Utah Real Estate Investors Association

“Life isn’t about finding yourself. Life is about creating yourself.”  -George Bernard Shaw

You'd probably be surprised if you sat in on some of the meetings I have with certain tax planning and preparation clients.

This is by no means the majority of my clients, but there are some who have socked away a significant nest egg ... but who are bored, tired, and a little numb.

And, of course, there are those among my clientele who have not yet reached the financial (or otherwise) zenith they've been working so hard towards, and they are still stuck in the grind of "everyday living". They spend hours reading the "news" and tilting at windmills on Facebook, and then they wonder: where is all this time that others seem to have to build their career?

In many instances, they haven't taken the time to re-assess whether or not what they're shooting for is, in fact, the place where they will be most alive.

They haven't taken the time to dream. And, more importantly, they haven't put a concrete plan to whatever dreams they might have had in earlier days. They're dragged around by their nose by national events and whatever circumstance comes their way.
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Hopefully you’ve learned there are a lot of ways to make money in real estate! Forcing appreciation and “best use” are common terms. How do you make a property more valuable than it currently is? That’s the real question and there are a lot of ways to do it. One way is to change the “use” of the property. Below are 3 simple keys to evaluating a deal where you take a single-family residence and turn it into a small office space.

Obviously, there are a lot things to consider during the entire process, but these keys will help you evaluate the property to see if it will even work.

Key #1 – Zoning: This should make sense. You need to find a property that is in a zone that allows the conversion. You see things like “mixed use” or other classifications unique to the city. The best place to start looking is on wider, more congested streets where there are family residences or where you see these kinds of conversions already existing. This is usually due to the changing nature of that part of town. Many cities will re-zone those areas into mixed use to encourage a change in use. If you don’t’ have the right zoning, either you can’t do the deal or you’ll have to get the lot re-classified. While possible, it can be a much longer and expensive process but one worth looking into.

Key #2 – Parking: Assuming you have the right zoning, you may not have the right property. Commercial buildings mean that customer or employees will be coming to the building. That means more parking needs. In fact, your zoning laws will dictate how many parking stalls you will need. You can bet that the number will be bigger than what will fit in a standard driveway. For a 2000 square foot property, you could see up to 7 or 8 stalls needed. And remember, there are setbacks, turn around area and most likely even a handicap stall which is almost twice as big as a standard stall. The parking is often the one issue that will kill your conversion.
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Have you heard of a “series” LLC? It’s a special kind of LLC that is available only in a handful of states. Delaware was the first state to adopt it and now about 20 states that offer it and the list is growing.

While it was initially designed for other purposes and industries, the real estate community has jumped on it. So let’s explain what it is. First, it’s an LLC in structure like any other LLC. There are members, managers, an operating agreement and certificate of organization, which is filed with the state. It can be taxed as a pass-through (single member), partnership (multi-member), and it can even make an “S” election with the IRS to be taxed like an S-Corp (although there’s rarely a need for this and it can cause tax complications).

But then, this special LLC is permitted to create what are called “series” within its structure. To understand this, we need to talk liability protection. If you own a rental property in an LLC and there’s a slip and fall, the plaintiff will sue the owner of the house, that is the LLC. Being the defendant on lawsuit means that if there’s a judgement against it, the court can go after ANY asset the LLC has. This would include other rentals. Thus, most investors prefer to separate out their rentals so that the bunch are not as risk if there is a problem with one.

So, investors would set up a holding company (that did not own any rentals) and then a sub-LLC of that for each rental property. So, each rental was in a different company altogether and there was a separation of liability. But, that’s a LOT of LLCs to create and manage! Your attorney will be very fat and happy with you.
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“Do not do to others what angers you if done to you by others.” -Socrates

So yes, this is real, and it is happening.

But it's also not something that means "instant apocalypse" for landlords, nor does it mean that every renter can simply and legally stop paying rent and " just tap their heels together three times and..." and pocket it as savings.

