Live probate training episode #24: Buying property through business acquisitions, and buying businesses through real estate deals; using asset-based lending to fund buy and holds; and tax strategies for real estate investing.
Watch with video on YouTube: https://youtu.be/LFBbdaVzYOg
Chad's Probate Certification Course: https://probatemastery.com
Facebook Group: Estate Professionals Mastermind
Time Stamps (YouTube links):
0:00 Transaction engineering: Subject to replacement property contingency and rent-back after closing
5:13 Save the deal: How to get your buyer paid for residential leaseback at an above-market rent
9:54 Small businesses in probate: How to buy a profitable business in probate/in an estate.
12:07 The opportunity in small business acquisition and real estate in probate
15:02 How to buy a business and help the seller pay zero capital gains.
17:29 Buying real estate through small business acquisitions and saving on income taxes
20:18 Great businesses to invest in right now and in 2022, and how to compete with business brokers
25:35 Why do companies offer equity to employees?
33:46 How much money do I need to buy a small business? Can I buy a business without money?
36:22 How to structure the transfer of business ownership
42:34 Buy and hold real estate investing: Is a residential or commercial loan better?
44:31 Why asset-based lending for rental property beats conventional loans
46:54 Asset-based loans from community banks vs. hard money, private money
47:57 What should I say when applying for a community bank loan for an investment property?
48:59 How to Pitch Owner Finance Script: Tax Advantages to a Free-and-Clear Seller
51:40 Is flipping houses worth it? Most tax-efficient way to flip houses and avoid capital gains tax with creative financing
53:47 Why would you not do a 1031 Exchange in a Biden economy?
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Okay. So I'm currently in an escrow repping a buyer on a condo. We've had a little bit of a challenging escrow since the seller who I'm not representing can only move forward on the transaction with us. If he finds a replacement property. So it looks like we're in the final stages and it looks like he may have located, the property. There was a replacement property contingency placed on us closing escrow, which means that unless they remove that contingency week, even if there's an established close of escrow date, we can move forward. So it looks like the listing agent is likely going to remove it in the next couple of days, but we gave them two extension of time addendums, for that relocation contingency. We're per the last one. We're scheduled to close tomorrow, but I know that's not happening. I've been in constant communication with the listing agent. And it looks like they're going to be able to remove that contingency probably Thursday or Friday. The challenge that I'm having is that my buyer, who, I don't know well. I met her through one of my listings. She came to my listing a condo on the same floor and she ended up buying the condo on the opposite floor, but she said, look, I called the agent, never answered you answered. So I work with you. So I worked out in my favor, picking up the phone. The only thing is, she's an attorney, her, husband's an attorney, son's an attorney, right? So every, if there's a deadline today, I get a message three days before, Hey sir, are we closing? When are we closing? We're supposed to close this day at this time, which is fair. Per the last extension of time agenda, she said, look, we're granting it with the understanding that there's no more extensions after this. Right. This was last week. So today I have to deliver to her the news that we're not closing tomorrow, but I obviously would like to package that information in the most positive way. All right. And I want to back up to make sure I got my head wrapped around. You're not closing on time because you're doing a 10 31 exchange and Nope, Nope, Nope, Nope. So, my buyer regular. The seller that I'm not representing, he owns a condo, but he we can only close that condo. If he can find a replacement property. Otherwise he goes home. He becomes homeless. Oh, so it's not about taxation. It's about primary residence, correct? Correct. Okay. And the seller? Yeah, the seller's stalling. And this is the second delay we were supposed to close September. So what's your buyer story? Does he have an alternative living, right. Yeah, they're fine. It's just there. Yeah, they're extremely. Yeah. W we already have that in place. There's a 30 day lease back for her. It's more about the, we were supposed to close on this date. She's extremely wealthy. So it's more of a, if I don't get what I want, then I move to another transaction. So I'm trying to package it in a way, and I want it to give her three options and the options. Cause I know once I send her the email that the listing agent send me today, which essentially communicates we can't close tomorrow and we're probably going to close sometime next week, keywords, we don't know if that's even gonna happen. I wanted to give her three options. And one of them, saying, you know, we have three options. Option. Number one is for example, we do. I noticed to perform and we start a search for a property and other property. Option number two is we send them a demand to close, which gives them three days to close, but we risk losing that property, getting into a possible bidding war for another transaction and starting all over or option three. We can grant them the extension, which will likely result in us closing in seven to 10 business days. What option do you prefer? And I, you know, it's kinda like packaged so that the last answer is the one she goes for. I'm just wondering if you have any other recommendations. Cause she's had the tendency twice when we had to do the extension of time to say, you know what, I'm sick of this. Let's just look for something else. And I think I've got it. So the buyer is the last one's attorney, right? Both, both husband and wife and. Okay. So you've got ego at play. They like to pick fights. They like to win arguments and they like to flex their intellectual muscles. Right? Yep. So you have to show them that and what, without going through it, all, it comes down to one question like you guys chose this condo because it met all of your needs. Is that right? Right. Okay. A week ago, you wanted nothing more than to close on this condo is that right? And today you want nothing more to close on this condo. We've made an arrangement for a lease back. So you'll be compensated for the time that the seller has the time of that, that they hold the asset. I have already put a proposal on the table that converts frustration into income. Well, they're not pre-leased back. Just, I want it to give you that it's free freely, but we were going to negotiate it. And then she attorney said, you know what? I don't want to negotiate. Just give it to them for a month. And then I just want to get the condo. Okay. Then there's another option for you put an actual lease price to your lease back. Okay. So that's just another gambit, right? It's something else you can use to sweeten the deal, but the way I would close the loop on, let's say the lesson, you know, you like you want to be right? Or do you want to be happy? Yes. It's that damn simple. If you, if this is still the condo for you, then let's be patient. Let's get a fair lease price from them, for the prorated for the time that they're in there. And if not, I need to know if something changed. If all of a sudden this condo doesn't fit you, and we're not talking