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If your lender forgives a portion of the debt owed on your principal residence, like what happens in a shot sale, the amount forgiven will not be considered income, whereas before you would have had to pay income tax on any amount forgiven by the lender. The Mortgage Forgiveness Debt Relief Act of 2007 will also reduce the income tax breaks on most gains from the sales of non-primary residences using a formula based on the amount of time that the taxpayer actually lived in the property during the five-year period before the sale.

Congratulations to our students! They learned a lot, put deals together, made money and helped families along the way.

Find out what they did and where they went….click below and enjoy. Feel free to click on the arrows on the right, top corner to view the show at your own pace.

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From Susan’s article:

As a mortgage broker that works exclusively with real estate investment, I have encountered just about every crazy and botched financing scenario that you can imagine. Over the course of the years, I have kept a list of the crazy things that investors do (it’s quite long) and today I’ll share the top 10 with you. Don’t make these mistakes!

1. Quitting the Day Job Too Soon

Repeat after me: “Equity does not pay the bills.” I see it happen all the time. An investor gets a few rentals and decides to quit the day job to pursue investing full time. Big mistake. Don’t quit the job until you have 12 months of living expenses saved up and/or monthly cash flow equal to what you were making at your day job.

2. Being Broke and Greedy

My mentor used to say, “You can’t be broke AND greedy.” In RE investor world it means that if you have no money to put into a deal you better be prepared to pay high rates or give up some equity to a partner.

3. Underestimating Holding Costs

If you’re a flipper, in most areas today, your properties are taking a lot longer to move. Factor in ALL of your holding costs to the budget - loan payments, utilities, etc - so you don’t lose all your profit.

4. Not Properly Setting Up Your Entity

If you list your occupation as real estate investor on a mortgage loan application, you are in for a tough road ahead with the underwriter. You may as well say you are a drug dealer. Same goes for naming your LLC. Try not to reference anything having to do with flipping or foreclosure help or anything like that. Stick to an easy name to deal with like Acme, LLC.

5. Paying Cash for a Property

Paying cash for a property is fine as long as you don’t need the money back anytime soon. If you do, then you’re trying to get an unseasoned cash out refinance and if you’re lucky enough to find a lender to do the loan, you will pay through the nose for it.

You can continue reading Susan’s article here.

• What is Pre-construction?
  Pre-construction is the opportunity to join a fellow group of investors
  in an effort to finance the development of real estate.
• What are the benefits of buying Pre-construction?
  The buyer benefits in several ways. First, the lack of mortgage payments
  while the building is under construction will constitute a profit. The
  developer offers incentives because sky and paper are harder to sell
  than concrete and steel. Second, the appreciation that takes place while
  the building is under construction constitutes profit ( a condominium
  assembled is worth more than condominium not yet assembled). The property
  appreciation that takes place while under construction is also significant
  (16% for condominiums in 2002) Finally, the tax benefits and lack of
  out of pocket expense due to the financing methods available make this
  the best investment real estate has to offer.

• How do I reserve a condominium?
  A simple reservation agreement can usually be signed with a letter of
  credit for 15-20% .
• What is the letter of credit?
  A letter from the bank stating the recipient is capable of buying said
  condominium.
• What does the letter of credit cost?
  A lending institution will generally charge 1% annually for the amount
  of the letter.
• Must I use a letter of credit for reservation?
  No, cash payment may be substituted for the letter of credit.
• Do I earn interest on my cash deposit?
  Yes, the funds are invested in a pass book account. Any interest paid
  on the account is applied to the purchase.
• Who holds the deposit money?
  An escrow agent of the developer holds the money. (Usually a title company)
  
