Lou Brown (00:02):
Hi, it's Lou, and welcome! I'm giving you a detailed analysis of being a real estate investor. And this is Week 6, where we're going to talk about trusts and probate.
Lou Brown (00:30):
I hope you are having a fantastic week and we definitely have some exciting news to share with you today. We like to start with Wins of the Week and things that are going on. Definitely, there's a lot of things happening in real estate. I don't know if you've heard about China and all these kinds of things, but I've got some details that I'm going to give you a little bit later. And now I wanted to just start with some wins that we have.
Lou Brown (01:07):
Yeah, baby. Well, sure enough. We have some exciting things going on and one of our Path To Home Ownership clients was successful in his bid to become a platinum member this past week. So our congratulations to him. I'm going to show you some pictures of him. And a week ago I was also at a Guru Summit where we had some very amazing people there from the real estate community, as well as other communities. And I was very fortunate to be able to spend some time with Mr. Frank McKinney. I don't know if you've heard of Frank before, but he builds spec homes and I'm not talking about the everyday spec homes that a typical builder would build like a tracked home or something like that. We're talking about multi-million dollar, imagine this, multi-million dollar speculative homes.
Lou Brown (02:09):
So he finds a lot, then sometimes rehabs houses. He finds them and then he spectacularizes them and makes them just incredibly beautiful. And sure enough, in fact, here's one of his homes and his homes. This is a $20 million home. Imagine that, and that is in Fort Lauderdale, Florida, or somewhere south Florida there. And he's just amazing at what he does. And he has so many unique features to the homes. Well, people with that kind of money, just absolutely can't resist. They have to buy it. It's a unique signature home that he creates himself. Sure enough, it was great to spend some time with Frank. I've been to two of his spec homes, spectacular openings where he invites some very high-value customers to come to those and learn about a potential home that they might buy or of his services.
Lou Brown (03:11):
And one of the projects that Frank has is to dovetail your professional and spiritual highest calling. And he has Caring House Project Foundation. And this is a foundation project of his, and certainly coming from where I did, where I was raised in an apartment by my single mom. We were all by ourselves and we didn't have any support. And there's lots of people around the world that are in abject poverty compared to you and I. It's amazing that anybody in this country would have anything to complain about. And I'm even talking about people that aren't in such good, good shape in this country are still in a lot better shape than a lot of people in this world. And so when you really get into other parts of the world, you can see the dire need for our involvement in their lives.
Lou Brown (04:07):
Here's Frank, for example, feeding a young child in Haiti. So he found Haiti as a place that was in dire need. And of course there's hurricanes that come through there regularly and earthquakes. So they have lots of troubles there in Haiti, in addition to just not having a very big economy. And so here I am with Frank and it was just great to spend some time with him. And he did a bunch of shout outs to me from the stage. So that was very wonderful of Frank to do that. And I am someone who has, or "we," I like to use the collective "we," because you are part of our family as a Certified Affordable Housing Provider, offering the Path To Home Ownership. And definitely we like to support projects that make sense.
Lou Brown (05:06):
So side-by-side, kind of rich to enriched. To the left is Frank's latest $30 million home. And to the right is a house that he builds in Haiti. Now this little house is a concrete house and it houses 8 people. If you can imagine that doesn't look like a lot of room, but it houses 8 people in a house like that. What they do is build villages of these houses and people like myself, we make contributions to build those villages. This is an example of a village. And in fact, this was halfway there last March when I bought 2 houses for that village. And now we have met the goal of all 30 houses having been funded now. So that village will be built and I'll probably go down there and visit that village at some point. And we'll be able to see all the families that have been helped. There’s a total of 5 houses now for that village. So Certified Affordable Housing Provider is heavily exposed and represented in this village. And very happy that we were able to be a part of that and to make a difference in Haiti and that part of the world and for a lot of families there in Haiti that need help to be able to have a home and raise their families in.
Lou Brown (07:01):
We are going to talk about Wins of the Week as well. So not only have we made a contribution to help people end up in a home of their own, but we also do it here in this country. And we do it through our Path To Home Ownership program where we help deserving families regardless of credit or financial background to end up with home ownership. So let's take a look at some slides that I have. This is a house that a trust that I'm familiar with, owned in Illinois. And we acquired that property. In fact, through a student, a student wanted to raise some cash and had this house free and clear and said, "Lou, will you buy this property?"
