Learn about Real Estate by one of the premier Real Estate Investors in New Jersey. Each week Joseph J. Zoppi will be talking about investing in real estate including buying and selling houses and apartments. Understand how the economy, the Fed and world events impact real estate and how to adjust to these dynamics.
Templar Real Estate Radio Show for February 8, 2020
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The following program was paid for by Templar Real Estate. The views and opinions expressed on this program are not necessarily those of the staff and management of WMTR. As always, it is advisable to consult a professional before making a major decision.
It’s time now for the Templar Real Estate Talk Show. Here’s your host for the program, Joseph J. Zoppi.
Joseph J. Zoppi:
Hi, my name is Joseph J. Zoppi, a real estate investor, consumer advocate, author, and managing partner of Templar Real Estate Enterprises. Today, you’re listening to the Templar Real Estate radio show. You can reach us at templarcashforhouses.com or call us at 973-240-8593 and we could answer any questions you may have, or you could always email us from our website. If you want to have a topic discussed on our show, we’ll do our best to try to get it on the show and answered.
My company is a real estate investment firm. We buy houses for cash, we purchase apartment buildings, we do joint ventures with other real estate investors, we loan money for rehabs and provide transactional funding as well. We work with individuals that want to invest with us in single-family houses up to apartment buildings. We do not speculate and we’re very protective of our money and our investors’ money. I am not a real estate agent, I have individuals on staff that are agents that will sell your house through the traditional Multiple Listing Service, but we are not a brokerage.
The show will continue to go over everything there is about real estate, those things that impact real estate. We’ll talk about our rehabs, some of our investments, what we’ve learned from those investments, what we’ve learned from our rehabs when they haven’t gone as well as they should go. Real estate is the biggest or one of the biggest investments that you have so it’s important that you know as much as possible about it. I’ll provide my opinion and it’s only an opinion. I ask everyone always to research everything. Even if you have your own attorney or CPA, always double check or triple check.
Today, I’ll be interviewing Edwin Kelly. Edwin is America’s leading expert on self-directed retirement accounts and self-directed investment strategies. He has more than 24 years of experience in the financial industry, worked for such notable companies as UBS, BYSIS. Edwin is a founder and currently serves as CEO of Specialized Trust Company. Prior to founding Specialized Trust Company, Edwin helped grow one of the largest self-directed IRA custodians in the industry. Edwin is an avid educator, getting value to clientele by developing significant knowledge assets at every company he has worked with. Edwin has made several special appearances on The Money Show and his work and his ideas have been featured in major national magazines and newspapers throughout the United States. Topics he’s frequently asked to speak on are what is the average person, how can they take charge of their finances so they could stop worrying about money and could look forward to a comfortable retirement, little-known investment strategies that have helped people retire sooner than they expected, completely legal secrets to growing wealth tax-free. He is also a co-author of the best-selling book Leverage Your IRA. He’s currently writing two other books, so I’d like to introduce Edwin Kelly.
Hello, Edwin, how are you doing?
Edwin Kelly:
I’m doing great, Joe, how are you doing?
Joseph:
Good, good, good, so I’d like to jump right in. Could you tell us a little bit about what is self-directed IRA?
Edwin:
Yeah. I mean, that’s a great question and it’s a great, great way to start the conversation. Right now, a lot of people hear the term “self-directed IRA.” So what a self-directed IRA is, they might’ve heard the term, it might be a new term for them, but what a self-directed IRA is, it’s an IRA that is held by a financial institution that allows you, the client or the IRA owner, right, the retirement account owner to invest in anything allowed by the law or allowed by the government. So a lot of people think that you are limited to tax bonds, mutual funds, and CDs because those are the most common investments held inside of retirement accounts. The reality is, is that you can invest in all kinds of things in a retirement account, things like real estate, physical precious metals, crypto currencies, private equities, right? I mean, all kinds of things that are allowed to be invested in, and so when we say the term self-directed IRA, that’s what we mean. We mean that you can invest in anything allowed by the government.
Joseph:
Great, great. Now, what’s the difference between a self-directed and a plain vanilla IRA?
