Whitney Education Group, Inc.® 1612 Cape Coral Parkway, Suite A Cape Coral, FL 33904

© 2003 Whitney Education Group, Inc.® All Rights Reserved Digital Format © 2003

This publication and the accompanying materials are designed to provide accurate and authoritative information in regard to the subject matter covered in it. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional opinions. If legal advice or other expert assistance is required, the services of a competent professional should be sought. (From a Declaration of Principles adopted jointly by a Committee of the Bar Association and a Committee of Publishers and Associates.)



©2003 Whitney Education Group, Inc.®


Today’s successful entrepreneurs are a study in contradictions. They may hate details, but they tend to be very organized. They love their independence and freedom, but they recognize that, to a large extent, their success depends upon teamwork and the loyalty and efforts of others. They want to run the show, but as they become successful, their businesses in turn become more and more controlled by the managerial teams they have appointed. They love to roll up their sleeves, get involved, and do everything themselves. However, eventually they must learn to delegate responsibilities in order to get everything done. The entrepreneurial personality is comprised of an intriguing blend of ingredients. Most successful entrepreneurs have a touch of introspection, a dash of showmanship, and healthy doses of drive, adaptability, and love of adventure. These ingredients exist either in combination within a person or between individuals who team up as partners in a new enterprise.

How many of the entrepreneurial personality characteristics do you have? Take the following test and discover the traits within yourself that can work for or against you if you start your own business. For each statement circle the number that best represents you, with the rating of “6” being most like you and “0” being least like you.

1. 2. 3. 4. 5. 6. 7. 8. I usually do things my own way. I tend to rebel against authority. I have a reputation for sometimes being stubborn. I like to take the initiative. I often enjoy being alone. I gravitate toward positions of leadership. I like responsibility. I tend to stand on my own rather than ask for help. 6 6 6 6 6 6 6 6 5 5 5 5 5 5 5 5 4 4 4 4 4 4 4 4 3 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0

Special Report One: Are You An Entrepreneur? 1—1

9. 10.

I like to be in control. Personal freedom is very important to me. Your score for Independence ___________

6 6

5 5

4 4

3 3

2 2

1 1

0 0

11. 12. 13. 14. 15. 16. 17. 18. 19. 20. I’m persistent. I finish projects even if they involve a lot of work. I’ll work as long as it takes to finish a project. When I’m interested in a project, I need less sleep. If something needs doing, I’ll do it even if unpleasant. I have good concentration. When I want something, I clearly see the end results. I keep New Year’s or other resolutions I make. I analyze my mistakes to learn from them. I have a strong personal drive and need to achieve. Your score for Self-Discipline __________ 6 6 6 6 6 6 6 6 6 6 5 5 5 5 5 5 5 5 5 5 4 4 4 4 4 4 4 4 4 4 3 3 3 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0

21. 22. 23. 24. 25. 26. 27. 28. 29. 30. It’s easy for me to find solutions to problems. I see problems as challenges. I have innovative ideas. I am adaptable. I am curious. I tend to be very intuitive. I can think of original ideas for common objects. I’m receptive to new ideas. I have a good imagination. I experiment with new ways to do things. Your score for Creativity __________ 6 6 6 6 6 6 6 6 6 6 5 5 5 5 5 5 5 5 5 5 4 4 4 4 4 4 4 4 4 4 3 3 3 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0

31. 32. 33. 34. 35. Once I make up my mind, nothing stops me. If something “can’t be done”, I find a way to do it I’m willing to sacrifice to attain long-term gain. I would describe myself as gutsy. I would describe myself as determined. 6 6 6 6 6 5 5 5 5 5 4 4 4 4 4 3 3 3 3 3 2 2 2 2 2 1 1 1 1 1 0 0 0 0 0

Special Report One: Are You An Entrepreneur? 1—2

36. 37. 38. 39. 40.