about the seller, we're not talking about people. We're talking about you people and that real asset has anything changed. Do you people want that asset and try to get them to remove the people from it and be objective about it. And they say, listen, like you've got a lip. You like, you know, you're not the one that's that doesn't that's facing homeless. Or living in a hotel with your family, if this doesn't, if it doesn't close, they're in that position. So all I ask, like, I represent your best interest, but to me, you guys really love this place and you really wanted to close on it. So what I see as what I can do in your best interest is I can turn time and. I can get the asset into your name and we can give them some time to make the situation work. And ultimately my goal is to get you the asset, but you want her to fair price. So in essence, it's getting cheaper every day that they delay and we can even put an above market premium on the rent. Like if it would rent for 3000 a month, we're going to rent it for 3,300. We're going to slap a 10% premium because we want to build in an incentive to move on. Right? So you've got to find a way to, to have them put down their swords and, that's metaphorical for the ego and put their damn ego down and really focused on the emotional decision they made of, Hey, we really love this place. We would love to know. Because now they've made millions out of the other people and they're not being empathetic to that person's position. And they might not be, I mean, they're obviously they might be super wealthy, but if they are, they understand the time value of money. And if you can convert a frustration into a revenue stream for them, how could they not come around? Yeah, that makes sense. The other thing I would do before to prepare for that conversation is pull an inventory list, pull a days on market and look at available days of inventory, like dual market absorption analysis on that type of asset and be like, here's the deal. You guys jump out of this one. There's a good chance. If you get your earnest money back, it'll have to be in a courtroom. And I know you might like that, but you, your time is worth your time is valuable. So I'm showing you a way to be paid for your time, not to have to fight. And in the end you get what you want. This other pile of money that I think we can get for you because market rent is X we'll propose a 10% premium and you know, on a 30 day lease. And it'll be prorated to the day of closing we'll refund them anything, but they will pay us for an entire month upfront. So you're essentially mitigating the risk of that person taking even longer. If they surprise us. And we'll, we'll get you an above market rent and eventually get you the house you want. As soon as that agent can help you remember how hard it was to find this place. That's what he's going through. Like all that stuff we went through, that's what he's going through. So let's cut him a break and let's monetize the situation and just chill out. You guys trust me. They trust me. They trusted me to get this done. I'm telling you, this is how we get it done. You're the I'm here to serve you. If you're telling me something has changed and you're ready to give up, then we'll go back to joining the bidding wars. And then we'll put you, we'll put you in his position. You'll be empathetic to his position. Real fast. We'll get started tomorrow. So perhaps with the new extension of time agenda bats, we present that with a contingency removal. Cause I kept our contingent. I didn't remove contingencies to save them so that they would have a way out extension of time of denim, contingency removal, and essentially a request for a to, to modify the free lease back into it, monetized, leased back. Does that sound right? Yep. Okay. Cool. Cool, cool. Awesome. Thank you. Really appreciate it. I've been like, like going crazy all morning actually for the past week, but yeah, no worries. It's it's. I've had to use, uh, you know, do you want to be right? Or do you want to be happy and that snaps people under reality pretty quickly. Yeah, yeah, thank you so much. Cool. Thanks. All right. A little bit of a format change cause Fed was chomping at the bit, but welcome everybody to a probate mastery group coaching. With Katt's guest hosting a few weeks ago, we started with the calls with a theme and if you guys didn't notice I'm in my Virginia House, I actually drove all the way from the extreme Pacific Northwest to Virginia in seven days. So this is probably about the fifth or sixth probate house that I ever bought and I still own it. And I had at least as a executive rental. So I'm back here transitioning this, Getting it cleaned up to go buy another house in probate, in a different state, excuse me. So I tend to collect these things, but, uh, so I'm, I'm back in my office. But as I was driving home this week, one of my certified probate expert that I trained gosh, four or five years ago from Northern Virginia called and he had a tiger by the tail. So he's uncovered an estate, but with a business opportunity and a small business opportunity. And this is something we haven't really talked about much in this forum. I have another brand and company called your small business hub. So I'm quite familiar with the small business crisis that I believe we're facing. Mainly in the baby boomer generation. So you guys are working in a space where if you haven't already, you're likely to uncover an estate that actually includes a small business. So I wanted to kind of start there. It's probably not something that you're thinking about. Cause when I got done with this coaching call, this guy was just lit up and he was like, he couldn't wait to get off the phone and dig into the prospect of acquiring the small business in addition to the real estate. It was a wide ranging conversation. There's a lot of benefits. For me, I actually sold almost all of my real estate in 2016 because of macro economics making me nervous because of overleveraging and well, we see what's happening in China now it's just hurry. Hurry up and wait. But I chose to invest in small business and I've had a better return and small businesses than I ever have in real estate. And yes, they're challenging, but it's a lot more fun as a challenge than tenants and toilets. So for me, landlording, wasn't really it. I found small businesses was much more interesting. So we started talking about, what do you do when you find these? So we've got 13.3 million baby boomer owned businesses that are in a revenue band between 1,000,005 million and small businesses represent 51% of GDP in the United States of those baby boomer business owners. In the last two years that tried to sell their business one in 14, found a buyer Now, let that sink in. You've got a 70 ish year old person who has spent a lifetime, probably building this business and they go to a business broker, one of the third, only 1300 in the entire nation. They put this on the market. They sit and wait for typically six to nine months. And then finally they get it under contract. They go through due diligence and 13 and 14 will fall apart. And then they're left with the decision of what do I do. Most of them will shut down, sell for the value of the real estate and the equipment. So the, the Goodwill of the business that valuation. dissolved. It's gone jobs go out of the communities that market share usually flows to bigger businesses, bigger corporations, franchises, and America changes one little, one little storefront at a time. So for me, I felt the calling to try to make a difference in this, to step up and do