Edwin:
So you know what, I’m glad you asked that because the funny thing is, is that if people will ask me oftentimes, they’ll say, “Well, how do I know if I have a self-directed IRA or not?” And what I used to tell people is, well, you go back to your financial institution, right, whoever holds your IRA, right, your retirement account and you say, “Hey, I want a self-directed IRA. Is that what I have?” Now, the answer that they used to give you will be no, right? But financial institutions, because we are self directing, people are starting to come and self direct retirement accounts in droves, right? I mean, the numbers are going up very, very quickly. It’s staggering, actually. But financial institutions have caught on, and so now, what happens is if you go to your bank or your brokerage and you say, “Hey, I want a self-directed IRA,” they’re going to tell you, “Great, that’s all we offer.” So what do they mean by that? When you go to the typical bank or brokerage, and they say that they offer you a self-directed IRA, what they mean is that they will let you choose, okay, any investment on their platform, right? So in other words, stocks, bonds, mutual funds, and CDs. What they mean by self-directed is that you can choose from those four options, okay?
So now, we’ve kind of had to evolve the term, and so now I refer to it as what’s called a truly self-directed IRA and plain-vanilla IRAs. So a plain-vanilla IRA is one that basically limits you, right, the IRA owner, to stocks, bonds, mutual funds, and CDs. A truly self-directed IRA is one that allows you to invest in virtually anything, right? Anything allowed by the government like I said earlier. So again, real estate, notes, crypto currencies, physical precious metals – all those types of things are things that clients invest in with a self-directed IRA. And just to clarify that point because sometimes people will say, “Well, what makes a self-directed IRA a self-directed IRA versus, say a plain-vanilla IRA?” and my answer is this: what we do, okay, right, here’s the short answer, we do, that’s what makes the difference, and what I mean by that is, the custodian or the financial institution that holds your retirement account is the one that is allowed to set the rules or the restrictions on what types of investments they are willing to hold. So most people have their retirement account at a bank or brokerage. You are not able to self direct your retirement account the way that we are talking about at those places. So what you need is a specialized custodian, right, or a specialized financial institution that specializes in allowing you to sell direct your retirement account into an investment that again, is allowed by the government.
Joseph:
Yes, so yeah, no, most definitely. That’s the thing, you deal with any of these brokerages and they have a certain amount between the stocks, the mutual funds, so on and so forth, and that’s what you can pick. You can’t pick real estate unless it’s like a REIT, maybe, but you can’t do any of that, as well as crypto currency unless it’s like in the FT or something. But yeah, it provides a lot of flexibility.
Edwin:
Exactly.
Joseph:
Now, I got a question, so how come most people haven’t heard about this?
Edwin:
Well, it goes back to what I said earlier, so it’s interesting because when the government wrote the rules, right, in terms of retirement accounts, and they’ve been around a long time, since basically 1974 as we know retirement accounts today, one of the things that they said is that firms are allowed to place restrictions on the investments that they hold, and so what Wall Street figured out was you could make a lot of money off of retirement accounts if you kept people on a very tight box on the platform, which is why people aren’t [inaudible] and oftentimes, the misconception is that you can only invest in stocks, bonds, and mutual funds in an IRA.
And so Wall Street has done a great job, the traditional financial institutions have done a phenomenal job at hijacking the conversation, so if you were to go to your bank where you hold your retirement account at or the big Wall Street firm that you have your retirement account with and say, “Hey, I want to buy a piece of real estate in my retirement account,” most people aren’t even aware that you can do that because again, they don’t talk about it, but if you became aware of it because [inaudible] program and you go back to your bank or your brokerage and you say, “Hey, I want to buy –” and this is a question I think you should ask your financial institution as to how you can actually tell if you have a truly self-directed retirement account or not, you go back to whoever holds your retirement account right now and here’s the question you ask. You say, “Hey, there’s a property at the end of my street for sale. I want to buy it in my retirement account, and I want to have it rented out to a tenant and the tenant is going to write a check back to my IRA. Will you allow me to do that transaction investment inside my retirement account with you?” Now if you go to your bank or your brokerage, they are going to say, “No way, you can’t do that.”
Joseph:
Yeah, exactly.
Edwin:
Right? And if you came to a company like ours, the answer is yes, that’s what our clients do every day, right? That’s what we mean by self-directed. The reality though is, is that the big banks and brokerage firms make a lot of money holding assets in their mutual funds, so they don’t want people to know about it, so they don’t tell people that you could do this, and to the degree that if you called them and asked if you can do this, they will typically tell you, “No, you can’t,” and what they mean is, no, you can’t do it with them because they don’t think that’s specific. They just say no, you can’t do that inside of an IRA. Well, you can’t do it with them, that’s a true statement. But you are permitted to do it.
Joseph:
Right. Now, are the rules around what you are allowed to do and what you are not allowed to do?