That's because, of course, there are caveats, provisos, etc. So, let's dive in...

First of all, the authority the CDC cites to establish this rule is the Public Health Service Act of 1944, which is also being cited in a variety of contexts over the course of the past 6 months.

Might there be legal challenges to this? Oh yes.

But that doesn't mean it's okay to ignore this eviction moratorium. It's on.

Per the ruling, the eviction stay is in place until the end of the year (for now).

But good news/bad news, this doesn't mean that anything goes.

Tenants must:

• Earn a documentable AGI (Average Gross Income) of less than $99,000 (single) or $198,000 (married filing jointly),
  AND
• demonstrate they have tried to pay at least some portion of monthly rent,
  AND
• have suffered income loss or medical expense increases due to COVID-19
  AND
• have applied for government assistance in some form or fashion,
  AND
• confirm and document that if they were evicted, they would be homeless or have to go to an unsafe, crowded facility,
  AND
• file a specific form with the landlord. (If you're a tenant needing to do this, I suggest sending the form by certified mail for legal paper trail purposes.)

So ... if you meet all of these requirements, then you can take advantage of this order.
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Now that you have a basis of understanding for seller-financed transactions, the next step is to really understand the deal and learn what issues and complications might arise.

The first and most obvious is the due on sale clause when there’s an underlying mortgage. The key here is to reduce the red flags to the bank. Most banks, especially the big ones, do not routinely check title to see if the borrower has sold the home. They only check if there’s a reason to. You want to limit your conversations with the bank, try to do everything online, do not modify the underlying insurance as the bank will be alerted to that, and be careful about how you make payments. I could spend a lot of time on this as there are numerous ways to accomplish this.

Another issue that does come up (I’ve seen it many times) is when the seller misunderstood the transaction and then wants the mortgage paid off. This might be due to faulty (or lack of) communication by the investor, forgetfulness, or they just want it removed. They may even get a lawyer who doesn’t understand subject-to and claims that it is illegal to leave someone’s mortgage in place with the house is sold. Having really good documents and disclosures goes a long way in protecting yourself.

Then there are issues with the sellers. What happens if the seller dies? What happens if they file for a bankruptcy? What happens if they disappear on you? I always recommend keeping in great contact and a great relationship with the sellers. These deals are long-term partnerships with them. You can use family trusts to help here and get contact information on relatives or accountants or other professionals that might also have access to the sellers.
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“Build your own dreams, or someone else will hire you to build theirs.” –Farraj Gray

This will be a bit of a scattershooting article, as there are a variety of things that I want to cover that all can be filed under the heading "labor".

As we all know, the "labor force" right now has been massively disrupted. And for those of my readers who are in that category, the word "disrupted" is far too tame. Let's call this for what it was: there was an unprecedented economic tsunami this spring and summer, and we have still to recover from it.

That said, recent data is encouraging. According to last week's DOL report, there was a 12+% decrease of seasonally-adjusted claims for unemployment compared to the week previous.
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In my previous four posts, I covered the three main ways to structure a deal with seller involvement. Each of those has their own unique set of documents. In this post, I will briefly explain what is needed.

In a traditional seller-financing deal (notes and deeds), you should always start off with a seller-financing specific purchase agreement, especially when there is an underlying mortgage in place. A typical state-approved REPC and certainly a simple 1- or 2-page purchase contract are not sufficient to cover the disclosures and terms needed in these deals. Sellers will come back and claim that they never sold the property, or that the mortgage was to be paid off, or, in the worst case, the note is called due. Having a really good contract that covers these possibilities is critical. If you are going to invest in these kinds of deals, you should work with an attorney or invest in seller-financing specific documents.

You’ll also need a promissory note (loan agreement) and trust deed (mortgage). The type of note and deed depend on the type of traditional seller-financing you’re doing. You should also get a power of attorney or borrower’s authorization so you can speak with the bank if necessary down the road. An authorization to speak with the seller’s insurance agent can be helpful.