what brokers obviously aren't doing and business owners aren't going for themselves equal blame to them. They can go find buyers without brokers, but I coached him to step in and buy the business. Okay. Once you understand that the scale of this, that there's over 13 million people that are about to be in this situation over the next 10 years, a lot of some, a lot of them are going to be your clients. They're going to be, a spouse will pass away. The surviving spouse will inherit the house, the business, the stocks that you know, everything. And they've got to figure out what to do with that because oftentimes the next generation doesn't want the business. And that's what this situation was. So I coached him to actually not cut the children out, but to acquire a hundred percent owner finance and then use the kid who is acting as a general manager and give him a vesting schedule at 10% per year, for nine years until the kid owns 90% of the business and he owns 10%. And then he steps back when he becomes a minority partner. And there's an opportunity to do that. Like you hear me talk about subject to housing. It's even easier to get a free business. So you've got a business skillset. You've got the courage you're a small, small percentage of the population that has the courage to be in charge of your own income to provide your own benefits, to be a true entrepreneur. And, take that risk. So you've already beat that learning curve. Like you've already, that's the hardest part is just having the courage to do it. So as you're buying houses, as you're investing in stocks or whatever you're doing, and the course of, of venturing into this space always be aware. There are business assets that are sitting out there that nobody is going after. Nobody is marketing to families in in probate looking for those businesses. And if they are, they're probably a business broker, they want a big retainer upfront. They're going to prep them and say, it's going to take a year to get this done. We can take our cash buyers, or we can be the cash buyer. You take investors who obviously understand business from your buyers list, from your past clients or yourself, your family, whoever it might pay, bring them into the situation and say, you know, listen we'd like to buy the business, it's obviously a big risk. If we go the SBA route, it's going to be, nine to 12 months considering the backlogs and like the people I know that are using SBA loans, newly originated SBA loans. Since COVID began at the fastest one, I've seen close nine months on those. So you can kind of paint that picture and say, you know, we can go through the process of trying to sell it more, but the normal. We have a one in 14 chance to actually accomplish that. Or we can go to my buyers list, my investors forum, or you can make them an offer, but the idea would be to show them how their legacy can live on and you can convert their business into an annuity or into a retirement plan and you can minimize their taxation. So if you can keep, especially if they're willing to go long-term, if they're younger or they're very healthy. If you can spread that out over enough years, you can tamp their capital gains down to zero. So if this is a, let's just say that it's a $400,000 business. Well, if they don't have other earned income, if we can drag their equity payments down to $39,999 a year or less, guess how much their capital gains tax is? Zero.. So they can sell that business on a tenure. And take installments of $40,000 a year. And over 10 years be paid out tax free, where they have a one in 14 chance of selling it outright. But if they do, it's going to knock them into a 20% capital gains bracket. So we can through understanding taxation and create expanse, and we can take a business owner and show them how their legacy can live. We can convert their business to a retirement plan and we can optimize that retirement savings by making sure we don't break through their capital gains limits. And we can do all this with the help of attorneys and CPAs check our work. We're just putting a broad stroke strategy in place, but that was a conversation that I was excited how excited he was. And we, you know, he had a million questions and we unpack that, but something I just wanted to kind of bring back to the surface and remind you guys, this isn't always just about real estate. It's about people and families, and those people have assets and they range from antique cars to the Jim story with the $43,000 lionel train set To small businesses that are, ready to step right into. And for you guys personally, if you're going to purchase the business on, on, if you believe in the track that we teach. Of work less R and more, earn more work, less, do good. Try to get a business that's between one and $5 million in revenue because pre million dollars, usually it's not large enough to have, uh, the salary there for a strong general manager or a chief, the chief operating officer between 1,000,005. It's still below the radar, the M and a firms brokers aren't even that interested in it. And that's the most underserved niche, but shockingly that's where the majority of, I mean, that's the kind of the middle of the bell curve and small business dead. So I just want to make sure I'm understanding correctly. So these are businesses are, we were discussing businesses that perhaps either, I don't know whether it's pandemic or something else just kind of went belly up and therefore you're coming into no, like I'm just trying to get. Maybe, but ideally you find a probate situation with a healthy, thriving and step right in. Gotcha. Chad, are you going to keep the suspense and not let us know what business he was looking at? Cause I was going to ask, like, there are certain businesses that fit people's personality and or expertise. Right? So like we can't, I'm sure not everyone can get excited about a business that they have no idea about. So here's how you get excited about a business. If you put $1 to the bottom line of a P and L what does that do to your valuation? A three X on a net, a at a minimum. If you're in that million to 5 million range, you're three to five X on your EBITDA. You're not operating income now in real estate. What's your dollar for dollar return when you rehab a house? 20, 25%. So if you put 10 grand into a house, how much more is the house worth? If you do a kitchen or bathroom or something, isn't it isn't that like the 20% range or is it more, it may be and a lot of cases, it makes it faster to sell, but you also get taxed hard on that money. So with the business, with a small business, you know, you can depreciate real estate and there's obvious tax advantages to that. But with a small business, you can, as you grow it, you can basically take your taxes to zero, just by zeroing out your EBITDA on your P and L each year. And you can do that by purchasing real estate through the business that eats up your profit off of that. So you're not paying corporate income tax and then you still control the real estate. So there's maybe this was out of context. Without hearing the whole conversation, but for him, the smartest play, I could see he was looking for a way to just quickly wholesale the house. And what do I do with this business? Like you can, you can, you should buy the business. And you're right. Like sometimes like a tire shop. Isn't a very sexy business. But I'm going to tell you that's one of the best investments, one of the best businesses you could buy in the world right now. I have friends that are building them, that they can't build them fast enough. They're building dozens at a