Edwin:
Yeah, so one of the things to be aware of is that there are some rules and restrictions around what we can and cannot do, right? Now when the government wrote the rule book, this is kind of interesting, they don’t tell us what we can do and the reason why I say that is because the government doesn’t like to take responsibility, right? So if they told us we can do something and we went out and did it and it didn’t work, we might blame the government for that, right? So instead of telling us what we can do, they tell us what we cannot do, and they refer to [inaudible] code as prohibited transactions, and I don’t want to get too technical here, but just so people are familiar with the term, prohibited transactions, those are the don’ts, right? And there’s effectively a few things that they say we cannot do, just to make it simple. The first thing that we can’t do is buy collectibles or invest in collectibles inside of our retirement accounts, so what are collectibles? Things like rugs, antiques, gems, [inaudible], coins. Of course, the government made an exception for the coins, by the way. They said you can’t buy coins in your IRA unless of course, you buy them from us, then we’ll make an exception for you, right? Well, that was big of the government. So that’s number one, you can’t buy collectibles, okay?
Second thing is we can’t buy life insurance inside of our IRA. Now, life insurance is good to have, right? I have it, you should have it, we just can’t buy it inside of our retirement account, so that was the second thing that they prohibited.
The third thing they prohibited was they said you can’t do any self-dealing type of transactions. What is self-dealing? You know what, I’m not going to get into a lot of detail on that today, but here’s what self-dealing is in a nutshell: self-dealing is if you own something already personally and you say, you know what, I own this investment and it makes me a lot of money, and I don’t want to pay tax on it, so I just want to put it in my IRA so I don’t pay taxes anymore, right? That’s self-dealing. So what I tell people is, is that one of the ways to stay clean with the self-dealing rules is simply to look at it, when you have your self-directed IRA set up, once you get it set up and you got some money in there to invest, every new investment that you don’t own already is probably a viable transaction for your retirement account. So no money, no account, no opportunity, anything you own already is off the table, but once you get that account set up, you got some money in the account, anything new you’re looking at could very well be a very viable investment for your self-directed retirement account.
Joseph:
Right, right, and you can always also Google all this information and you can [inaudible] a lot of it in terms of who you can invest with and who you can’t from a self-dealing perspective, so.
Edwin:
Yeah, we have a lot of resources and information, education training that we do for clients and on our website, I mean, yeah, there’s a variety of resources out there. Here’s what I’ll say too, is that it’s not overly complicated, it really isn’t. It’s just new to people, and so it just takes a little bit of familiarity to gain and once people start in self-directing their retirement account, they find out, it’s really not all that complicated. You just got to know a few basic rules, right? And people are often running.
Joseph:
Right, right. What are some of the things that you see people invest in?
Edwin:
So it’s interesting, it really runs the gamut. You’d be amazed – I’m always amazed at how creative people can be when it comes to these things. This is really one of the things that I love about being in the business, and so I’ll say that probably the main thing that we see clients invest in is real estate, that’s probably the number one category that we see clients investing in. Real estate investors, and when I say real estate, they can look like a lot of different things, but I’ll give you a couple of examples. We have clients who buy and hold properties for income inside their retirement accounts, so they own a physical single-family home that’s rented out, right? Or I have one client who owns six single-family homes as an example in his IRA and that rental income is basically his retirement income, right? So he created his own kind of personal pension, if you will, using a self-directed retirement account along with real estate that spins off monthly income to him. So that’s one example of something that people invest in.
You see people investing in physical precious metals is a big category. There’s things new on the horizon like the crypto currencies, we see more and more people talking about and buying into, and investing in crypto currencies within their self-directed retirement accounts. No investing is really significant.
Another one that I see a lot of is private equity deals and that’s one of the things that I think is really interesting to see because if it’s a startup company or a small business that needs capital, one of the challenges is that, right, they don’t have access to the capital markets like the big companies do, but a self-directed retirement account, right, you can go out and raise private money as we call it, private money, right, from other people’s retirement accounts. If you have your own IRA or a retirement account and you know a small business – in fact, I’ll give you a quick example. I had a client who was really into martial arts and he and his whole family went and studied martial arts at this particular dojo, and apparently, the gentleman who taught was really, really good and he had this unique way of teaching things and he had a couple of schools that were doing very well, and he wanted to expand his business. The problem was he didn’t have the capital to do it, so my client basically took his retirement account and invested in opening up another location, right, a third location for this particular martial arts school and his retirement account owned an interest in that location and in that business, and receives a portion of those profits back to his retirement account.
Joseph:
Okay, alright.
Edwin:
So things like that.
Joseph:
And that’s the thing, is that it has to go back into the retirement account. It can’t just go into the person’s pocket.
