Hidden Real Estate Strategy That Tax Assessors HATE!

When you buy or sell a property, the tax appraiser or tax assessor reports the transfer of title. They report the transaction. If I own a trust, so it would have to be the current owner of the property has a trust specifically, and they sell that trust. So if I buy a trust, then that trust now becomes mine and the trust still owns the property. Then a transfer of owner, technically, as far as the tax appraiser goes, hasn't happened because, you know, ACME Trust owned the property before. Acme Trust owns the property still. But the owner of Acme Trust changed, you know, so that's absolutely true. And if you ever find a property online that is changed hands, but it doesn't report how much or whatever the. That's often how these companies are doing it is they're selling the entity or they're selling the trust that owns the property. The reason we specify trust is that a trust does not have mandatory reporting like an LLC does. Right. A trust is a private entity that doesn't have to do, you know, the annual reporting to the local secretary of state. And so that's kind of a way to fly under the radar. Now, you'd have to read the due on sale clause. A lot of times they've kind of covered up that loophole, but. And so I'm not recommending it. You know, I always have the asterisk of I'm not an attorney, I don't even play one on tv. But you would have to go in and dive into that due on sale clause and see if they, if they've covered up that loophole. Now if you're comfortable with that loophole, if you're comfortable doing it anyway, buying property subject to, then. Yeah, I see. I think, you know, having it, having a trust that changes hands to where the registered owner didn't change hands can be a way to sort of additionally protect yourself. There's no perfect way, but that would be, that would be a way to improve it. The challenge is, is that you've got to get the seller, you know, to have a trust. And so they might have to do a transfer of title. So that's the trick. So it works best if they already have one, because if they transfer from one entity to another, that also could trigger the due on sale clause. The way that they would do it, they'd have to notify their lender, hey, I still own this. When it makes sense to consider an SBA loan for financing. Yeah, I think so. The problem with SBA loans is that traditionally you have to occupy the Property. The rule is, is that you have to occupy 51% or more of the, of the physical property. And so there are SBA sort of loans that fall under the Small Business Administration. But like, if you're in a, an industrial building and your business is occupying 50% of that industrial building and you bring a tenant onto the other side, then absolutely, I think SBA could be a great way to go. The question is just if you, if you qualify. But there's so many different government programs and government loans and different kinds of SBA loans. But I would consider all options. Keep everything on the table. Keep the questions coming if you have them. The last sort of category that I wanted to mention is cross collateralization. So cross collateralization is when my first two deals I ever did were through cross collateralization. So that's where you take one collateral, like a house or the building that your business is in, and you leverage it to buy something else. The benefit of that is that the, the property you're buying doesn't have to appraise, doesn't have to qualify as collateral for the loan because you're using another property. And as you get to where you have two or three properties in your portfolio, this is a fantastic way to build that snowball much more quickly, because as you're building equity, you can leverage that equity to buy something else. And it's the equity on that original property, so you can close much more quickly. So what I is I took my house and I got a home equity line of credit, and I used that as the down payment. That's what got me into flipping. And then I ended up buying a commercial property. With that commercial Property, we had $1 million in equity. Over time, I leveraged that equity to buy a bigger commercial property, and I let the one that we bought pay down the loan that we'd taken on the first property. And then when we sold it, we walked away with a big chunk of change. But in both cases, we, we didn't come out of pocket any money. It was other people's money the whole way through. We were just leveraging the equity that we had in those properties. So if you own a home, if you own real estate, consider cross collateralization as a strategy. Leverage the equity in order to continue to buy properties. And the bigger your, your assets under management, your aum becomes, the bigger that snowball becomes, and the faster you can, you can build that up. And then what you do when you go buy that property is you have the tenants pay back that loan, which, by the way, guys this is an aside, but some of my wealthiest clients, some of the wealthiest partners that I've had, this is how they, this is how they pay all of their bills. They'll go in, let's say they have a property that, that is worth $3 million and they've owned it for a long time. There's like $1 million debt, half a million dollars in debt. They'll go in and get a line of credit for a million bucks, 2 million bucks. And they just take that money and they go and they spend it on whatever they want. And then they let the tenants that are at that property pay that loan down through the monthly payments with the cash flow of the property. And so they took out a loan that they don't have to pay back. The tenants are paying back. And because they took out a loan, if I took out a million dollar loan, that's not taxable income, that's debt. And so I can take tax free money every year or every couple of years and let the tenants pay it back and that's income that I don't have to pay taxes on. Now the downside is huge. The downside is what if the tenants don't pay it back? What if the, what if the noi can't cover it? Right. What if, what if something happens to the property and now I'm stuck paying it back? So that's why I say if you're going to use that strategy, be extremely conservative with it. Make sure that you're, that you're, you know, taking less than you could. But with the same concept earlier in life, when you're not at, when you're not that close to retirement, that's, with that same concept, you can leverage it to buy additional properties. It's a great, a great tool. Is this infinite banking? No, Infinite banking has to do with whole life insurance. I'm a fan of infinite banking. People will go in, buy a whole life policy that has cash value and they'll leverage that cash value to buy property. Very similar concept. You can even have the entity that owns the property get a whole life policy and have the net operating income of the property go in to build up the cash value. But yeah, I would Google whole life or infant banking. What documentation is needed when leveraging a property with partners in ownership? So if I'm leveraging a property that I have now, that becomes cash to me. And so there's not really any additional documentation needed in order for me to put cash into the deal. I come up with the cash. They don't know where I got it from. Now, if I don't earn that cash back, I could get burned. You know, I might. I might have to get foreclosed on or whatever in the property that I leveraged. But to them, to whoever I'm buying it from, it's cash. I just have the cash. They don't know that I leveraged another property in order to get it. So I hope that helps.