• What format of the letter of credit is used?
  The developer generally provides a format for the letter that must be
  used.
• What is hard contract?
  When enough units are sold and the developer is applying for a construction
  loan, you will be asked to go to hard contract. A hard contract is the
  binding agreement that converts the reservation to a sale. When the
  contract is signed, generally you have 7 days to review the offering
  and make your decision in proceeding with the purchase. (Note) There
  will come a time, during the offering, that you will go directly to
  hard contract. This usually happens after some short time during the
  selling process.
• When does the construction start?
  Construction will commence once the developer has sold a number of units
  (usually 80-90%) and will fund the construction loan.
• What does need not be built mean?
  This means the developer is allowed to pre sell the condominium, which
  has not been constructed. It also means that it may not be built if
  all permits and approvals are not met. In this unlikely event, the purchaser
  is protected under law.
• What happens if the building is not built, at no fault of the purchaser?
  Your deposit will be refunded with interest or your letter of credit
  will expire and not be called.
• How long is the construction period?
  Generally, it takes 1.5 to 2 years to complete.
• How much profit should I expect?
  It depends on the general market conditions, interest rates, and competition.
  In the past few years, profits have ranged from $10,000 to $50,000 on
  average, peaking at over $100,000.
• Can I sell before closing?
  Yes, in which case, the developer allows a new purchaser to take over
  your contract. The new purchaser must come under the same pre-construction
  purchase and escrow agreement as the first buyer.
• What happens if I sell my unit prior to closing?
  The developer will collect a deposit from a new purchaser to assume
  the existing contract. The new buyer then steps into place to close
  and your deposit will be returned with interest.
• Do I have to close on the unit if I have not sold it prior to closing?
  Yes, if you choose not to sell your unit, you are expected to close.
• Can I reinvest my 1031 into Pre-construction?
  No, because of the length of construction for a condominium, the guidelines
  for the exchange are not met.
• Are there any costs related to the sale?
  Yes, you will be responsible for some closing expenses such as title
  insurance, funding of the association, insurance, reserves, etc. These
  charges will be outlined in a Good Faith Estimate provided by the selling
  agency, and in the developers offering statement.
• Are there any other contingencies, such as financing?
  No, the sale is not subject to financing.

It is important to note that you are not stuck as one of these four types just because of your personality. Instead of four different types, you can view these as four levels of real estate investment through which people can pass, from one to four, as they develop as real estate investors. Not everyone passes through these four levels, but if you develop as a real estate investor, these are the levels through which you are likely to pass.

The four types are as follows:

1. Type 1: Safe/secure investors own their homes. They are willing to invest in other properties, but want to carefully review all the benefits and risks or they won’t get into the game.
2. Type 2: Moderate investors often own one or two additional properties as well as their homes. They like to take small, educated steps. For them, the grass is always greener in other people’s deals.
3. Type 3: Risk-takers thrive on possibilities and are quick to discern good deals. For them, money is the means to something rather than the goal itself.
4. Type 4: Full-time real estate investment freaks eat, sleep, and drink real estate. When they are not structuring deals for themselves, they are doing so for friends. Some people never see opportunities even if they see so many that they have to avoid tripping over them. Investment freaks tend to have a good solid foundation in real estate and are successful people who take action quickly. Their outlook is that they have nothing to lose and everything to gain.

Which of these four levels represents you as an investor? The answer to that may depend on your risk tolerance. If you are risk averse, the first or second levels are most likely. If you have a more devil-may-care personality, you may start out on the third level. As with any kind of investing, however, caution pays off in real estate, especially for beginners who have yet to learn the rules of the game. However, some experienced investors are held back by their extreme caution, and always will be. These are the real type-one investors. Lifelong type-two investors often lack the drive that motivates others to become type-three risk-takers as they gain confidence.

How do you end up as a type-four, full-time investor? Well, one success leads to another. You learn to make quick decisions. You know that you must change your life to change your income. Over time, you see the things you need to do to change your life, and you do them. You control your fears. With experience, you become educated in real estate. You begin to trust yourself.

Achieving financial freedom through real estate is all a matter of changing your mindset. Type 4 investors have all gained the experience to not only recognize an opportunity, but to act on it quickly and effectively. That is the “Millionaire Mindset,” and it is the key to achieving your financial freedom.

I firmly believe that the housing market (as well as commercial real estate) will continue to expand and that young, first-time home buyers have the most to gain from it. I see nothing on the horizon to change my outlook either-not today or 10 years from today. As long as the United States experiences steady population growth, there will be constant demand for homes. Growth guarantees an ongoing appreciation of residential property values for years to come.

In my book, Bubble Proof, I explain two very important things: call them the “macro” and “micro” concepts of “bubble proofing.” I’ll share some of that insight here.