Edwin:
Yup, and that’s one of the basic rules. I mean, like I said, the rules aren’t overly complicated but if the retirement account owns the investment, all income, profits, earnings return to the retirement account, right? And that’s basically how it works. That’s also a good [inaudible] tax protection inside a retirement account.
Joseph:
Right, yeah. We have a number of private investors and that’s what they do with us, and we’ve been using your company now for like, two years now and we’ve had a lot of happy clients because of that.
So can business owners and entrepreneurs benefit from self-directed IRAs?
Edwin:
Yeah, there’s a lot of different ways. In fact, here’s the thing, because when I think about self-directed and I work with clients on a one on one basis, they see oh, Specialized Trust Company keeps me pretty busy but one of the things that I really enjoy doing is working with clients on a very close personal basis, and so I work with a handful of clients throughout the year and a one on one basis and when I work with clients, I look at them as an individual, right? I look at their business, if any of them are entrepreneurs or full-time investors, and their family, and so there’s ways to dial in self-directing and self-directing strategies in each of those areas to maximize what you’re trying to accomplish. And so, from a business owner standpoint or an entrepreneur standpoint, there’s a couple different ways people can use self-directed retirement accounts.
The first is, is like I said, has nothing to do with their own retirement account. It has to do with – you’re looking to raise capital for your business or investments that you are putting together, you can raise money from other people’s retirement accounts to fund those deals, right? It becomes a source for funding. There’s over $25 trillion in retirement accounts right now, so there’s a lot of capital there, and people are always looking for ways to diversify their retirement accounts. This is why self directing – one of the reasons self directing has really taken off in the last five years [inaudible] a lot of interest in that.
Another way that entrepreneurs and business owners can take advantage of self-directed retirement accounts is that they can set up a small business retirement plan, things like solo 401(k)s, block 401(k)s, steps, samples, all those plans can be self-directed and what that enables the business owner or the entrepreneur to do is to put more money away, take more money off the table from taxes, and with that self-directed account, invest in the type of asset that we are talking about.
The third and final way, I’ll say this, that entrepreneurs and business owners can leverage self directing and self directed retirement accounts is that – and my grandfather is a great example – my grandfather owned an insurance agency and did very well when he was working, and he had a brokerage account set up and he put some money with a financial advisor because he was doing pretty well in his insurance business, he had plenty of cash flow, and he would raise money in the stock market, and then the stock market will take it away, and they make the money back and they get away, right? After going through a lifetime of cycles like that, he goes, “The stock market doesn’t work, I don’t want any of these types of accounts, I don’t want any of those stocks,” and he just got rid of it all. Well, fast forward, right, he retires from his business and sells it off and he lives 30 years in retirement, and now, he has run out of money and he’s living off Social Security. It’s unfortunate but it’s a common story, but what he always had was, the reason why he got rid of his retirement account is because, “I couldn’t make any money in the stock market. All my money, I can make in business.” Well, for entrepreneurs and investors, and business owners, the cool thing about it is that you can invest creatively with a self-directed retirement account and invest in the things you know. You’re not limited to the stock market. If he would have known about self-directed retirement accounts, he could have invested in the things that he enjoyed investing in – real estate, small businesses, those types of things. He could have done all those things inside of his self-directed retirement account and he could have preserved his wealth when he wasn’t working through his retirement years.
So those are some of the things that I think entrepreneurs and business owners can come and take a look at from a self-directing standpoint.
Joseph:
Sure, sure, sure. Now, how much money do you need for a self-directed IRA?
Edwin:
You know what, it’s interesting because people will say, “How much do you really need to self-direct?” and I say it really depends on what you’re going to do. It depends on really, your creativity, what you want to do, those types of things. But I’ve seen clients start with as little as $500 and invest and I’ve seen clients start with a lot more, right? What I will say is this: the more money you have, the more options you have. Having said that, there’s options at every dollar amount. So as an example, somebody might say, “Well, how in the world can we invest $500?” Well, I’ve had clients who will wholesale real estate in a [inaudible] self-directed retirement account, say with $500, so if people – I’m showing you a simple strategy where you have a contract that controls an underlying asset, right, and I’m using an example of real estate, and because they’re not actually closing on the property, they can assign that contract which gives somebody the right to buy that property at a [inaudible] price for a specific period of time, and they can assign that contract to someone else.
What I will say is that I have seen people wholesale a property or assign a contract through their retirement account and book anywhere from $2,000 profits to north of $10,000 profits, and [inaudible] amount of money that I see people using in a wholesale transaction or in a contract assignment type of situation is about $100. So with $500, somebody can get started investing and start growing their retirement account, and I’ve seen that happen time and time again. But like I said, the more money somebody has, the more options they have for sure.
