All Forum Posts by: Phil Pustejovsky

If you don't have a real estate license, you need to get the property under contract and then assign the contract to your friend.

ALWAYS get three different quotes. Do it within two weeks and it only counts as one hit on your credit. I was once a mortgage broker way back in the day. My boss at the time urged me to always use the phrase, "we all get our money from the same places so what you're getting with me is the same as everywhere else." That is simply not true. Some loan originators get paid based on volume, others based on points. Some have their underwriters in the same building, others have to deal with underwriters half way across America. The BEST loans usually come from local or regional banks that service their own paper. If you get at least 3 quotes, you'll know with a relative amount of certainty that you are getting a decent deal. Make sure at least one of those quotes is from a local or regional bank that services their own loans. And also, watch out for all the "admin" or "doc prep" or "underwriting" fees that some like to throw in. Negotiate those fees as best you can BEFORE you sign the initial paperwork because they will hold you to those fees at closing even though you probably didn't know what you were initialing in the beginning. My mentor used to tell me, "Mortgage brokers are worse than used car salesmen." I don't hold that same sentiment but just be aware that if you work with the right person, you can truly have a good experience and not overpay; but if you work with the wrong person, it can be a horrible experience and you can even lose your duplex deal in the process.

For what it's worth, the Real Estate Commissions of this country are on a mission to shut down non-licensed real estate practitioners.

If you cultivate relationships with a few key investor buyers and essentially become a deal finder for them, bare in mind that the Commissions across America are going to consider that brokering which requires a real estate license.

Under scrutiny, a Commission is going to deem the Joint Venture approach as brokering as well since technically your Joint Venturing to find a buyer on behalf of the person who has the equitable interest (unless you can throw some serious money at legal research to find the case law to support it and even then you may not find it). For those that have done the Joint Venture approach in the past, chances are, they haven't been investigated by their state's Real Estate Commission yet.

In many states, these Commissions have hired people full time to scour Craigslist, looking for what they call "perpetrators of unlicensed real estate activity."

If you have your license, you can disregard what I have just shared. If you are not licensed, you may get lucky for a while and get away with it, but keep in mind that the Commissions are on the hunt right now, like never before.

Have you considered renting the homes you acquire through Section 8?

Section 8 is a form of government subsidy whereby the govt pays your tenant's rent. Since you can purchase properties at such a low price compared to the monthly rent, they will cash flow very well.

Your biggest challenge will be managing the properties since the tenants are more likely to complain. But locate a 24/7 handyman service and they can handle fixing toilets at 3AM. Since the cash flow is so strong, it may be worth the hassles.

DISCLAIMER: This is neither legal nor accounting advice. Please consult a qualified tax and legal professional for more information.

(1) Your CPA will ask for copies of the settlement statement(s). If you get the property under contract and then assign the contract (or sell your equitable interest for a fee), there will only be one settlement statement. If you do two closings, there will be two settlement statements. In addition, keep any receipts of any out of pocket expenses which wouldn't appear on the settlement statements, such as buying signs, any notary fees, etc.

As for setting aside any of your profits to pay for taxes, definitely consult your tax advisor on this. If you have absolutely no income, your standard deductions may offset a few wholesale deals. But as your income increases, so too does your tax obligations. If you are bringing in $60,000 a year at your day job, then you may want to save about 25% or so to pay for taxes on your profits. Depending on which legal entity you use to conduct your wholesaling, you may have to pay extra self employment taxes on top of ordinary income taxes.

(2) I put together a great YouTube video a while back to answer this exact question. Since I can't put the link in this Forum thread, the way to get to it is to go to YouTube and then search for "Best Legal Entity for Real Estate Investing". This video will show up #1. It covers the legal and tax pros and cons of sole propreitorships vs LLCs vs S Corps for real estate investors.