I would describe myself as motivated. I would describe myself as persistent. I would describe myself as positive. I would describe myself as committed. I would describe myself as ambitious. Your score for Drive and Desire __________

6 6 6 6 6

5 5 5 5 5

4 4 4 4 4

3 3 3 3 3

2 2 2 2 2

1 1 1 1 1

0 0 0 0 0

41. 42. 43. 44. 45. 46. 47. 48. 49. 50. I feel if I don’t take risks, I’ll get stuck in a rut. I enjoy discovering new and unusual things to do. I have a high need for adventure. I live life to the fullest. I take chances. I think people who take chances are more successful. I’ll stick out my neck even I don’t believe in it. I’ll gamble on a good idea. I’ll face failure in order to expand my horizons. I’ll delve into unknown subjects to learn them. Your score for Risk-Taking __________ 6 6 6 6 6 6 6 6 6 6 5 5 5 5 5 5 5 5 5 5 4 4 4 4 4 4 4 4 4 4 3 3 3 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0

51. 52. 53. 54. 55. 56. 57. 58. 59. 60. I have a healthy self-esteem. I am emotionally resilient. I am a self-assured person. I can handle any situation. I feel like a winner. I believe in myself. I’m “on top” of things, no matter what happens. I can accept a compliment. I accept challenges. I have unlimited potential. Your score for Confidence __________ Your total Entrepreneurial Personality Test score __________ 6 6 6 6 6 6 6 6 6 6 5 5 5 5 5 5 5 5 5 5 4 4 4 4 4 4 4 4 4 4 3 3 3 3 3 3 3 3 3 3 2 2 2 2 2 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0

Special Report One: Are You An Entrepreneur? 1—3

320-360 You’re an independent, high-energy person with the drive and discipline that it takes to be an entrepreneur. When you make up your mind to do something, you get the job done. If you decide to be self-employed, you’ve got the personality traits to be successful. 280-319 You show good promise to succeed in your own business, but not if you immediately quit your job because of a high-test score. Those destined to succeed will use this test to gain greater insight as they venture forth into their new entrepreneurial endeavors. 210-279 You have some potential. Take time to develop yourself. Read extensively, take classes, and talk to successful entrepreneurs to discover what they’re doing right. 120-209 Proceed with caution. You’ll need a lot more drive, self-discipline, and confidence to make it in your own business at this stage. Think of your low-test score as a challenge to strengthen important personality traits that you’ll need to be successfully self-employed. 10-119 Until you develop your creativity, risk-taking ability, and confidence, and get your drive and selfdiscipline into high gear, you’ll probably be better off working for someone else at this time. 0-10 Chances are you lead a dull but manageable life and probably prefer it that way.

Special Report One: Are You An Entrepreneur? 1—4


©2003 Whitney Education Group, Inc.®


The first step to starting your own business is choosing the type of business you’d like to be in. There are a host of possibilities that you may consider: • Start a part time business • Start a full time business • Buy an existing business · Service · Retail · Wholesale · Manufacture · Invent/manufacture • Buy a Franchise There are benefits and deficits for all of the above so let’s take a moment to examine the alternatives. First, there is really no best choice that would be good for everybody. Since we are all individuals coming from different walks of life, the first thing to do is to examine your own strengths and weaknesses. Ask yourself questions such as: • Do I have business experience? • Do I have capital to finance my project? • Am I aggressive? • Do I have good communication skills? • What is my educational background? • Am I creative? • What are the strengths and weaknesses of my personality? • Is my family supportive? • Am I persistent? Continue with this exercise by listing all the strengths and weaknesses you can think of that would help or hinder your efforts in starting your own business.

Special Report Two: Choosing Your Business 2-1


Special Report Two: Choosing Your Business 2-2

It has been written that the exercise you just went through is derived from one of the most famous Americans in history: Ben Franklin. It has been said that when Ben had a tough decision to make or was entering into a new endeavor he would take a notebook and draw a line down the middle. Then he would list not only his strengths and weaknesses but he would list all of the reasons why he should make a positive (YES) decision on one side. On the other side he would list all the reasons why he should not move forward (NO).