Joseph:
Yeah, definitely. Now, last question, how someone’s money protected in an IRA?
Edwin:
Yeah, you know what, I think that’s a really important question because people will often say, “Well, wait a minute, why can’t I self-direct my retirement account with the banks that I have been doing business with for the last however many years or my financial institution that I’ve been dealing with for the last so many years who is well-known, a big national or international company?” [inaudible] so when you start to say, “Hey, I want to self-direct,” the company that holds the retirement account can actually allow the client to do this. They may be a name that somebody’s not familiar with, so one of the questions that comes up is or should come up is, how do I know my money is safe? How is it protected? And those are really good questions, and the answer is that for us to be in this business – as an example, I use Specialized Trust Company as an example – we have to be licensed, insured a bond and we are regulated the same way that any other financial institution that goes outside the business is regulated, so there’s oversight, there’s audit, there’s examinations, right, there’s capital requirements that have to be met, all these types of things. But when I think of protection, the absolute best protection in my opinion that we can achieve as investors or retirement account owners is to know exactly where our money is invested in. When I ask people like, if you own a mutual fund, what stocks does it hold? Can you even tell me what the top 5 are? I have never come across one person that actually knows what their money [inaudible], like people don’t have an idea. But when I talk to our clients who self-direct their retirement accounts, they know exactly where their money is in, and if it’s investing in, and I’ll use the example of the one client who owns six rental properties in his retirement account, those rental properties are the best protection he has, right? Because he has that physical real property that his retirement account owns, right? Nobody can run away with that, if it burns to the ground, it’s insured, so if it actually gets rebuilt, it’s probably worth more than it was before it burned down. I mean, that protection –
Joseph:
No, that’s fine, that’s fine.
Edwin:
So that’s one reason why people love to invest in real estate and do it through a self-directed retirement account because of all the asset protection and tax benefits that they get.
Joseph:
You’re absolutely right.
Edwin, thank you very much for the call. We’ll be circling back because I will be having a presentation at a hotel on the Parsippany area in the coming month or so, and someone from Edwin’s staff is going to be there to continue to go over some of these questions and we can have a sit-down roundtable discussion on it. Again, Edwin, thank you very much for your time and I appreciate everything that you’ve given us.
Edwin:
Thank you so much, I appreciate it.
Joseph:
Okay, take care, Edwin. Bye.
Edwin:
You too.
Joseph:
Again, thank you very much for listening today. You could reach us at templarcashforhouses.com or you could call us at 973-240-8593. You can give us a call, we can discuss any issues that you’re having with real estate and we could help you, whether it’s buying your house, investment in property. The event that we’re going to have coming up with Edwin’s team, I think, is going to be very enlightening and I think you could learn a lot from it. You’ll be hearing that in future broadcasts when we’re going to have that. Again, thank you very much and this is Joseph J. Zoppi.
Joseph J. Zoppi:
Hi, my name is Joseph J. Zoppi, a real estate investor, consumer advocate, author, and managing partner of Templar Real Estate Enterprises. You could reach us at templarcashforhouses.com or call us at 973-240-8593 and we could answer any questions you may have or you could always email us from our website. If you want to have a topic answered on our air, we’ll try our best to answer it and you could just send that to us as well.
My company is a real estate investment firm. We buy houses for cash, we purchase apartments, we do joint ventures with other real estate investors, we loan money for rehabs and provide transactional or gap funding. We work with individuals that want to invest with us in single-family houses up to apartment buildings. We’re constantly looking for additional houses to purchase as well as apartment buildings. For apartment buildings, we’re looking at usually anything – we prefer around 50-plus units, but we’ll do units from 10 on up, so if anybody out there has any apartment buildings or interested in selling, please contact us.
Another thing is that we do not speculate, we’re very protective of our money as well as our investors’ money. I’m not a real estate agent, I have individuals on staff that are agents that could sell your house through the traditional Multiple Listing Service, but again, we’re not a brokerage.
The show will continue to go over everything that deals with real estate and how it impacts your financial future. Real estate is one of the biggest investments anyone has, so the more you know about it, the better it is. Also, I’m going to be providing my opinion. It’s only my opinion, and I ask everyone to do research all the time. Everything that you do, please research – everything from your own attorney to a CPA, always double or triple check.
The show will continue to go over everything there is about real estate, those things that impact real estate. We’ll talk about our rehabs, some of our investments, what we’ve learned from those investments, what we’ve learned from our rehabs when they haven’t gone as well as they should go. Real estate is the biggest or one of the biggest investments that you have so it’s important that you know as much as possible about it. I’ll provide my opinion and it’s only an opinion. I ask everyone always to research everything. Even if you have your own attorney or CPA, always double check or triple check.