time, because it's especially as the economic reality of this situation. Mechanic shops are going to go through the roof and that you like where we're underserved already, but when more people start keeping their vehicles and the repo start happening on all the incentivized, government money sales have happened. What you're going to see, mechanic shops are going to do really well. Tire shops are going to do really well. Home services are going to do really well. So a made much like if somebody has, you know, had a housekeeping business, not sexy, not a business you want to do on a day-to-day basis. That's why you find the one that's got at least a million dollars in revenue. So you've got a strong operations person in there. And if they're not already there, you can afford to hire them. But ideally you take somebody who feels like they know how to run the business better than the owner. They've been against that glass ceiling for several years and you go empower them and you say, listen, man, I need you. I need you. I need you to run this for me. And here's what we're going to do. Here's your vesting schedule and nine years, you basically own it and I'll hold 10%, but I'll allow you to earn in and invest the rest. So it doesn't always mean that you have to be in the business if you don't want to be a maid, I understand that. But if you have a 20 year employee, who's been working for, 50,000 a year, and you can easily afford to give them a raise and then let them best him. And you can get the seller to, or finance that. Cause his wife ran the business and she just passed away. He doesn't know anything about it. So those types of situations where you can show him how to keep those people employed, keeps him, keep his life legacy alive, and then you don't actually work in the business. You just work on the business once a week and a team meeting, Now you got like my wheels spinning, but full transparency. I don't have much, a lot of experience as an investor. So my parent, my parents came to me, obviously they retired and they said, Hey look, you know, cause I always nagged them about, Hey, don't keep your money in the bank, it's it just depreciates day over day. So they said, all right, so figure out a way to you know, we have a hundred grand tell us where to put it. So obviously being in real estate obviously are, might first, first thought was. Income property, not in LA, cause I mean, can't buy anything here. But even out of state, I'm open, but now you're talking about businesses now, given that they're retired, I wouldn't necessarily think that they want to run any of that. Which would mean that I would probably have to do some of it or at least be involved in one way or another. What do you think could be a suggestion or suggestion? For them to look into, or I can look into for them. I would probably start with franchises and that scenario. So typically people will pay a big franchise fee, then they'll buy all brand new equipment and they'll finance that and they get in it and they're not making what they thought they would, or they're going through a divorce or there was a death. and this is getting outside of the scope of just probate, but you could find, I mean, to say, I want to find a franchise in LA between 1,000,005 million revenue. That will exist. Maybe now, maybe tomorrow, maybe it'll take you six months. You'll eventually find that. but that's quite specific, right? So if it's more about finding a business for your parents, I would look and say, you know, let's, let's look at what franchises make sense right now. So for example, I wouldn't go buy an AMC theater franchise. I wouldn't buy a crunch fitness, but I would buy. Fire of Firestone tire shop is one of those franchises and, dollar general was already like that. That's over-saturated, but there are certain franchises that make a lot of sense. And an a, and you know, this is deep, deep rabbit hole, but I believe that like the valuations you see in equity markets right now are driven by fake money and the fed moving junk bonds on their balance sheet. So we're, you know, equities markets are currently trading at 142% of global GDP. It's a bunch of bullshit. So we're heading into a very recessionary period where it's going to look more like the Jimmy Carter year stagflation, where you've got production going down and inflation, like ripping up and there, even with the manipulated numbers that exclude food and energy, it's still like massive inflation. Right. So I see great economic headwinds ahead of us. And that makes me want to look at recessionary proof businesses. I invest in self storage. I invest in mobile home parks. I like home services. I like auto mechanics. And then you've got the baby boomer generation and we've been posting record years for RV production, both new sales and use sales, mobile RV mechanics, any kind of a mobile mechanic, like those types of businesses. If you can take a guy who's already working there, who knows how to run it better than the current owner. And he's never had a voice because that owner's like, I'm the boss you've been pressing on that glass ceiling and he won't leave. Like, that's the kind of target you're looking for, but I would, you know, you can look at if they really want to be hands off, you can go into a franchise. So the franchise prototype and franchise support is in place. But look at those things like Molly maid, as an example. So in LA I'm sure there are multiple, multiple franchisees for Molly maid. You're starring the cost or insignificant by kids. It's, you know, they're not equipment heavy businesses, so you could potentially go look for one of those. Have, uh, you know, one of the maids that really understands that the one that is kind of the supervisor say, how would you like to own this. Well, if I buy it, that's going to happen over the next 10 years, but I need you. And what you're doing, the reason I'm suggesting you, you turn an employee into a manager and then put them on a vesting schedule. It's the way that you can make turn it into a passive investment, because they don't want you. If you're able to make two or $3,000 an hour working in real estate, why the hell would you be working in a made company? You're not gonna, you're it's about getting a passive investment. So if you can invest those people in, what are the chances they're going to leave when they've never ever owned a business, they've never known what it felt like to own equity. They've never gotten a distribution check and every quarter they get this big ass bonus that they don't even really understand, but they know it's like I did that. So you instill a sense of pride and responsibility, which blocks the men to that. And they'll never leave you. So if you can find things like that, that are around auto home services laundromats are incredible. If you can find laundromats, they are they're phenomenal investments. The challenge there is, you know, as collections like it, it's more of a it's not as passive as you might think, just because everything's coin operated, there's cleaning, there's their collections and deposits. And there's dealing with the jackass that kicks the door in and pops the coin tray with a crowbar and runs like there's, there are problems and there's typically not enough revenue for it to be, for you to have a GM that's there all the time. But anyways, man, this conversation could go so far and wide. That's the world of business. When you realized the opportunity, I mean, it opens up and two, there are literally tens of millions of opportunities to step into, to existing cashflow for free, no money down, no