Chat Session with The QI Guide's Larry Mayer

[20:57:17] joel> How are you doing??
[20:57:28] MM> good what about yourself ?
[20:57:34] joel> Hanging in there
[20:57:59] joel> I guess we will wait until everybody gets here
[20:58:05] MM> ok
[20:58:10] joel> You working on any deals??
[20:58:31] joel> Hey Frank
[20:58:37] MM> yeah i'm always working on one it's important to keep busy
[20:58:44] MM> hello frank
[20:58:48] frankca> Good eve all
[20:59:13] frankca> Am I late [20:59:39] joel> Just chit Chatting
[21:00:03] re4me> Hi all
[21:00:14] MM> hello re4me
[21:00:49] re4me> Howdy MM
[21:01:16] MM> hey paul
[21:01:27] PDX> Aloha MM
[21:01:31] re4me> Welcome paul
[21:01:45] joel> So tel us about your deal MM
[21:01:49] RichardM> Hello everyone
[21:02:04] MM> which one joel ?
[21:02:19] MM> i have a rehab wanna hear about that one ?
[21:02:20] joel> ANy
[21:02:24] re4me> Hi RichardM
[21:02:24] joel> Sure
[21:02:39] RichardM> Hi Re4Me
[21:03:01] MM> well this is a very unique deal i learned how to do this from papergame.com btw
[21:03:45] joel> So it is a paper deal??
[21:04:19] MM> first i found a reo then after inspecting it i figured it needed 50k in rehab and the bank wanted 125k so i got a option to buy a 1 million dollar commerical note from an investor who normamly buys them from me .......
[21:04:54] joel> OK
[21:05:18] MM> my option price on the note was 500k i offered the bank full price if they would buy the note first for 700k they did now i own the home and have the money to rehab it and then some
[21:05:51] re4me> Sounds like a great deal
[21:06:10] MM> it was for me the home has an arv of 290k!!!
[21:06:32] joel> Whoah
[21:07:08] MM> needless to say i hope to do many more of these reo deals
[21:07:21] re4me> Great profit range is it a keeper or resale
[21:07:38] re4me> I'd say so
[21:07:53] Cairns> good evening
[21:07:55] joel> I am just filling up my rentals
[21:08:00] re4me> tell us a little how you put the deal together
[21:08:27] MM> either one i own it free and clear without using my own money well i did risk 10 dollars for the option but i'll probably end u seller financing it
[21:08:51] re4me> I love OPM deals
[21:09:53] re4me> Hi Cairns
[21:09:56] MM> it's really simple but the big catch is you have to be able to find the right note(s) at the right price the bank was easy they didn't een counter why would they i offered full price
[21:10:40] re4me> Sounds like a great power deal win win for both
[21:11:30] Cairns> wonder where $CASH$ is tonight?
[21:11:31] MM> it is every party got what they wanted even the guy i bought the note from he paid less then i did for it so he made money on it also
[21:12:09] re4me> WOW sure beats my walk away deal today
[21:12:26] MM> what happened on that one ?
[21:12:55] Cairns> is there going to be a 1031 exchange discusion tonight joel?
[21:13:07] joel> HOld on Guys
[21:13:11] frankca> Who fronted the cash for the closing costs?
[21:13:18] joel> I am giving Larry Tech Support on the phone Right now
[21:13:24] re4me> help folk on some low end prop 35k lease op back for 45k
[21:13:51] re4me> broker wanted a 18% broker fee thats just nuts
[21:14:08] MM> on the note closing the investor on the purchase of the reo it wa split between myself and the bank
[21:14:22] Cairns> OMG is that legal? I thought the rate was 7% high
[21:14:53] re4me> No it is not 7% max by law
[21:15:08] Cairns> really what is it re4?
[21:15:42] joel> Ok hes coming
[21:15:42] re4me> Opps Missouri law is 7% max my error
[21:15:49] MM> actually it can be higher then 7% if the other party agrees to it
[21:15:51] joel> He should be loggin in soo
[21:15:52] joel> n
[21:16:47] MM> hello larry
[21:16:49] Cairns> on a property I made an offer of 569,000 the re agaent gets 34,000+ glad I won't be paying it
[21:16:49] joel> Yeah, he's here
[21:16:54] re4me> Yes, but may get into predor lending would have to lease op over 50k apprsd only 49k
[21:17:05] joel> Greetings Larry
[21:17:20] larrymayer> Hello, folks. Sorry for the delay. Had problems accessing the chat.