Last week, we had a guest on the show, Edwin Kelly, he’s talking about investing using your IRA to invest in real estate or other business ventures. We will be having an event on Sunday, late February or early March, we should know by next week when it will be, and we’ll go over in more detail in the Parsippany region about investing your IRA in different types of business ventures, specifically more towards real estate and that’s what we do. So we have a lot of private investors that come to us and they use their IRA to invest in real estate. We believe that real estate is one of the safer – not the safest – but one of the safer ways of investing your money. Right now, the real estate, the stock market continues to move up, and eventually, it’s going to top out. The question is, when is that going to happen? So real estate, it’s always good to be there, you might take a little bit of a hit from a valuation perspective, but the way we invest, you will continue to have monthly returns as a result of the way we do it.
There also will be a lunch and learn in the coming month for real estate agents and different potential ways that they could make additional money, not just through selling the houses, so that’s going to be very exciting. So we should be doing that, again, probably the end of February or early March.
One of the things that I constantly talk about is when someone reads something, they take it as gospel. So that’s why I’m always talking about looking up the information, getting a balanced approach to what it is. Sometimes, you might look at a very liberal set of ads or commentary, but I would request you should look at the other side also, so you could balance it out and see each one has their own good point, but unless you get a full picture of it, you might not really get the accurate depiction of what’s going on. Case in point, I was just reading something the other day about an economist from MIT that said that, I guess in 2016, once Trump gets elected, the world economy is going to go down. So this is an MIT economist and he was saying that the economy was going to go down. Well, the economy hasn’t gone down, the world economy hasn’t gone down, so again, we must kind of balance what’s being said and understand that unfortunately, in this environment, everything’s politicized, whether you’re on one side or the other side. I think what was really clear to me after not trusting a lot of things on shows is there was, it was for the weather channel, so there was a hurricane coming but it really wasn’t that bad at that point, and the gentleman talking announcing on the weather channel, he looked like he was on a 45-degree angle because the wind was blowing, but when they were taping it, someone was talking behind him and they were just walking casually, so we see that it wasn’t real, it was fake. So I think that really says it, if even the weather channel is not accurate in everything they’re announcing, that says it all. So it’s not really about politics only, it’s about gathering headlines and putting on a narrative of whatever that may be, whether it’s weather or politics. So I always say make sure you look it up, make sure you research it really clearly.
So over the past few weeks, I’ve talked about different things you need to look at when you use a cash buyer. A cash buyer is just like our company where we purchase houses for cash, so some of the things I already went over is how long a business is in existence, being part of the BBB, the Better Business Bureau, signing a contract and then the signing of the contract is where you sign a contract and then that contract is given to someone else to fulfill, and we normally do not do that at all. Also, in terms of signing a contract immediately, someone puts a contract in front of you, they say you have to sign, do not do that. Make sure you send it to your attorney.
Next one was proof of funds where you substantiate or the buyer should be able to substantiate that they have money. If they’re buying it for cash, they should have it or they should have a line of credit.
Next one we said was a place of business, so if someone’s going to purchase your home and they say they’re in the business of purchasing homes, they should have a place of business, whether it’s an office building, a house, but you should know where their place of business is.
Next thing that we’ll go over today is about their website. So nowadays, everyone should be having a website, so I think it tells a lot about a business. You could look at the website and you see their phone number, you see their business address and some additional things about them. One of the things that I’ve seen on competitors’ websites is where they have only two pages. One is basically we want to buy your house for cash and the second one was basically to fill out a form, or maybe it’s on the same page, but I think it gives insight of how the company is, so you want to see different things in there. Maybe they have blogs or maybe they have testimonials. We have lots of testimonials on our website, but you need something to really understand what’s going on and who this business is.
Another thing that I’ve seen on my competitors’ websites where you’ll see, it might say, “As seen on NBC or Wall Street Journal,” so on and so forth, so if they’re saying that, that means they should have been publicized and they should have an article or something written about them on these different media outlets, whether MSNBC, Wall Street Journal, so on and so forth. Well, a lot of times, if you do the research, you realize that they’re just icons or pictures that are put on the website, but there’s nothing behind it in terms of being real, so that gives you a lot of insight into the type of business it is, because if they’re publicizing it, it should be true. So that’s something that you have to look at very carefully and it’s very easy now with the Internet to find all these things.