Lou Brown (08:05):
And, we decided to buy the property, had a tenant in place, a paying tenant in place. And we just made an investment in that property. So sure enough, also putting this gentleman on our Path To Home Ownership program. And of course, as we always do, we look at our rents every year and it was time to raise the rent and we notified him of the rent rise and he decided that he is interested in purchasing a home. I said, "Let's talk about your credit." And he said, "I think it's good." I said, "Why don't you just go down to your local bank and see what they say? And then we can create from there." Well, sure enough, he did. And this is our latest Path To Home Ownership client. Congratulations to our latest Path To Home Ownership platinum member, Mr. Henderson for having purchased your home there in Highland, Illinois.
Lou Brown (09:02):
This is our Path To Home Ownership membership program, and there's 4 levels to this program. In fact, if you have good enough credit or good enough down payment, you can start as a homeowner in our program. But often what happens is that people join us and they build up their credit and they build up their downpayment to end up being able to qualify for a loan at the bank at low interest rates. So that is the pinnacle, so to speak, is low interest rate loans from the bank. The next one down from there is our in-house financing program. Now that's a higher risk loan in that we don't require as a typical bank would, 20% down, or we don't require PMI, private mortgage insurance.
Lou Brown (10:00):
We just have the in-house financing, which requires a minimum of 10% down. And that is equivalent to a mortgage in that they're paying principal interest taxes and insurance in building up their credit, building up their equity in the home while they're with us. Now, some folks don't have the required 10% down. So they start at the 3.7% level, and that is our rent-to-own level. And that's a great level when people have a budget constraint. And then of course the bottom line is the rent. At the rent level, and that's where Mr. Henderson was. So fortunately he was able to qualify for a loan at the bank, and he was able to end up right there at the top of the Path To Home Ownership. Now just for the numbers on this. And as you can see, we bought it for $115,000. We didn't pay any closing costs on that.
Lou Brown (10:59):
And we sold it for $199,900, again, not paying any closing costs. The only adjustment to the closing statement was the property taxes that were our responsibility for that part of the year. So congratulations to Mr. Henderson for purchasing that property. And here's the numbers. So the trust bought the property at 115,000. The trust rented the property from June of 2016 until September of 2021. And that was 63 months x $1,100 average of 69,300 in rent. Minus about 12,500 in property taxes, 3,000 in insurance. I brought it down to 53,800. Mr. Henderson took care of all the repairs during the time of his occupancy. So we didn't really fix anything during that time. And the trust sold it to him for 199,900 on September 29th. And so the trust profits were $84,900 plus the rental net of $53,800 for a total of $138,700. So now you can see how our business model works. We teach you as an entrepreneur to offer the Path To Home Ownership.
Lou Brown (12:23):
And as you can see, this is a long distance deal for us. We're located in Atlanta, Georgia, and this was in Illinois. Sure enough, we were able to help a deserving gentleman to end up with home ownership with our program even long distance. So this is a great example of that. All right, one thing I thought would be a good tie-in to the win of the week for Mr. Henderson is to just let you know just what a backbone of real estate investing that you are out here in the world because, guess what, you make up the majority of investors in real estate in America. So look at that, 73.7% of all the rental properties in the country are owned. One to two properties of 73% are owned by individuals and then 3.3 to 7 properties, another 17.8%. So what does that add up to? 90%. Over 90% of the real estate rental properties in America are actually owned by investors, which I think is pretty cool.
Lou Brown (13:42):
And then you go on to the next level, which is 8 to 20 properties. That's 6.3%. And then you go to 21 to 50 properties. That's 1.7%. And then 51 to 100 properties, 0.4%. Of all the investors in the country, they actually own 51 to a hundred properties. And then over 100 properties, 0.1%. So if you might have been thinking that the hedge funds are buying up all the properties and that they're going to own America, well, let me just tell you, they have a long way to go because they have to buy up all these individual and small mom-and-pop investors before they can rule the world. So I thought it would be interesting for you to learn that you are a backbone to this country and you as an entrepreneur offering the Path To Home Ownership program, what a great thing. And as a result of your offer to help people and making a difference in their world, you have an exit strategy and you have a payout, as you just saw in the example with Mr. Henderson, that the income during the time he was there, and then the payout when he purchased the property is pretty nice. Now think about how many of those that you would need to actually build an amazing retirement for yourself and your family. So definitely considering becoming a Certified Affordable Housing Provider makes a lot of sense and offering the Path To Home Ownership program locally makes a lot of sense. So I encourage you to look at that. And today we are going to focus on number 6 now.