JD, this is Jonathan. I just wanted to follow up on that last question. Yeah, so I had actually meant, like, when you're leveraging the property in order to actually get the money out for cross collateralization. If, if the one that you're leveraging, the one that you're taking the loan out is in partnership, you're increasing the debt on the property itself for something that the partners who are in it with you are possibly not involved in. Do you need to document in a partnership agreement or in any way just the fact that you've taken out more debt on this property as an individual?

Yeah, I was referring to, I put up a property I currently own and then pull out that cash in order to go buy something else. But in the situation you're describing, like, let's say there's a syndication, we're two years into it, we've got a bunch of equity, and we want to go take down another property. That partnership would have to all agree, and they would have to kind of do it together. So the way that I would do that is I would wait until you've stabilized that property, refinanced out of it, and then the. The owners, after refinancing it could. Could just be you. If you're the. If you're the general partner, could be you and one other person. But whoever that is, they are probably the investors that went in on that deal originally or those investors have been bought out. But as far as limited partners and that kind of stuff, I wouldn't mess with that. So I'm glad you clarified. This is a method of leveraging your current assets to buy something else. And so whoever owns those current assets. Yeah, you're exactly right. They would all have to agree. And being on it together. Can you talk about note buying? Yeah, so note buying is just that. It's. It's buying debt against a property. Now, typically, the only people that are selling notes are people who have had difficulty collecting on those notes. And so a lot of times those notes ultimately are worthless because you bought, you know, you bought a note, you try to go collect. You can't. It's you'll see this advertised a lot on tv. The reason that they would sell you that note is that they feel like the money that they're selling you the note for is more than they have any hope of, of collecting. So I have seen big investors have success buying big tranches of notes, you know, big bundles of notes. But to go in and buy one off is a little bit of a lottery because what are the chances that that particular note is going to pay? Now the other argument is, well, if I buy the note and that note has a position on a property, the risk in my mind is if I buy a note that has a position on property, I haven't gone through the traditional due diligence process of investigating that property to see if it's worth the amount of money that I'm putting up against note. So I would say whatever you're looking at, whether it's notes, what you know, whatever strategy you're taking, foreclosures, short sales, pre foreclosure, etc, all of the same due diligence principles still apply. Like do I have time? One thing that I've been seeing a lot of lately is, is, you know, clients, people in our community or people at my, at the capital group that I work for, you know, coming in excited like hey, we need to make an offer on this deal tomorrow. You know, we need to make an offer because why? Because the broker is pressuring me to make an offer on this property, the seller is desperate to get out of the situation or whatever the case may be. Note buying is the same, auctions are the same. Don't let your enthusiasm or the pressure of another person rush you to make a decision that's uneducated and uninformed. You have to go through your traditional due diligence process always. And so if somebody comes to you and they want you to buy something, they want you to invest in something, they want you to do something and you haven't had the time to do the due diligence, then you haven't had time to do the deal right. My I would strongly encourage you, like the right deal will come along eventually where you won't feel rushed, you won't feel pressured, but trust your intuition on this stuff, trust your intuition that you will know. Man, the right deal, the life changing deal, the home run deal will be a deal that you feel really good about and you're not feeling rushed or pressured. And the way to know that is who's in the driver's seat, who's in control of the timing who's in control of the situation. If it's the broker, if it's the seller, if it's the lender, if it's somebody who's trying to sell me something, that's an indication that it's time to get off the bus. I need to be in the driver's seat. I need to feel good about the situation or I need to skip that deal, walk away from it, leverage my walk away power. It's the most powerful negotiating tool that I have, and then go find a better deal that's more suitable for me and my family.