job with costs but our managing structure is different so we can't offer that price.

Others say they can't manage the property as well as the seller can so have to offer based on more conservative numbers to give themselves a buffer.

So as others I use the 50% equation as a quick reference and nothing more.When I get into cost analysis I ask myself if the seller has been cutting out trash pick ups,termite maintenance plans,and defering maintenance and improvements to boost cash flow on paper.

Direct mail works !

In fact many people today don't have a pot to p%ss in so they do social networking all day because they just have TIME in it.

Now if you are going to mail TARGETED mailing always out pulls blanket mailing.

My father who has been passed away for some time was a supervisor at the main mail center in Atlanta,Ga and was over thousands of mail employees at the distribution hub.

I personally do not like postcards.The reason is many postal letter carriers are lazy and get paid by the route so they want to finish as fast as possible.

Many put postcards even if paid for with standard licked stamps put inside the junk circulars.Many people throw in the trash without ever seeing your piece.

Also different days of the week have different mailing volumes.You want to be on a lower volume day so your piece gets more exposure.

I like handwriting the outside of an envelope so it looks like it's from a friend. The whole goal is to keep the letter short and sweet.You just want to peak their interest and get them to call you,text you,call an 800 number where you get there number to follow up,go to your website and fill out a form etc.

With less mail volume I am finding out better returns with direct mail.

The message of your piece and how it is laid out will drive response as well.This is where you test and track all of your marketing material.

Not everyone will respond immediately.Sending out letters has a building effect. Some will respond now and others in a few months.Being consistent is the key to success.

It is much better to send 100 letters once a month for a year then to send 1,200 letters all at once and run out of money.

If you send the wrong message to 1,200 people even if they are targeted you will get low to zero response.If you start small and experiment you will find the sweet spot that generates the best result over time.

The goal is to constantly tweak your control to improve response.First start out with a small mailer such as 50 or 100 and then start tracking.After you have the increased response to a fantastic level then you go bigger and scale it up.

Usually 1 to 2% is average,5% is really good,10% and you are hitting a grand slam.

This process I am mentioning has been tested thousands of times to be most effective in successful mailings.

On personal residences bought in a certain period you will have no phantom gain.

Residences outside of that time period and investor owned properties there are different strategies you can use.

Many look at form 941 I believe which is an insolvency form saying at the time the phantom gain was issued your liabilities far exceeded your assets so you owe nothing on the forgiven debt.

I always tell sellers to consult a tax attorney or similar to discuss ramification and strategies to limit exposure.

I am not a tax person - not even close.

Forgot to mention with the lease you are just evicting and keeping the money if they don't perform.

I would make the payment down at least 8 to 10 percent.

How is South Carolina performing?? If the market is dropping by 1 percent a month then it might not be a good idea to lease option as if they don't buy you now have to sell for a lower price.If trends show going up then you could get more in the future if they default.

A local broker should be able to show you a trailing 12 month to 3 month status report on similar sold's to give you a history.

Depending on the state foreclosure laws the cost and time to get back the property can be significant.

Being an agent from California means nothing except they think they are smarter than you.

The credit probably has nice little problems that tell a story.

Why not sell outright so you can emotionally move on with your life.Even if you sell for five or ten thousand less it is worth the peace of mind.

2% down isn't squat.Between foreclosure costs,default payments on the owner finance and damage to the property you will lose money on this deal.

Why not give a lease option and have the money down non-refundable for any reason but credited off the sales price at closing??

You can do a lease purchase but then that creates a secured interest in the property and complicated things.

good luck

Bryan and others I can help you understand this more.

When I worked on the residential side I completed thousands of BPO's over the years.

BPO's are completed for many different reasons such as bank bulk sale of regular,non-performing,or a pooled mixture of loans,mortgage insurance drops,insurance damage claim,refinances,short sales,etc.

A BPO can be an exterior bpo whereby a broker or agent is asked to take 1 pic of mailbox,1 of street,and 1 of the subject and give usually 3 actives and 3 solds with pics and occasionally the comps are without pics.
This report usually pays only 30.00 to 65.00 depending on how fast the BPO mill wants it turned in.Usual turn around times are 3 days and rushes are in 24 to 48 hours.

An interior BPO is where you do everything listed above but also go inside of the property at take at least 8 interior pictures including any damage noted.An interior usually pays from 60 to 105 per order.

The reason BPO reports take so long is say I get a bpo interior order for 50.00.The turn around time is 3 days.If everything goes perfect I turn the order in to the BPO mill who then puts through a quality control review. The bank or investor who owns the property wants the report to meet certain guidelines or controls such as comps within a 1/2 mile radius.

In many cases though there might not be recent sales that close unless it is an urban market but many of these bpo's are in suburban to rural markets.

So what usually happens is you go back and forth with QC who is an hourly paid employee for the mill and after putting in a ton of remarks it gets passed.

From there the BPO mill puts everything in a nice little package and send of to their customer.

I will try to make the rest of this post short but can take this much deeper in detail if anyone has interest.

Usually from the time of ordering the BPO it will take a few weeks to get back to the bank.Banks use BPO mills because they do not have the time to locate agents all over the country.Instead they pay a certain amount per order to the mills and the mills pay a reduced fee to the brokers/agent completing them.

There are hundreds of mills out there to work for as a broker/agent and you are an Independant Contractor cutting checks every 2 weeks to a month.

With BPO's you will here these investor guru's touting these strategies that they will work and the BPO can come back in plus or minus ten percent which on a 400k property could be 440k or 360k which could be an 80k swing in value when the bank makes a decision.

The reason you hear off and on information is because of the following.

When the market was hot 5 to 6 years ago banks and mills had to beg brokers/agents to do bpo's.Most brokers and agents were doing many sales and didn't have time for them. sales and comps were easy to find.I could do a 24 hr exterior rush on a new subdivision home sale and get paid 130 to 150 bucks. Report took me 30 to 45 minutes to complete.

Fast forward 5 to 6 years later. Now bpo's are the crack cocaine for struggling broker/agents trying to feed their families.

I know some that make 10k to 14k a month doing volume.Then there are the majority who do say 10 to 20 a week and if they didn't have orders from being click monkeys online they would be out of the business.

You have others such as myself that might do now 4 to 5 orders a month just for kicks.I only do them for long standing clients who will pay me my fee.

Now when we do a report now used to some brokers/agent would send out others to inspect the properties or take pictures.Now many mills have electronic signatures at the end of the bpo's stating you have visited the property,taken the pics,and valued yourself the property at hand.

So when a broker/agent goes to do a interior bpo they might do them full time with thousands a year,they might be a brand new agent who got in with a mill and can be influenced,or they might be an agent in between who knows values but will at least take your papers to see if you are just puffing or have valid properties to consider.

Where many agents mess up is the estimated repairs which can cause the bpo to come in high.Also may agents falsely believe if they value the property high it will foreclose and they will get the listing from the bank.

The departments are separate and have nothing to do with each other.Occasionally an AM will see the agents name on the report and they might pick up business that way.I have seen investors show up at properties and tell the agent if they get the value to come in at XX then they will rehab it and give to the agent when they resell it to make a commission.

Hope this helps

I sent you a package on the property check your e-mail.

Thanks

I am the listing broker of this 60 unit apartment complex.

Just received back updated appraisal from bank and environmental.

Units rent for 400 a month,operating expenses total about 55%.

Occupancy 50%.

This is a short sale.I need a cash offer but bank will sell cheap compared to mortgage balance.

Let me know.