[21:17:23] re4me> Welcome Larry
[21:17:24] Cairns> Godd evening Larry
[21:17:31] Cairns> Good
[21:17:37] larrymayer> Glad to finally join
[21:18:04] larrymayer> Have I missed any 1031 discussion?
[21:18:25] joel> Just Chit-Chat
[21:18:27] MM> nope just witing on you for that
[21:18:33] MM> waiting
[21:18:46] larrymayer> What if anything can I provide on that?
[21:18:49] re4me> Let's rock
[21:19:13] re4me> Hi Empress
[21:19:25] Empress> hello, have i missed much?
[21:19:41] re4me> Just getting started
[21:19:42] Cairns> evening Empress
[21:19:53] Empress> excellent, hello everyone!
[21:19:59] larrymayer> Hi Empress
[21:20:03] MM> hi express
[21:20:03] Empress> hi
[21:20:55] larrymayer> Who's got any news?
[21:21:32] Empress> well, it's really cold out in NY
[21:21:59] frankca> Well it gorgerously warm in Cal
[21:22:09] Empress> i'm jealous
[21:22:13] joel> It is Sleeting in NC
[21:22:22] Cairns> it's quite frustrating in Northern Ca
[21:22:27] PDX> Warmer in Hawaii
[21:22:27] re4me> Snow in Mm
[21:22:33] MM> there's a bunch of snow in michigan
[21:22:49] Empress> we now have the nation's weather forecast...
[21:22:50] larrymayer> and it's coming toward me in Virginia
[21:22:55] MM> lol
[21:23:01] joel> Larry, What is a 1031 used for??
[21:23:09] larrymayer> Glad you asked
[21:23:15] Empress> ha!
[21:23:58] larrymayer> Sorry for the delay, took a quick important call
[21:24:06] larrymayer> Now about your question on 1031
[21:24:12] frankca> Tell us how to bypass the costly intermediary
[21:24:22] joel> The IRS
[21:24:30] Empress> and their cronies
[21:24:56] larrymayer> If you understood what takes place in the 1031 process I don't think anyone would consider paying the costs demanded
[21:25:13] larrymayer> I handled a few like-kind exchanges for my legal clients in the past
[21:25:26] Empress> give us an example
[21:25:28] larrymayer> Some of them I assisted in the process.
[21:25:56] larrymayer> The short of it is this. A 1031 qualified intermediary is merely an escrow agent
[21:26:06] larrymayer> The duties are very simple
[21:26:46] MM> couldn't a realtor or even anyother nutural party hold escrow then?
[21:27:15] larrymayer> Yes, almost anyone can be a 1031 "QI"
[21:27:41] larrymayer> That is the whole purpose of my software and information. I've done this in the past, successfully for other clients
[21:28:18] larrymayer> Although I was prohibited from serving as the QI for my own clients, I was nonetheless able to provide the documents to allow him to "do it yourself"
[21:28:37] MM> whats the advantage over a 1031 excange versus carrying paper
[21:29:01] larrymayer> There's no magic to becoming "qualified". Anyone is qualified who is not otherwise "disqualified"
[21:29:15] larrymayer> Apples and oranges
[21:29:49] larrymayer> carrying paper under a purchase money agreement or as a third party lender is not the same as a QI
[21:30:09] re4me> What qualfys as like prop
[21:30:36] larrymayer> In short the IRS requires anyone exchanging "like kind" property to make a simultaneous swap for other property, or suffer the capital gains taxes
[21:31:18] larrymayer> "Simultaneous" can actually occur, or it can be structured under a delayed exchange, but with the same safe harbor provisions against capital gains tax
[21:31:44] Empress> delayed exchange?
[21:31:52] re4me> Must it be SFR for SFR, Comm for Comm
[21:32:15] larrymayer> I am a frustrated attorney who simply became discouraged at seeing clients being gouged for high cost QIs
[21:32:35] frankca> Why not just bypass all this confusion and SWAP?