First, the macro: Real estate is bubble proof over the long term because it has always shown itself to be resilient and rewarding. Real estate is always in demand. Someone is always buying, selling or investing in property, so there’s always a market for it. Its major segments-residential, rental, commercial-don’t move in lockstep, so that a diversified “real estate portfolio” can be built and adjusted for performance.

It is also important to note that, unlike the stock market, real estate trends are foreseeable from a distance. Prior to any up or down movement in the business as a whole, we have reliable predictors: interest rates, home sale figures, building permits and the like, issued monthly and debated endlessly by economists, business reporters and experts.

Contrast that with a normal week on the stock exchange. Some days, market losses can amount to 2 or 3 percent due to some upsetting event: an overseas terrorist attack, an OPEC announcement or a poor blue-chip earnings report. Unless your last name is Buffet or Kerkorian, normal investors can’t divine the stock market’s next move. But I can tell you where my real estate holdings are headed-and that kind of predictability helps make them, and me, “bubble proof.”

Now for the “micro” explanation of “bubble proof.”

I advocate the purchase of houses, duplexes, condos, apartment buildings or even office or storefront space only if they meet certain requirements, and therefore are “bubble proof.” In other words, applying my methods, homebuyers and investors can bubble proof their investments.

What constitutes “bubble proof” real estate? Obviously, not all real estate qualifies. I certainly wouldn’t advise a client to buy land on a decaying waterfront, or in a bad neighborhood, where only a Herculean government program could possibly turn its fortunes around. But I do recommend that prospective buyers seek out the countless quality opportunities to acquire and profit from real estate using the bubble proof approach.

In my book, I provide an in-depth examination of the components that go into bubble proof purchasing, starting with your first home and then branching into investment properties. For the purposes of this article, I will keep it brief and just touch on the basics that every deal needs:

• Affordability - Without a doubt this is the most important factor to consider, whether it is your first home or your twenty-fifth condo. This may sound obvious at first, but it is amazing how many people stretch too far and get trapped when their low interest adjustable mortgage shoots skyward.
• Favorable conditions - It doesn’t matter what has happened elsewhere; focus on where you want to buy. Look for markets that are appreciating, and where homes are selling and not sitting. Be sure the nearby area is prospering, not struggling. (Here’s how to tell: Find the towns with the best schools, and then go house hunting.) You may have to research newspaper archives, business journals and the Internet for some of this information, but it will keep you from committing a major blunder later on.
• Location - Here’s where Realtors earn their stripes. They know the local market, inside and out-and about opportunities that you would never unearth on your own. Remember: Your goal is equity growth, not looks, so forget about buying the nicest house on the block. Instead, buy a house that needs work, in the best neighborhood you can find.
• Realism - Buy for today and trust that the future will take care of itself. No market is immune to bumps and dips in the road; but smart buying can overcome nearly every obstacle. Real estate using the Bubble Proof tools will not make you rich overnight, but it will over time.
• Common Sense - Make sure that any real estate deal you strike makes sense today. If the property is affordable, in a good market, fundamentally sound and has real potential to appreciate, then -and only then-you should pounce. Buying in an area that’s only projected to boom is a fool’s errand. Let speculators lose everything instead.

By meeting each of these requirements, a home or property acquisition meets my criteria for being “bubble proof.” It’s easy to see how these basic standards mesh into a bulletproof vest, if you will, that protects my investment before I’ve even placed my down payment. With these safeguards in place, buying your first house should be almost anticlimactic, because you’ve eliminated the negative factors that can result in disaster.

Some of the valuable topics we covered in the interview include:

• The Secret to Real Estate Wealth: It’s Fast, Simple, and Easy
• How to Create Financial Independence and Realize Your Wealth Power
• 3 Quick Ways to Bubble Proof Your Financial Destiny

You can listen to the first part of the segment by using the web player below, or you can download it to your iPod. Dr Proactive also posted part of the segment on YouTube. You can also listen to that below. To listen to the entire interview, I think you have to purchase the interview or become a Gold Member over at InsideSuccessRadio.com. You can find out how to purchase the interview here.

The First Segment

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