banks involved, no SBA lenders. And you can always refinance on long-term SBA and it's fully assembled non-recourse debt usually. So like you can always come back and do that, but to acquire the business, you don't have to because there's so few buyers in the marketplace now, I've got your gears turning what I will suggest because I haven't built a course on this. I have a site if you want to check out yoursmallbusinesshub.com That's one of, one of my brands that frankly, I haven't done enough with, a friend of mine. Codie has developed a whole course on this. So Codie and Ryan, it's about a 20 hour course and that's on, this type of acquisition. So we were both walking the same path you merged. And so I have a link somewhere I'll drop. So in the show notes here, I'll drop a link to that course. And I think it's, I think it'll come with a 25% discount code is as what the agreement we had. But so if you want to dig in and toady is so just to give you some she was a first generation immigrant from south America. Went to college, realized really quickly that the, to get ahead you got to push and ask for what you want found a way to make herself. More and more important than every role she ever had eventually worked her way onto wall street on an M and a firms or private equity firms, shore, Goldman Sachs. And she runs the entourage capital, which is the cannabis division of Goldman Sachs as a female in a man's world on wall street. So she has watched the consolidation happened within multiple industries, but cannabis is one of the most cutthroat industries we've ever seen that's happening so rapidly. So the farmers, the producers, anyone who touches product just got hammered, they got wrapped up, they got squeezed, they got consolidated that they got bought. They got that. Those got consolidated and then sold up into these bigger farms. So she has dealt with small business from the trenches of privately. But she's also came from absolutely nothing and built her own. And now she's stepping back and kind of throwing down a rope and teaching other people how to get into laundromats, how to get into auto repair shops, how to, get into pressure, washing business lawnmowing businesses, whatever. Sometimes they're not sexy. It's all about the return, the cash flow. And without, a lot of times just understanding business. Yeah, so chat just dropped a link there, but that one's not going to give you the 25% discount. Codie gave us a like cat that I don't have bookmarked. So you guys can check out the course there. But we have one with a discount code. We'll drop that link in the show notes, but Codie is, she's worked in everything from, just a a side gig all the way up to private equity at the highest level. And Ryan Snow, her partner wrote co-wrote with how L rod that he and Ryan wrote a miracle morning for real estate brokers or real estate agents, or I don't know how has rewrote that book? I don't know how many times, but yeah, Ryan's an author. He's a franchise brokerage owner. He owns multiple small businesses. So they got together and collaboratively built the unconventional acquisitions course and community, and a fully support them. You got very sharp folks to learn from. It's a really good value, just like this community. You, once you take the course, you're part of that community and it's an active community. I mean, every day someone's and what's super cool. Just like this. Codie kinda, I think looked at what we were doing and then took some inspiration from that. But just like this community, you've got students coaching students, which is awesome or alumni coaching alumni. So it was a really good, really good community to be part of Speaking of books. Thank you so much for recommending who knows. I already gave it to two people already. I'm on, I think I have an hour left on on the audible, but I listened to an hour at a time. But then you're like, I got to go now. It's like, it's a really cool format on audible for anyone who hasn't read it. Ben Hardy is his doctor. Dr. Ben Hardy is in strategic coach with. And it was really cool cause Dan man, the author is the who, like he was a who for Dan, but what's super cool about that. Ben will like, and Dan said, I don't want to be a part of writing it. Ben wrote the book and then he reads the chapter and then bring Dan in for a conversation. So I've never ever, I mean, I've read thousands of books. I've never had one like that where the kind of, the, the inspiration for the book, the one who delegated it or issued the challenge shows up to give his take at the end of each chapter. And that I thought that was a really neat format that they chose to do that. And I think that probably was Tucker. Max is kind of, he's the top guy in publishing right now. And Tucker's the one that published that book, but I think it's a super cool format that makes it stick even. Yeah, it does. Cause you actually grasp not just the context, but you get, you grasp the thought process behind how the concept was put together by the it's amazing. It's I completely agree with you. It makes, I don't know. You just absorb it a lot faster. Yep. Cool. Well, good job writing that. Anyone else who, if you haven't read it who not now is a really great book on, on delegation. It's in the probate mastery reading list that you think we have that on the Facebook page. Actually. No, it's on the website. Now, if you look in the footer, it probatemastery.com. I think the recommended reading is actually one of our footer links. Cristian, so you had said how much money do you really need to invest in small business answers? The business has the money. You just have to find a way you have to get the seller to trust you. So you can step into their position and use their money to pay them out and understanding small business. And, you know, the operational turnaround, it was the quickest way to add equity to a business. So you do a better job marketing than them, or you spend less money on X, Y, or Z for an example, friend of mine and our underwriting, a mess is a baby boomer situation with not a probate yet, but he's in his late stage of life. His son works there and works his ass off that he's scared to death and step into the business. So we're negotiating with them for 100% owner financing. The son vests in at 10% per year, we maintain a controlling interest until we get to 90% and then we become help limited partners instead of general partners. But the way he's looking at it as he was his alternative is his son has to go find, work somewhere else. And he has to figure out, how to get the most amount of money out of the equipment, niche equipment. They're making manufactured countertops, and I really small town and Western. But the cashflow on this thing is amazing. The problem is you've got 45 years of junk and a shop. So they're filling a mold here they're taking, or they're breaking a mold here, taking it all the way back to the end of a 450 foot shop refilling the mold, then bringing it all the way back over here to break it for polishing and sanding and detail work, and then taking it all the way. So we believe we can increase operational efficiency on a daily basis by about 35%, which translates straight to the fricking bottom line and literally make millions of dollars in the first quarter that we own the business without spending anything. We just throw the damn junk away and clean up the order of the assembly line. And you just go in and apply a little bit of Henry Ford to it, and you can increase operational efficiency by like 35%. So that's the easiest way to come up with the cash is coming into the business