Another thing that I’ve seen competitors do that state that there’s no township certificate of occupancy required, they don’t need to apply for that, well, all townships require that you get some type of CO which is a certificate of occupancy or CCO which is Certificate of Compliancy, but all townships require it. If someone’s telling you that’s not the case, either they don’t know or it’s a downright lie. It’s one or the other. And they require that for many reasons. One of them specifically is to ensure that the house that’s being purchased, even it’s by an investor, they understand what’s in the house in terms of is it habitable? Is it not habitable? The other thing they require is all of them require a fire inspection so that there is fire detectors up there, smoke detectors, carbon monoxide detectors – that’s always required, and anyone that says that’s not the case, that is wrong. Certain townships will find you as well as the person buying it if you do not get a CO or a temp CO. So for Newark, you can be fined $5,000 and the person buying it could be fined $5,000. In East Orange, it’s approximately $3,000 for the buyer and the seller. So it doesn’t matter whether they said you don’t need to do it, you have to do it. And in terms of the different types of CO, like I said, you could get a temp CO, so if the house is, we’ll say uninhabitable or it needs a lot of work, most townships will give out what’s called a temp CO. So a temp CO says basically, okay, it’s not habitable but eventually, it will be and the person that buys it is responsible to fix it up, and then that’s okay. A lot of times, when we buy a house, we’ll buy it with a temp CO and we’ll put the temp CO on it, and that’s fine. And then, in 60 to 90 days, the township will come out again, take a look, and see if we need some additional time to fix everything that’s necessary, but all townships do require it. So if you see something that says otherwise, run the other way. You could also very easily call the township up and they will tell you what it is. Now, certain COs, when they go through it, certain townships require certain things to be corrected, and sometimes, if you’re just selling also retail to another person that’s buying it, you might have to fix certain things. Case in point, like a township like Ewing which is down [inaudible], they require that you fix the sidewalk. So if there’s any sidewalks where it’s lifted up, you need to fix that. Each township is different in terms of what they want and what they don’t want. Edison, for example, when we went there and purchased a house, they were saying basically that they don’t even issue COs always and they have to go through a process, which concerned us a little bit, but we were able to get it approved for a temp CO, but most towns will just say, “Okay, you could get a temp CO,” whereas Edison was saying, “Well, we have to look into it and determine whether we’re going to give you a temp CO. If not, you’re going to have to fix everything beforehand.” So there was some anxiety with that when we were purchasing one of our houses.
Another one is like New Milford, so New Milford is another township. Their requirements also looked at whether you had a sidewalk, if there was any issues with it, They were always very concerned about the driveway and the ramp which is the apron going into the driveway, so they were always concerned about that, as well as their fire inspection. Usually, with the fire inspection, what the standard is, is that you should have a smoke detector on every floor and depending on the situation, you can also need carbon monoxide, especially near the bedrooms, and they also usually require a fire extinguisher very close to the kitchen, right near the kitchen. That’s usually it. Now, certain townships will say you have to have it mounted on the wall, and that’s the majority of them, but we’ve encountered some that said, “Well, you don’t have to have it mounted on the wall, you just have to have it on the counter for the inspection because we know it’s going to be taken off the wall because it’s just an eyesore,” so it really depends on the township that you’re working with and your house is in.
Next thing I’m going to talk about is curb appeal. So when we purchase a house and also when we were assisting sellers in selling a house, curb appeal is very, very big. We have a couple things that are very big: location, location, location is obviously very big. The second one is curb appeal. So I’m going to go over a few things in terms of what we do to brighten up the house and make sure that when someone drives by, they’d want to come in, and if it doesn’t have curb appeal, if we can’t get him through the door, that is a major problem.
So the first thing is the lawns. Lawns should be manicured as best as possible, you should use an edger to make it clean and everything in its place. The other one is bushes, so a lot of times, what we do is we rip out the old bushes, new bushes at Home Depot are very, very inexpensive, so we usually replace all the bushes that are around the house. It might cost you a couple hundred bucks. The biggest thing is just pulling them out, and most of that, depending on the situation, could be done yourself.
So an interesting story is a lot of times, when we buy these bushes, we also buy this grass, it’s a big grass bush and we do that a lot for all of our houses, so one of our contractors, he’s from Uruguay and we install it and he starts laughing at us. I asked, “Well, what’s so funny about this?” He says, “Well, we usually use those just for like, the horses to lay on. We never use it to plant around the house to make it look nice.” It’s always kind of funny what one person uses or what one country just for one thing, another one uses for something else.