In a lease option scenario, you’ll need a master lease, which is one that provides you the ability to sublet the house. You’ll need a good tenant lease agreement for your tenants. This can be the same one you use on typical rental properties. You’ll need an option agreement. When you’re leasing the house from the seller, you can put the option agreement in the same document as the lease.  When you’re leasing to your tenant, they should be in separate documents. You’ll also need to assign the option to your tenant/buyer if they also plan on eventually purchasing the home. How these documents work together can get a little complicated. So, you should study up if you’re going to do lease options.
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A lie has speed, but truth has endurance. - Edgar J. Mohn

Some business owners never like to "look under the hood" of their finances, and their accountants or financial partners can sometimes encourage that behavior by keeping them in the dark.

Well, I hope that won't be you.

In fact, you need the kind of insight into financials to make strong decisions.

One way I'd like to help YOU is by pointing out different reports and metrics that you can find in most accounting software, that business owners or their bookkeepers often neglect. Knowing these numbers will help you avoid an embarrassing flub in YOUR business.

Even if you are using some of these reports, I'm sure you'll find a few more to add to your repertoire. Of course, this is just a very basic introduction, but hopefully it'll spark some ideas.

1) Profit & Loss Summary and Previous Year Comparison:Most business owners rely on the Profit & Loss Summary report, but comparing your results to last year can provide quick insight into whether your revenue is growing or contracting--as well as how fast expenses are rising.

2) Balance Sheet and Previous Year Comparison:As with your income statement, it's important to compare where certain balances stand now versus last year (such as Cash, Accounts Receivable and Payable, etc.).
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This final part of Key #1 discusses the contract for deed. As previously discussed, in traditional seller-financing, the investor takes ownership of the property. In a lease option, the seller retains ownership of the property. A contract for deed falls somewhere in between.

With a contract for deed, the seller retains “legal” title to the property. On county land records they will show up as the owner. The buyer gets “equitable” title to the property. This is the same as ownership and it’s not a tenancy like a lease agreement. The buyer gets partial ownership in the house, shared with the seller.

A contract for deed is an installment contract, just like you get when you buy a car with bank financing. The bank actually owns the car and keeps possession of the certificate of title, while the buyer gets to use the car. The buyer makes monthly payments and at the end of the contract, the bank transfers title to the buyer and mails the certificate.

In a contract for deed on real property, the seller keeps and owns the title while the buyer gets to use and occupy the property. The buyer makes some monthly payment and at the end of the contract, then the seller transfers legal ownership to the buyer by recording a transfer deed.

Even though the buyer does not own the house, she does own the equity growth. So, she does have more rights to the property than in a lease option, but not as many rights as she would get in traditional seller-financing deals.
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To think is easy. To act is difficult. To act as one thinks is the most difficult." -Johann Wolfgang Von Goethe

Many businesses find themselves continually in "scramble mode", taking no chances to slow down and think of ways to get OUT of it.

As is often the case with money, it takes time to make more time.

And it takes the willpower to allow certain other things to (perhaps) fester, while you and your team focus on the most-important tasks.

So, I'm taking some of MY time to give you ideas for how YOU can take more of YOUR time ... to save more time. Got that? Here we go...(who's on first?!?!)

1. Choose Your "Focus Times"
   Every employee, yourself included, has a different style they like to work in -- we all also have times of the day when we work best. Only your team will know when "focus times" should occur, but I highly recommend intentionally setting these blocks of time in place.

Discuss with your team about which blocks of time, throughout the week, can be blocked off for individual work and individual work ONLY. No meetings, just focus time.

2. Time Tracking
   Your business might already have a time-tracking system in play.

There are simple tools likeTogglorNutcacheto help you and your team examinewheretime is going throughout the day. And rather than using these tools as a way to shame others for how they might be spending (wasting) time ... use time tracking as a way to GET BETTER.
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