with better ideas in the current. And if you can get them to agree to a hundred percent financing with clawback provision, so you mitigate the risk in case you're lazy, or you're not a good business owner, just have clawback provision. Where if you're, if you miss a single payment or if you don't meet a certain milestone, then that equity can revert back to the seller. He can take control of the asset to, you know, to protect his asset with a light down payment or no money down. Okay. That makes sense. And then how do you take partnership? I guess, ownership like do you create like some type of business entity or like an LLC try not to ever buy an LLC. When you buy a business, don't buy the entity, buy the assets because what you don't know and what you may not know. And it could be years depending on the statute of limitations or whatever that's, the issue could be, but you could be buying liabilities you're not aware of because they're not apparent yet. For example, you could buy business today and close and tomorrow you get served a lawsuit that the entity gets served a lawsuit for something that did five years ago, but it has a 10 year statute of limitations for fraud or whatever it might be. So that's why you want to start a fresh entity and then purchase the business assets into the entity. Do you believe that chorus will be the best way to get more familiar? Now you mentioned. There's a couple of other you know, mentors and a couple of courses that I have I've bought, they're, they're like M and a gods. So what I appreciate about Codie and Ryan's course, it's for people like us, like small business owners who are looking to really build wealth quickly and give back. And it's not so much written from, the wall street, Harvard business perspective. It's about, you know, this isn't that sexy, but damn it's profitable and here's how you step into it. So the other ones out there, like Carl Allen has a course and he's got years and years experience, but I've taken Carl's course. And I think coach. I think Codie set the bar higher. I just think there's more value there for less money, Chad. When you say, I just want to make sure, and by the way, James, not trying, I just want to make sure your question doesn't steer away from this conversation of okay. When you say owner finance, and you said that someone could acquire something with little to no money down, let's say it's zero. And then let's say that you look at the business and you say, all right let's say you look at that employee and you say, Hey, John I know you've been paying 50, 50 grand, blah, blah, blah. I can give you a raise, but who pays that raise? Where do you get the capital for that? Does that make sense? I guess that's maybe I'm overthinking, like I said, you have to come into the business with ideas. So you either have business development ideas, or you have operational efficiency ideas, or, you like you, that's it like, that's what your role is from that point forward. Like you own the business, you do the brainwork, you come up with the strategy and the ideas and not every business you can increase cashflow, but just about everyone, you know, And a client owner pays D does that payment within the agreement of the vesting, the way you best the ownership is that correct? The current owner would just be, it's just based on a straight line amortization. So usually, so I'm going to give you a million dollars for your business over 10 years, I'll make you, 12 installments per year of that come out. For 10 years with no prepayment penalties. And then whatever interest right now to protect that, what will, what you'll do to protect that seller and the event that you default is you'll have a vesting schedule basically. So you'll have an amortization table that says on payment, number one, I'm paying this with my equity. Your equity becomes this, or if I default your equity as this. So I got for one month of payments, he may still be able to claw back 99% of the business. If you go sideways after two payments, it might be 98 and 97, then 96 and every month he loses a percent or it's going to be, you know, maybe more than that, but you show him how you can mitigate the risk, just like a seller of a piece of real estate. I'm going to give you a first position mortgage. You were comfortable owning this house today. Okay. So the worst case scenario as you get all the money and all the work that I do, and then you still own it. That's not so bad as it. And oftentimes they'll look at it and they know that they can sell the business for a hell of a lot more than they can, the business equipment and the real estate. And oftentimes you can use the business to pay for the real estate. And what's really valuable is as the real estate. And you've seen, McDonald's use that model for their entire existence, right. McDonald's is just disguised as a hamburger company. It's a real estate holding company. It was a great movie about that. The founder, if you haven't seen it. Yeah. Ray craft. Yeah. And the guy, his integrator was the guy that did all the damn work behind the scenes. Like he's afraid didn't do. Right. It was the visionary and that's what I'm proposing you to just be the visionary. Cool. Thank you. Yep. And I think it's Robert Kiyosaki, he really pounds up drum and he started in real estate, but where did he go? After that? He went into media and small but more specifically, small business media. And he bought, and he built his career in that. And then now at that next stage of wealth, what he's doing, he's buying businesses to pay for the real estate. They said on. And he's amassing a huge real estate portfolio buying he's buying the business. So he gets the real estate and everybody's tax situation different, but there's a lot of tax advantages to all this too. And that's a big reason. I was pushing that guy from wholesaling, the house I'm walking away from the business to acquiring the house. There's a long-term buy and hold. So he didn't all of his profit wasn't burned up in tax and then accessing, and then acquiring the business as additional, even more cashflow and then showing him how to owner finance the whole damn thing and minimize the taxation for the estate or the decedent's spouse. So I will we'll get you guys the link for Codie and Ryan's course. If you want, if you want to dig in they do a call every. I believe it's Tuesday night. I haven't been to one in quite a while. Cause I've been on the road, but yeah, Winston said Tony Robbins owns several businesses. I think last, last time I heard Tony say, I think he controlled 18 company now and that's what he does. He just he keeps starting company. You've got a real estate company, a supplement company, a course company. Like he invest in small business. His aren't all that small anymore though. All right, James, I'm waiting patiently. I appreciate it. Man I, I just jumped in the call. So I deserved to wait, man. I just got off work. I'm good, man. Uh, I hope you all are well. Um, I do home health, physical therapy for a living and I drive around Metro Atlanta all day. Anyway, I drove by a house today called the owner. he said he just kicked some tenants out of it. that were six months back on the, on the rent and, uh, We ended up meeting him over there. It was first time he seen the inside of the house in a few years. Anyway, I think Zillow's saying the house was about one 30, it's a small thousand square foot, three bed, two bath. but these are, the rents are about 1100 and that's what, uh, that's what I'm seeing online. Anyway. I've done a few wholesale deals, but you know, kind of like you were just talking