[21:32:42] re4me> Agree
[21:32:53] Empress> do you really need a QI?
[21:32:55] larrymayer> I actually served in that capacity and know just how simple of a process is involved. I don't believe it justifies the costs being demanded and paid.
[21:32:58] joel> Could I do five rental units for a big home??
[21:33:33] larrymayer> If you are faced with capital gains tax, and you do not do a "simultaneous" exchange, then yes, you do need a QI
[21:33:47] Empress> is it not like-kind if there is "boot" involved?
[21:34:20] larrymayer> "boot" is a different issue from the like kind nature of property
[21:34:40] Empress> so, we are talking...no boot, then
[21:35:20] larrymayer> "boot" refers to the excess property value. Like kind relates to the type of property such as real estate for real estate, equipment for equipment, vehicle for vehicle, etc
[21:36:20] larrymayer> There is a lot of detail that likely won't be addressed in this short chat session but would ask that you please read a couple of my posted articles to get a better understanding.
[21:36:57] joel> Isn't there always going to be a difference in value in every deal though??
[21:37:02] larrymayer> Here's the essence of what I'd like to convey in this message
[21:37:14] Empress> that's what i would imagine
[21:37:16] larrymayer> Usually yest
[21:37:20] re4me> Real estate for Re, can we mix re types SFR, Com, Multi famly
[21:37:34] Empress> then how do you compensate for the differences?
[21:38:18] larrymayer> Although I will be careful not to give legal advice, the rules provide for real estate "generally" to be traded for other "real estate" usually without regard to the specific use
[21:38:53] larrymayer> However, please consult with your own attorney on specific questions to your transaction. Sorry to do that, but I need to be careful.
[21:39:16] larrymayer> Would like to keep the topic focused on the "process" rather than the substance of a particular deal
[21:39:22] Empress> *smiling* don't worry, you're amongst friends...
[21:39:36] PDX> lol, that's the problem
[21:39:43] larrymayer> Here's what goes on in a typical forward 1031
[21:40:07] larrymayer> You have a piece of investment property that has appreciated for several years and you look to sell
[21:40:39] larrymayer> Likely you won't find anyone else with whom you can make a "simultaneous" trade of property
[21:41:11] larrymayer> It's just not likely. Rather, you would more likely find a buyer for your property, and then another person would sell you replacement property
[21:41:21] larrymayer> Thus, you have no simultaneous exchange
[21:41:32] larrymayer> Without it, you face capital gains tax consequences
[21:41:53] larrymayer> Herein lies the "safe harbor" provision of the 1031 qualified intermediary exchange
[21:42:10] re4me> Thanks for the info Larry
[21:42:29] larrymayer> You find a middle-man to acquire your replinquished proeprty and give him rights to sell it for you.
[21:43:13] larrymayer> He (or she) obtains these rights from a single contract and trust agreement
[21:43:24] Empress> and, just to clarify this QI, could be anybody, pretty much, right
[21:43:33] larrymayer> Yes
[21:43:40] larrymayer> Just look how ma
[21:43:55] larrymayer> Just look how many QI's have surfaced in the past 10 years
[21:44:02] larrymayer> Its a booming business
[21:44:03] frankca> If I put a house into an LLC and John put an apartment hse into the LLC and later we disolve the LLC and I take the apt hse and John get the hse will the IRS screen this is an exchange?LOL and tax accordingly?
[21:45:02] larrymayer> Again, you'll need to consult your attorney, but it will likely depend on how the proeprty was conveyed to/from the LLC
[21:45:17] larrymayer> If it was a capital contribution or a deed
[21:45:53] larrymayer> Anyway, everyone and their brother is suddenly becoming a QI because they think its easy money.
[21:46:17] larrymayer> They're right. It is, and unwitting investors are willing to pay
[21:46:38] Empress> now, that gives me something to think about
[21:46:52] larrymayer> Just look at any 1031 web site. They want you to be baffled by the myriad of regs and confusion
[21:47:21] joel> Thanks for clearing some of this up
[21:47:26] larrymayer> But when you boil it down to your specific needs and the process necessary to get there, you'd be amazed at how simple
[21:47:45] larrymayer> Plus, you'd likely be furious at what your paying them per hour
[21:47:58] larrymayer> I've had clients pay $20,000 or more for a single exchange
[21:48:10] Empress> wow!
