All Forum Posts by: Nicholas Hooyman

 Hi Kyle,

I just came across this podcast from Michael Quarles who is a savvy RE investor on BP.  It does a great job of laying out the process of how to go through the steps with a motivated seller.  The podcast is a series of real calls between their virtual assistants and then, the last call, is with the actual investor.  The entire padcast is about 45 minutes long.  Here's the link:

http://buysellfixflip.com/podcastitem/bsff-daily-d...

P.S. I don't work for Michael or get anything from this plug.  I listen to his daily deal podcast because they are so much more authentic than anything else I've come across.  I hope you get as much out of this as I did.  Good luck!

I appreciate the input guys. Thank you.

 Hi Ned,

Im not sure if you've gotten this answer yet... But here you go: Technically, in order to have a legally binding contract, there needs to be 3 things: (1) an offer, (2) an acceptance, and (3) consideration. The earnest money is an issue within the element of consideration. When you execute a purchase agreement, you are obtaining equitable rights in the property (opposed to legal rights when you close on the deed). These equitable rights are analogous to an option (in this context) where you tie up the property for x amount of time. In order to legally obtain these rights, consideration is required. The earnest money is that consideration. Without it, your "option" to purchase the property is not legally binding. However, two things: (1) The earnest money can (legally) be nominal (literally $10), as sham consideration has to be WAY out of wack to not be respected, and (2) its highly doubtful that a motivated seller will have the wherewithal or the resources to back out of the deal if no earnest money is provided. 

I hope i was able to make that more clear... Let me know if you have any questions. And good luck in the trenches!

Im putting together a business model to pitch to an small investor for a relatively small amount of cash to front the money to conduct a thorough wholesaling campaign after i take the bar exam in July. I want to make sure he adequately prices risk into his investment. As such, i want to walk him (and myself) through every step in the process and where his (and my) risk lies. My questions have to do with putting earnest money down for the initial purchase contact:

All things being equal (understanding every seller is different...)

(1) How much earnest money have you seen as the norm? 1% of the purchase price, 2%?

(2) Is there anyway to make that refundable (and if so, does that often kill the deal?)? E.g. could you put the earnest money in escrow with strict instructions instead of giving it straight to the seller?

Thanks for your time everyone!

Hi Tom,

Where did you hear passive losses phase out at $150k? Passive losses are governed under IRC 465 and 469. These sections, without going in too much in depth without knowing your specific situation, basically say that you can only claim passive losses to the extent you are "at risk" (i.e. that you have skin in the game) and to the extent that you have passive income. Can you tell ne a little more about your situation? If so, i can be more precise. Thanks Tom. 

Hi Jason, 

Would it be correct for me to say that you are rolling your equity from your relinquished property into your replcament property and the seller of the replacement property is taking back a note for the difference between that and the purchase price?  If so, you won't bust 1031 treatment because of the seller's willingness to hold a note for you as part of the purchase price.  

Section 1031(a) states, no gain or loss is recognized if property held for investment (or for produtive use in a trade or business) is exchanged solely for property of like-kind (to held as either an investment or held for productive use in a trade or business).  Under the regulations, 1.1031(a)-1(a)(2), in combination with 1031(b), will mandate the recognition of gain for any boot received in the exchange.  Boot is defined as "money or other property" received in the exchange.  A loan is not considered boot.  However, if the seller carries the note at an interest rate below "market value," that may be considered boot depending on the circumstance.  Even if the below market loan is considered boot, the boot received will not bust the entire 1031 transaction, it will just trigger gain to the extent of the discounted interest that went unpaid.  

I hope this helps!

Hi Everyone,

My Name is Nick. I'm graduating law school from NYU next month specializing in tax law. After reading about real estate investing in my spare time for the last few years of school, i've decided to dedicate a larger portion of my time taking action with the relatively little knowledge i have acquired while i continue to keep my learning curve steep. I plan on starting my career gaining contacts and wholesaling properties until i learn more. Eventually, i plan on finding a niche to leverage the capital i acquire via wholesaling. Im excited to be a part of this community, and i look forward to be a contributing member going forward!