Lou Brown (15:48):
We've got our 10 things to become a real estate investor and 10 things to focus on. One of them revolves around trusts - protecting your assets, creating protection for everything that you do through privacy. And you've got the profits that can come from investing in real estate using trusts. The other thing is probate avoidance, something that you can't get with any other entity. But first, I just want to cover the protection that can come from using trusts. And that is avoiding lawsuits because look at the civil cases. This is 2020 Federal Cases only. This is not counting the state cases, civil cases up 16%. Immigration cases up 28%. Contract dispute cases up 16%. Americans with Disabilities Act cases up 63%. So just know that things can happen out there in the world, and you want to protect yourself as much as possible.
Lou Brown (17:00):
One of the things you have to keep in mind is that who knows what attorney you're going to have to defend yourself against and what kind of judge you're going to get? So better to be safe than sorry, better to not get sued in the first place. And a way to do that is to do good business, number 1. Number 2, put yourself in a position to protect yourself because you never know who's on the other side. You never know who might be out to get you and really not anything personal. They're just out to get what you got, but they don't want to do what you did to get what you got. They just want what you got. So will you want to set yourself up for success? And let's take a look at a thing called "probate." Now, probate is the process by which the court system takes the assets of the dead person and distributes them to the rightful living heirs.
Lou Brown (18:04):
It sounds kind of like a Robin Hood thing, doesn't it? Take from the rich and give to the poor, but what the court system does in all 3,300 counties in our country is have a court system or a district system or a circuit system wherein they cover and do probate within that county. And probate is something to be concerned about because it's definitely a challenge that happens out here in the real world. And something to be considered is when those assets that could have been protected are not protected. They are subject to taxation. So when they're passing from the dead person to the rightful living heirs, you may think the estate is too small to be taxed. Well, let me tell you something, that is a moving target because it really depends on who is running the show in Congress.
Lou Brown (19:11):
And we all know what happened in November, and we all know who's in charge right now. Well, you might be interested in knowing that in 1997, those same kinds of folks were in charge. And as a result, the estate tax exemption was only $600,000. For some people, think about your parents, think about your grandparents, their single-family residential home may be over $600,000. Well, what happened was not, there was an exemption, but anything over that was charged 55%. Now, imagine paying taxes all your life and owning things. And then your kids have to pay 55% taxes. Well, there's some people that haven't found a tax they don't like, right? So they rob from the rich and supposedly give to the poor, although I'm not convinced of that. So in 1998, it went to 625. In 1999, it went to 650.
Lou Brown (20:16):
Then as you can see, it went up and guess who took control of Congress? And it started going up dramatically. In fact, in 2009, it was 3,500,000. 2010, it was 5 million or unlimited. So in other words, George Steinbrenner died that year and had a $2 billion estate. And there were no estate taxes because that was exempted in that particular year. Then it went, as you can see right now, we're looking at about 5,450,000 and anything above that would be about a 40% tax rate. So anything above that will be a 40% tax rate. Well, that can be doubled through the use of trusts. That's a pretty cool thing because we've actually got some other things. In fact, let me just tell you that not only do we have to worry about federal taxes, but we also have to worry about state taxes because your state may have an estate or inheritance tax.
Lou Brown (21:31):
And in fact, there's a couple of states that have both an estate tax and an inheritance tax. So that's not fun, is it? And, just imagine, as you can see, most of those states are in the Northeast. I don't know where you count Kentucky, but it's above the Mason-Dixon line, then you can see where the states have gotten involved in taxing folks. So from Investopedia, it says that probate proceedings can take up to a year or two. The assets are typically frozen until the courts decide on the distribution of the property. Probate can easily cost from 3 to 7% or more of the total estate value. And let's just take one state as an example, California. The 4% of the first hundred thousand dollars is taxable. So in other words, that'd be 4,000, but then 3% of the next hundred thousand and then 2% of the next 800,000 and then 1% of the next 9 million and then a half percent of the next 15 million.