[21:48:14] larrymayer> Most QI's charge based upon the value of the property exchanged
[21:48:22] larrymayer> Yet the process is identical
[21:48:29] MM> could a entity you own seperat from the one you own the property in be a qi ( i know your not rendering legal advice just for informatin and educational reasons only
[21:48:52] Empress> good question
[21:49:10] larrymayer> Not sure I understand the question, but in simple terms you can serve as a QI if you're not disqualifed
[21:49:21] larrymayer> Disqualified means you're too close to the transaction
[21:49:37] larrymayer> You can't be a broker, accountant, attorney, close relative, etc
[21:49:43] frankca> It sounds like you qualify as a QI if you have a mask and a gun!
[21:49:51] larrymayer> Most do
[21:49:55] PDX> What's been your experience with what is charged
[21:50:17] larrymayer> I represented clients, mostly on aircraft (jet) exchanges
[21:50:32] larrymayer> My first encounter with a QI, the client paid $1000
[21:50:56] larrymayer> Although the process was the same, other clients paid, as much as $20K
[21:51:12] PDX> There's an escrow company in Hawaii that does them for $295, flat fee, guess that's not bad then
[21:51:31] larrymayer> That's about where it should be
[21:51:45] Empress> and your software could pretty much take me through the whole process?
[21:52:09] larrymayer> The software is a single format for a "forward" exchange only
[21:52:15] Empress> oh
[21:52:34] larrymayer> It is not intended for a reverse exchange (i.e. purchasing replacement proeprty before selling the relinquished property
[21:52:53] larrymayer> However, the vast majority of exchanges are forward exchanges
[21:53:04] larrymayer> In fact, the Irs only recently allowed reverse exchanges
[21:53:52] Empress> and a forward exchange is then, just having the property conveyed to you?
[21:54:01] larrymayer> If you have any plans for an exchange any time in the future, please either review my articles or feel free to contact me directly
[21:54:08] frankca> Wii your software manage a three or four way exchange
[21:54:34] larrymayer> A forward exchange requires you to sell one proprty, recieve the money, then use that money to buy the next
[21:54:56] larrymayer> Thus, the basis of the old property is rolled into the new
[21:55:19] frankca> Gotcha!
[21:55:20] larrymayer> Capital gains taxes are then deferred until the sale of the new property
[21:55:47] larrymayer> If you do the same thing again, the capital gains taxes continue deferrment nearly indefinitely
[21:56:24] larrymayer> If nothing else, I'd like to share this one thought
[21:56:47] Empress> please, do
[21:57:00] larrymayer> Consider whether the costs are justified
[21:57:43] larrymayer> Also, as mentioned in my article, don't be duped by the mass of confusing materials provided by QI's
[21:57:49] Empress> what is appropriate compensation for a QI...that flat fee mentioned earlier?
[21:58:01] larrymayer> It is a complex set of regs, but it results in a simple process
[21:58:24] larrymayer> I don't want to guestimate what should be the norm.
[21:58:50] larrymayer> Perhaps $1000 or $1500, depending on any specific needs
[21:58:59] larrymayer> Lower, of course is preferred and also justified
[21:59:19] larrymayer> 10,000 or 15,000 is never justified
[21:59:27] larrymayer> Not even 5K
[21:59:41] larrymayer> However, they're still getting the fees
[22:00:08] larrymayer> There's an Association of Exchange Accomodators that does well to promote the industry
[22:00:29] larrymayer> Hope some of this helped
[22:00:43] frankca> Many thanks to Larry and Joel.
[22:00:45] Empress> definitely, i think i've found a new career!
[22:00:57] joel> Thanks everybody for coming
[22:01:10] larrymayer> Thanks for your time
[22:01:13] larrymayer> Enjoyed it
[22:01:18] joel> Feel free to stay and talk
[22:01:21] Cairns> thanks larry for yours and info!
[22:01:32] MM> thank you larry
[22:01:41] larrymayer> Glad to help
[22:01:43] joel> Reminder, the Chat Room is open on Sunday Nights as well from 9-10PM EST
[22:02:10] Empress> good night