The next thing is mulch. We are very big on using mulch which just brightens up and makes everything a lot cleaner, especially around the bushes. What we recommend is, and again, this is just a preference of ours, is the black mulch, so the black mulch, it makes between the grass being green and then the black mulch, it makes everything pop, so it makes it very inviting. The stairways and the walkways should be cleaned and power washed. We always do that and fix up any areas that are raised a little bit, patch them up.
The next thing is the driveway, so what we recommend with the driveway is at least to put some tar down and you could seal them for the driveway. That also brightened it up because again, you can have that black and that color just makes things pop. So we are very much into the black mulch, the black driveway where it’s brand-new, it looks brand-new. Obviously, you cannot seal the driveway if it’s really in bad shape. I’ve tried doing that a few times and it looks probably worse than previous, but I would highly recommend you sealing the driveway. It will look good, it will look very fresh.
Next thing is the screens on the house. If they are old and beat up, just take them off for the time being and just put them aside. You don’t want ripped screens, especially old ones, just even if they are old, it just doesn’t look good, and clean the windows. The other thing that has to do, with the doors and the shutters. So if you’ve got shutters, what we recommend, a lot of times what we do is we paint it black, we paint the door black, so again, what you’re doing is just making the other colors around the house pop because that black, so you’ll see the black mulch with us, the green bushes, and then you’ll have the front door which is normally black, and also the shutters, and as a result of that, it will really pop. Sometimes, we go with a different color, so we did have on 28 Perry Dr. in Ewing, and that one, we went with like a blue gray color, and it looked good but as time progressed, we started using black more and more. We had a house on 24 Weldon Rd. in Edison. If you look at it on Zillow, you’ll see it’s a very simple house. It’s a small ranch but we just painted a few things on it, and we put a new driveway, you could just see the difference with just the contrast between those colors, but the white and the black, and that’s important, just to look at the contrasting colors. We had done a nice house, it was a row house in Dover. It was in 10 Baker St., so what we did is we’re looking at it in the house next to me was none, like very bright yellow, which is not appealing. I’m like, okay, what are we going to do here? And then there was one next-door that was like a beige, so we were trying to figure out what color to do, we are looking at grays, so we said, well, let’s go with a dark blue, and it contrasted really nicely without that was next door which was a yellow, and then we highlighted everything with white, so again, sometimes, what we do is we might put a color on and we’re like, afterwards like, holy mackerel, that didn’t look good. So make sure you get a couple samples to test it out because what you see and when it goes on and it starts to dry are two different things. That’s very, very important. I have painted things before, rooms before and said okay, let’s just do this real quick and then all of a sudden, I’m like, holy, we got to change this color, so I highly recommend using paint samples and try to offset and try to contrast as much as possible.
I’d like to close this segment out and I’ll be back shortly with our next segment. Thank you very much.
Joseph Zoppi:
Hello, welcome back, this is Joseph J. Zoppi from Templar Real Estate Enterprises. Again, I want to tell you that we’re going to be having an event coming up at the end of next month, February, or early March about investing using your IRA to invest in different types of ventures, whether it’s real estate or any other business venture you may know of. Again, what we’re investing in for the most part from a real estate perspective is either single-family houses or apartment buildings, so there’s a lot of different options with that and we could go over that at the event. It will be in the Parsippany area and it will probably be on a Sunday, but I should have the date probably next week some time or next airing, I’ll go over that.
So, we talk a little bit about, again, we are very big on the rentals and we are very bullish on it, but what we do from a sweet spot perspective is like rentals below $2,000, preferably around $1,300, $1,400, maybe $1,500, somewhere around there, that’s affordable to most people, we’re not into the luxury type of real estate. I do not like that at all. I don’t care that the numbers are great, I don’t care about the rate of return. We don’t care about that because once we do have a downturn, the ones that get hit first are the more expensive rentals or houses, or whatever the case may be, and that it trickles down from there, but on the lower and type houses in decent neighborhoods are always going to be around, there’s always going to be people that rent those houses, so I think that’s very important when you’re looking at it from a strategic perspective and an investment perspective. We will go over rate of returns there, you will go through a lot of different things, why we think it’s good, why we are concerned about the stock market even though it continues to move up, you could be up on the stock market over the course of four or five years 70% and it will take only a 20% hit , the stock market comes down 20%, it will raise 50% of your gains, so if you diversify or move a lot of your money to real estate, you have a hard asset there that’s going to be around for a long time.
So I’d like to again, you could reach us at our website, Templar Buys Houses for Cash, you could call us and will answer any questions you may have, you could leave any type of notes via the website and anything you want to talk about in the future episodes, we will be more than happy to answer. Again, thank you very much and this is again, Joseph J. Zoppi with Templar Real Estate Enterprises.
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