Lou Brown (22:53):
And it goes up to over 25 million. The court actually decides how much you have to pay. So in other words, it's that plus that plus that plus that, imagine that. So just think to yourself, be careful what state you live in, be careful who your legislators are because they do things like this. Now with that said, probate can be very expensive, even if the federal guidelines allow you to exempt that one. Well, one thing I want to let you know is that we do have training. We only give it one time per year, and this is that time. So starting on Thursday of this week, Thursday, Friday, Saturday, and Sunday, I'm going to be giving a 4-day training on the magnificent concept and entity of trusts. Now trusts do things for you that no other entity can do for you. Not an LLC, not a corporation, not a limited partnership.
Lou Brown (24:02):
Only a trust can protect you, give you probate avoidance, give you privacy and give you profits. So one of the things we love is to be able to take over existing financing on property. Well, guess what? A trust can do that for you. So I'd love to teach that to you and you can go to MaximumAssetShield.com. And you can also call 1-800-578-8580. We'll get into more discussion about privacy, about protection, about probate avoidance, and about profits. And we're going to have workshops on each one of those throughout the event. In fact, what I want you to do is bring a deed with you to class, and yes, we're going to have 2 versions. We're going to have an in-person, where we've got a nice group of folks coming from all over the country that are going to be present during the event in Atlanta.
Lou Brown (25:16):
Very excited about that. And we're going to have an online version as well. So just live streaming directly from the event. So definitely join us, MaximumAssetShield.com and that's October 14, 15, 16, 17. Listen, I don't know how you could possibly put this aside. I don't know how it's something that you think you can get to later because when it's too late, it's too late. And I want you to think about your parents and your grandparents. I want you to think about and ask around if you've never experienced probate, ask around. You won't have to ask too many people to find out somebody's story about probate. And let me tell you something. There's costs, there's delays, there's expense, and there's confusion. There's frustration. There's upsets. There's breakdowns that happen within families. All of that can be avoided using this powerful concept called trusts. So I'm definitely encouraging you to get yourself there, get your parents, get your grandparents there. This is something that you need. It's something your family needs. And it's something, frankly, that you shouldn't do without. Scott, we always give people an opportunity to ask questions. And hopefully I've given you guys some insight into the concept of probate and what you need to do as a real estate investor to protect your assets and to grow your assets. And that is the marvelous magnificence of these things called trust.
Scott Paton (26:58):
Yeah, we have a couple of questions and one of them was about, can you expand a little bit on how trusts can help you not go to the bank when you're buying someone else's property?
Lou Brown (27:11):
Yes. A great question. And you know, it's something that I was forced to learn way back in 1982. Even before that, when I was buying my first property, I was able to take over the existing financing on the property, and that was magnificent, right? For $45, I could step in, I could take over somebody else's financing. It was fantastic. However, in 1982, they passed a law that gave the banks the right to put the 'due upon sale' clause in the mortgage. And so as a result, boom! The $45 to take over somebody else's loan disappeared because they put the due upon sale clause in the mortgage. However, when I read the law, I discovered something amazing and powerful, and it said, "Except when you place your property in trust for estate planning purposes, the lender is prohibited from calling the loan due."
Lou Brown (28:13):
And so I went, "Hello! I need to learn more about these things called trusts." And that's what forced me to go out there and learn about the most amazing entity on the planet. I was actually forced to do it by a law. And I'm telling you, it's one of the best things that ever happened to me. So the answer is that a seller could place their property in trust. And then rather than you purchasing the real estate, you could actually purchase the beneficial interest of that trust. So when you purchase that beneficial interest, that is not published on public record. So therefore the lender would not be aware that anyone else was actually the beneficiary of that trust. And what's great. And of course, in documentation and step by step processes and formulas. And of course, this is something that we've done now for decades.