If you could get a contract in place with the original seller, then you could attempt to wholesale the deal to a new buyer without the need for a real estate agent since you would have obtained equitable interest by virtue of the fully executed bi-lateral contract.

However, if the wholesaler will not allow you to go into contract directly with the original seller (or the wholesaler demands his/her fee to assign his contract to you prior to closing to which you would have to come out of pocket a significant amount of cash with no guarantee the deal would close which is typically not a good idea), you would need a real estate license to avoid the appearance of brokering the deal (practicing real estate agent without a license). Assuming you were licensed, then you would attempt to get a commission for bringing the buyer to the deal.

Alternatively, you could buy the property with cash or a hard money loan and then try to flip it.

One lesson you can obtain from this experience is that the key to wholesaling is to get to the deal before anyone else does. That wholesaler is in the position in this deal that you want to be in.

I've done plenty of them. You're biggest issue is that at some point in the near future, the seller is going to want to use the VA certificate again and you are going to have it tied up because their existing loan is taken subject to. So be prepared for having to pay it off in a few years, if for no other reason besides the fact that the seller will want to buy a new home down the road and you will be holding that up.

Also, when you buy a property subject to, go the traditional route of using a closing attorney (or title company, depending on the state), get title insurance, and the whole 9 yards. Then, to ensure you are not potentially walking in the gray area of hiding from the lender that the transaction has been done (some loan docs say that the borrow must notify the lender if the title transfers), send a letter to the address on record on the Deed of Trust or Mortgage (depending on the state) that title has transferred and keep a record of this. We have never triggered the due on sale clause after sending this letter and it is definitely nice to have that in your back pocket in case the seller flips out three years later, calls Legal Aid and starts spouting off that you were a party to loan fraud. When you show the letter that notified the lender, all of the sudden, that opposing attorney has very little to sink his teeth into. Plus, the fact that it was done at a closing firm adds more legitimacy.

BIGGEST drawback to the subject to is the fact that oftentimes you have to pay double in property insurance. If you try to replace the existing insurance and the VA loan is paying the insurance each year out of the escrows it is collecting, if they see a different name besides the borrower, they may cancel the existing policy and put a forced policy in place which is very expensive. Instead, usually the safest bet is to leave the existing policy in place and then pay for another policy that you pay for not in escrow. It's double paying of insurance but is often times cheaper than the alternative. We have also successfully gotten our policy to slide through and be updated on the file, especially in situations where insurance payments are not escrowed.

I'm NOT an investment advisor so this is simply for informational purposes.

I have a solo 401K and I love it. Your solo 401K, or "plan" as experts call it, can have both you and your wife on it and each can have their own traditional and roth, for a total of 4 separate accounts. You would have to set up four accounts within your same banking relationship. I use Wells Fargo. So create 4 checking accounts for example.

Your wife would HAVE to be an employee of your LLC in order to get her own. She would have to get a salary, etc. Which may cause additional things to happen from a tax standpoint.

IRA custodians don't like solo 401Ks because it cuts them out of the deal. They get fees each year on your assets held with them, whether you do anything with them or not. Meanwhile, with the solo 401K, you are your own plan administrator so you call the shots and don't have to pay extra fees to anyone.

Plus, you can borrow up to $50,000 out of it, which can come in handy.

NOTE: You can't be your own bank with a solo 401K. You can BUY the real estate in your solo 401K but you can lend money out of your solo 401K to yourself. That's a prohibited transaction.

I personally just choose wisely the deals I do in my solo 401K versus the ones I do outside of it.

In addition to what was already shared, the following Bigger Pockets blog article spells out a very, very detailed answer to the issue of the illegality of real estate flipping: https://www.biggerpockets.com/blogs/3387-real-estate-investing-in-the-real-world It may add some new insight to the discussion.

Here is a brand new and very informative blog post to help you choose the real estate mentor that is right for you:
http://www.biggerpockets.com/blogs/3387/blog_posts/25718-choosing-a-real-estate-investor-mentor