about me and the wife were really trying to buy and hold. my wholesale, a couple of deals that I really wish we could have kept. So my question for you is, the guy who said he really wasn't open to taking the payments over time. I told him I could give him a better price, but I asked him what his bottom line was. He said he really wants about a hundred for it, which, you know, it makes the 1% rule. So I, you know, I think that's a, an okay price. It needs a little bit of lipstick, you know, the insides, linoleum floors, and trash, everywhere, three four year long tenants. Now we just bought a new car. Me and the wife did, we both got pretty good paying W2 jobs, but she's like, well, we need to buy this house because we're thinking about doing, um, the rehab loan, the two or three K loan. I think it is. That'll be your last one. You probably won't do that more than once. They're a pain in the ass. Yeah, I know. I'm trying to watch some videos on it. It seems like it is a pain in the ass, but you know, the guy he's like, well, if you're a flipper, you got the wrong house. I said, no, me and my wife were trying to buy a couple rentals. You know? So I guess my question for you is what's the best way to go about acquiring this. If he's not open to owner finance, should I try to put 20% down on it. Should we try to get an FHA? Because we own a house now, you know, that we live in, I bought last year, but my wife's not, well, she's on the deed now, but I don't think she's on the mortgage, but you know, I'm just wondering if we're going to be bankable for two of those. I mean, we make, you know, 170, 180,000 a year between the two of us from our jobs. So I want to shift your thinking away from conventional financing altogether on this. Like some people buy my rental properties, FHA or conventional. It's a huge pain in the ass. They're going to stop you out at four mortgages. And every time you go to apply for loans bikes, leave that, leave your personal credit there to buy other personal assets. Like you might want to buy a vacation home and you might want to use an FHA loan or conventional for that. And you've been talking about going to these small banks and bringing in, because we've got 23 over here. I can bring it in and open up an account. So yeah, you want to go to someone who's going to underwrite the asset, not you as a bar, a personal borrower personally. So find a community bank somewhere between one and $3 billion with very little REO on their books. We shared a link. We had this discussion last week. There's, there's a link to like the bank's score, the way I underwrite them, but either go in and just open a business bank account with them. Do you have your LLC ready for the acquisition? Okay, so just open a bank account for that.LLC, put it on deposit and then ask for a meeting with the head of commercial lending and have your pro forma there. Say, listen, here's, here's what we can acquire the house for. Here's the repairs, there's this, this mess a lot of times, and I was shocked that I was able to do it even without them knowing me, but they kind of based it on my personal credit score and the amount of cash I put in their bank. But when I first moved to Roanoke, I met with, at the time it was called valley bank. It was a relatively new bank it's been sold since, I put 25 grand in an account, sat down with the president of commercial lending at valley bank and they said they would give me 85 LTV on the appraised value. Well, hell if you're buying houses at discounts, that's often times that's your full acquisition and rehab budget. And then some. And they didn't even come out and take pictures for, they didn't like they didn't even set up draws. Like you can literally walk away from the closing table with a big ass check, because it's not under the regulation of residential lending. And that's why I say for your investment portfolio, you're, usually better off to stay the hell away from any kind of any kind of residential loans, because there's so much fricking red tape and you can go to the commercial side of it, but the same bank and you'll pay two points. But you'll walk away from the closing table with the cash. You won't have to get hard money and you'll still make a solid return and you can, you can always refinance, but in this rate environment, I mean, I looked at mean, one of my lines yesterday, so this was, first citizens bank, which is no longer, very small. It's a $25 billion bank now, but first citizens is awesome. And I think they're in Atlanta. They, they started in, Raleigh, but they're all over now. But first citizens offered me on, uh, $380,000 acquisition with $155,000 cap ex they offered me a 90 LTV at 3.7, 5%. Non-recourse a commercial note. And I'm like, are you shitting me? And that was before negotiating, but those are the kinds of terms you can get. And people are like, oh, you gotta do hard money. You gotta do private money. You don't, man. I mean, you can beat even private money rates and you can close inside of two weeks if you have the right relationship with, with the banker because it's asset based lending. So are you familiar with debt coverage ratio? Not really. Okay. So go to investopedia and Katt if you can find a link on Investopedia for debt, coverage ratio, and loan to value. I want you to understand those things before you go in, because that's what they're going to be looking at. If you say the house was worth X and it will rent for X, like, you know, it's worth a hundred and, or rent for 1100, they're going to look at, if I issue this guy alone, he pays the taxes, the utilities, the insurance, all the expenses is there. At least as they're at least 1.3 times as much revenue income as there are expenses. And as long as there are, that's your debt coverage ratio. Oftentimes when you get into good deals, I mean, how you can get a DCR, like three on it. Like when you get one of those deals where you're like, oh, home run. Oftentimes those will cover three to one. Most community banks are looking for a debt coverage ratio between 1.25 and 1.35. It's not that hard to achieve, man. You can buy shut off MLS at a 1.25 debt coverage ratio. Right? That's what I was wondering if this deal was too skinny, because it seems like he doesn't want to go much lower than a hundred. So let me ask you this. What's he going to do with the money? The seller? That's what I was asking. He's in his seventies. I think he's just, I think he said he tried to get the rental to his son, but his son wasn't really, I guess, How long has he owned the asset? 