Lou Brown (29:09):
And I will hasten to say that certainly that law could have been changed since 1982, but it never has been. And here's the reason I think because the banks actually benefit from it. Think about it. If you come along and you're interested in a property and it's behind in payments, 5,000, 10,000, $20,000 behind in payments, the people are living in the house. They're not making the payments and the bank is hurting because they're not receiving those payments. Then you come along as an investor, you're able to take over that existing loan. Now what's in it for you? Well, you just saved thousands of dollars on getting a brand new loan from the bank because you didn’t have to pay all these points, closing costs, origination fees, all the things that typically go with creating a loan. So you step in, you take over, you pay the seller whatever they want, you take over the existing financing or whatever you negotiate and whatever problem you're solving for them as a result of you buying that property.
Lou Brown (30:14):
And now you take over what? The payments on that loan. However, you're also going to reinstate that loan in most cases. So if you reinstate that loan, the bank didn't think they just got a big fat payment and they're now going to get consistent regular payments. So the bank wins. Now you win because you didn't have to pay points, closing costs, origination fees, and all that stuff. You didn't have to put up your credit report. You didn't have a delay in acquiring the asset and the seller benefits, too. They got rid of their property. They got rid of their headache and you can even pay them more in circumstances where you can take over the existing bank financing. Now think of this and because maybe they were behind in payments and now you've reinstated the loan. What does that do for their credit?
Lou Brown (31:08):
And think about this every month, month after month, you're making those payments on time. What does that do for the seller's credit? That makes the seller's credit go up. So I call this a win, win, win. Everybody wins in this deal. And so all I ask you to do is when I teach this to you and I do have the documentation, and you're going to use that, just know that your commitment is to make those payments, make those payments, make those payments on time, help that seller out, help them restore their credit, help them build their credit. And at the same time, look at what you've done. The bank wins because they're receiving payments now, regular payments. The community wins because that could be a foreclosure. That could be some kind of vacant property that the bank takes on. And who knows how long it would be before they fix it up and rent it out or sell it and put it back into circulation. And you come along and you actually are helping the community with housing. So there's a lot of wins here. Everybody wins. And I just encourage you to learn more about that. That is a big session that I'm going to do during the Maximum Asset Shield training as well. Great question.
Scott Paton (32:29):
And, Lou, we had another question from Melissa and you're just talking about win-win, win-win. And it strikes me that if you have to go through probate, that's probably a lose-lose, lose-lose. And so Melissa is thinking along the same lines and she says, "How come the lawyer who wrote up my will for me that I signed never told me about probate?"
Lou Brown (32:54):
Yeah, well, Melissa, that's a great question. And the answer is because whenever your family needs an attorney to help with the probate, guess what they do? They open up that will, and they see who drew up that will, and they call that attorney. So what happens is the attorney says, "I'll be glad to help you with your situation. We're going to go ahead and open the probate and I'll manage that process." And as you just saw through Wikipedia, that can be quite an expensive process, 3 to 7% of the value of the estate. So where if it's a $100,000 estate, that could be 3 to $7,000. If it's a million dollars estate, we're talking about something very serious. Think about 3 to 7% of a million dollar estate or $2 million estate or a $5 million to $10 million estate. To be honest with you, Melissa, if I was an attorney, I would give away for $10 doing people's wills because I'd be able to stamp my name all over that will and I'd be giving them out.
Lou Brown (34:06):
I'd set up a card table at Walmart as a Free Wills with $10 processing or something like that. But it's just amazing what happens when someone's name gets on the documentation and the family says, "Oh, well, they knew what mama wanted to do. So we're going to definitely call this attorney." And here we go. And that's when they get their big payday. So sorry that your attorney didn't tell you that, Melissa, but smart that you're on here today to learn more about it because there is a real solution. And once you set yourself up using trusts, you will have taken advantage of that great solution that exists for everyone. However, not everyone knows about it.
Lou Brown (35:14):
So next Tuesday is October 19th. And we're going to be talking about finding deals. So you know that we have a whole series that we're doing, 10 Steps to Buy Your First Big Real Estate Deal. And certainly things that you need to take into consideration in order to buy those deals and to protect yourself and to protect your family. So now we'll be moving to Step 7, Where Are Those Great Deals, and that's next week. Yeah, baby.
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