Ashley and I just got back from the “What Box” seminar on creative deal structuring presented by Bill Cook and Pete Fortunato. It was great, but I’m not going to lie – by the time we got through with class, my brain was numb.
On the car ride home, we talked about the “aha” moments we’d had. One of the things I learned was there’s a difference between deed ownership and tax ownership on a property. Someone can be on title as the owner of a house but rent said house to another party. If that party agrees to be responsible for all the repairs, taxes and maintenance, like in certain lease option situations, after two years they are eligible for Section 121 treatment.
Section 121 of the IRS tax code says that for a married couple who has lived in a house two of the last five years, their profit from the sale of that house is tax free up to $500,000. The limit is $250,000 for someone who isn’t married.
I’d always assumed you had to own the house for this to apply. That’s not always the case, however, and this structure could allow you to live in a much bigger house than you could otherwise afford by leasing rather than buying with the potential for a large tax free profit.
We also talked about a deed-for-note deal. This is an installment sale in which the seller agrees to sign title to the property over to the buyer in exchange for a promissory note that pays for the purchase price. Bill talked about how he’d successfully negotiated these deals with local banks and how it benefited both parties.
In Bill’s example, he was able to get bank financing on a mobile home park with very little money out of pocket. It was great for the bank because they couldn’t make a loan on the property. By utilizing the installment sale strategy, they were able to turn a non-performing asset into a performing note without having to transfer any money.
Education is only part of the reason we went to the seminar. We went there to recruit business allies, as Pete likes to say. Prime time for networking, and even putting deals together, is during the breaks and after class. Pete says he often pays for his travel by putting deals together at the seminar.
Take lunch for instance: Ashley and I sat down with three strangers. At the table we had two different private money lenders looking to make loans, one of whom is very interested in loaning on mobile homes. The third person at the table was a very experienced landlord from Atlanta. Bouncing ideas off of someone that was local was an important benefit to us because state landlord laws vary widely.
Finding local people was not the norm, however. There were 100 attendees in the class, and fewer than 20 of them were from North Georgia. People had flown in from California, Washington State, Minnesota, Wisconsin, Texas, Arkansas, Florida, and the list goes on.
The reason 80 of theses people came here is because we have something special happening in Atlanta. We’re blessed to have some of the best real estate investing teachers in the world frequent our area. I highlighted Bill and Pete in this column, but we also have Dyches Boddiford, Gary Johnston, and David Tilney come here regularly. The other 80 attendees can’t get this caliber of education where they live, so they fly from the other side of the U.S. to our backyard to participate.
It took Ashley and me only an hour and 15 minutes to drive to the seminar, and while there, we made a deal that’ll add to our monthly cashflow. Needless to say I won’t be taking having these classes being so close to me for granted. And, that’s what I learned at “What Box”.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.