30 or 40 years. Okay. So his cost basis is probably, he's already depreciated the thing to death. His cost basis is down here. His gain is going to be up here. He's going to lose over a third of his money. He's going to lose to taxes it's a foolish move for the seller. He doesn't understand the tax code and well, likely not, I don't know his whole tax picture, but it's going to create a sizable taxable event for him where if he would owner finance to you, then he can spread that out. And so, anyway, look at the tax benefit to him, owner financing to you and show that to him, like literally show him the dollars. And that was back to the conversation that turned into a small business acquisition. That was the same, same scenario there. It's like, no, I want my cash and I want it now, but they had a super low cost basis and they were going to get a hit with a massive gain and it made more sense to own or finance it, 40 or $50,000 more sense to owner finance the deal than to sell it outright. Right? How can I get more educated on that Chad as far as how that works? If he was to owner-finance, to me versus the tax, start with bigger pockets. So you can go to biggerpockets.com, search the forums and, and, you know, look at that, you know, tax benefits, creative financing to maximize tax savings. I'm sure Brandon and David have talked about it on the podcast. Brandon wrote the book how to buy real estate with low or no money down. So they have a deep understanding of it. Those guys do a lot of creative stuff. And investopedia is a great place. Like if you guys hear me and you're like, what the hell is he talking about? Like Investopedia has built quite a database of non wall street, financial knowledge. So like, if you want to go study debt-coverage, ratio, or loan-to-value or any of those other things we've talked about, that's a good spot. But Bigger Pockets was one of the best resources in the country or in the world, for, aggregated real estate knowledge. Sure. One more thing, Chad, I bought a rehab program. It's uh, I think some, a couple of flippers did it over like a six month period where they actually film and go out. I paid for it. I think it's a thousand bucks now, but I got it on the first week it came out. So for 500 bucks. But, um, you know, within this group, I'm only doing that, but if anybody's interested in taking a look at it all, uh, willing to share it for them, I share it with them. One of the other things I want you to learn about is unrelated business income tax or UBIT. So I'll leave it at that. You come back and tell me why it makes sense to flip houses versus other strategies. The first thing I ask when I'm coaching somebody, I'm like, what's more important. Do you need cash now? Or do you need wealth later? And your strategy is going to be largely different based on your answer to that. If you're, if you're worried about wealth later, somebody flipping the houses, you're just giving away good assets that will pay you for generate for years and years and years. And you guys have kids. Yeah. So you, you ride that son of a - until your dead and who cares if Joe Biden takes away your step up basis, like you turn it into a piggy bank, you get equity in the house, you start cross collateralizing your future deals with your current equity, build your balance sheet, the hell with wholesale fees and you won't get, you'll get smashed with taxes. When you wholesale, you get smashed with taxes. When you flip. When you can like buy, even with even just straight line depreciation is by buy and hold your whole life. you die. It's in a trust anyways, that goes to your son and he picks up where you left off. So if wealth is, and you got, you know, you said you've got strong W2. I mean, flipping is fun. It's fun. But if you're going to flip, buy it, live in the damn thing for a year or two years, and then flip it and don't pay any taxes, but like flip smart or hold it for at least 13 months, like rent it for 12 months, then pull it off the shelf and then flip it and then pay capital gains on it instead of UBIT and earned income tax rate. And the other thing, if you do want a flip, I don't want to discourage anyone from doing it because I've done it too. If you do flip, as soon as you get done with your flip, make sure you're not closing too many of them in the fourth quarter, because as long as you leave yourself a quarter, you can go acquire a bunch of other real estate to wash out your gains and you can do accelerated depreciation, especially if you're buying an opportunity zones or you're buying assets that will give you a cost segregation. So, I mean, sometimes you're like, man, I can make 150 grand. If I flip this house and I can work on it for a month. It makes sense. Just have your next acquisition stacked up where it'll wipe out that liability. All right. So Corey asks, do you do much 1031. So. Man. I, I don't really believe in tax deferral in this environment, the last thing I want to do is defer taxes. I want to pay as much income taxes I can pay right now because I don't believe there will be a time in my life considering we've already printed, nearly $10 trillion in one, one way or the other. And I think that that's the agenda that, politicians globally are committed to. So I think they're there on the devalue the currency train, and they're just going to keep pushing because they can't, unless we take rates negative, but they probably going to have to rise rates and collapse equity. So it looks like politicians think that they can just take back wealth from mainly from the middle class. And 1031, the rules are changing and they're moving goalposts or they're trapped, proposing to move goalposts as we speak. So for me, I don't ever want to defer taxes. I would rather pay in this historically low tax environment. I would rather pay my taxes now than I would when I'm 60 years old. And to the point where I have restructured all of my retirement accounts, anything I had that was traditional, I just, I flipped it. I did a Roth conversion and I've been coaching people based on their specific situations. A couple of folks that I coach have actually just taken the 10% hit. They paid this year, the 2021 tax rate, the 10% penalty. But now they just go open a Roth directed IRA in place of where their traditional 401k was. But for me, I see taxes raising more than 10% on that person based on their income level, on their earned income level. So they're difficult. They create urgency that doesn't serve you as the buyer. A lot of people end up with assets they didn't really want because they had a short fuse and they they're like, I got to buy one of these three. I'm not a huge fan of them. You can rack up tons and tons of savings and scale up, but at, at what's the tax rate going to be, when you have to pay that on your whole portfolio? Thanks, Martha, I appreciate that. All right. Cool. Corey, did that make sense to you? Yeah. I just don't have a door on my new office yet, so I can't talk too loud. Okay. You have to tell all your success stories quietly. Oh gosh. I'm at, I'm at Wyndemere now we switched from Remax, so, oh, is that right? Yeah. Where's your office now? Uh, just down the street from, uh, downtown Berrien, basically. So south of Seattle, just to hit finding that tire on i-5. Yeah. Keep find my damn wheel. It's a mystery. I apologize. I didn't get to have any time with you face to face. It turned into a bit of a crisis. And then last minute I got calls and selling me a house for 30 cents on the dollar that I really, really want. So I had the dash here to get that. Yeah, it looks like you're back home. I was gonna say, yeah. I'll tell the probate story once I get the one find I've got a deed in my hand, I'll tell you guys a very interesting story about my small business path. It started back in my cowboy days when I became a fence builder. This summer makes a 20th anniversary of me building the fence on this property, come full circle, I'm buying it in probate. So it's a, it's an interesting tale. Um, but yeah, so I had to run back here. So I'll catch you next time I'm in Seattle made a mad dash. All right guys. Well, we're past the hour. I'm going to jump. Hopefully you got some value from this today. It wasn't our typical probate real estate conversation, but, always an interesting conversation with you guys. Uh, we'll get you the link with the discount code for the unconventional acquisitions course that Codie and Ryan have, and maybe I'll see you guys over there in that community and on their calls. I try to participate every time I have a chance, but as always guys, very grateful for all of you, all your participation and your bright minds, have a great day.