REASONS WHY I SHOULD 1. I want financial independence 2. I want more control of my own time 3. More freedom 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. REASONS WHY I SHOULDN’T 1. Lack of self confidence 2. Undercapitalized 3. Not sure what type of business to start 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15.

These two exercises should at least start your mind working in a positive direction. You should start to get in touch with yourself to begin choosing alternatives and to examine your motivations for getting into business. Once you understand your strengths and weaknesses you can start to evaluate the benefits and deficits of the varieties of business available to you. Keep in mind, of course, that if your resources are limited, so then will be your choices.

The franchise industry has caused a major boom in new business start-ups in recent years. Why have franchises aided in allowing an entire new realm of people to enter into their own businesses?

Benefits 1. Most franchises have a tested, proven product. Therefore, you don’t have to pioneer the business. Someone has already gone through the trial-and-error process for you.

Special Report Two: Choosing Your Business 2-3

2. Most franchises have a tested, proven marketing plan. Generally the franchiser will have statistics on location, quality, traffic counts and growth potential. With a good franchiser you can project, to a certain degree, the gross dollars that can be earned based on past research and franchise history. 3. Most good franchisers give help, support and consultation to new franchises. This could be a big help for someone who has never been in business before. Just be sure that it is a reputable franchise with solid financial banking and a verifiable track record of performance that has franchise support.

Disadvantages 1. Usually there is a pretty big up-front investment required. You can spend anywhere from $25,000 up to hundreds of thousands of dollars just in front money. This means you are paying just for the name because many of these franchises don’t include the cost of the location or the equipment in that up-front charge. They generally must disclose to you exactly what is and isn’t included in the up-front dollars, but you should be very careful. 2. There are many stories of conflict resulting in greater regulation in the franchise industry, but still, when making a big dollar investment, you should do it with scrutiny. Make sure you read all of the fine print and know exactly what you are signing. Also, since these are big dollar commitments, you should have an accountant and an attorney review the documentation. That doesn’t mean you let them decide whether it’s good for you or not. Just have them point out the positives and negatives so that you can make an evaluation based on the facts presented. 3. It may be important for you to note that although there is some history to a good franchise and in many cases some very convincing statistics, there are NO GUARANTEES of success. It many cases it is not necessarily the franchiser’s fault. That’s right. The franchised business may work fine, but it was the person who bought the franchise that either didn’t work out or didn’t work. 4. A franchise can also be very limiting for you if you are the creative type. If they already have prescribed methods of operation, you may have to adhere to those policies. Even if you have what you may think is a great new advertising idea, that doesn’t mean the franchise will use it. Furthermore you may be in violation of your agreement if you do not clear your idea with the franchiser. Again, review your agreements in advance to be sure you understand your limitations and also your freedoms. 5. The main concern with a franchise is the limitation on the dollar earning potential. You have to weigh the amount of hours you put into the business against the amount of personal dollars you can put out each year. When you own a franchise you are obviously limited as far as expansion. The only way you can build to bigger dollars is if you can add multiple franchises or use the money you earn from the business to open other businesses. The other alternative is to invest your monies wisely and get them compounding for you, but that would take a good deal of cash flow to grow to that level of ROI (return on investment). Special Report Two: Choosing Your Business 2-4

6. The lesson here is this: Suppose you are creative? Suppose you are ambitious? Maybe you’re the one who should start a franchise and get all the franchisees paying you royalties. Now, are you seeing the limitations or the possibilities? No one ever said a franchise (or any small business for that matter) couldn’t be used as just a stepping stone. There is nothing written that says you can’t learn and then move on to bigger and better things.

One difference and potential benefit to starting your own independent business is you have no royalties to pay. Who says you don’t have a better idea than Subway or Pizza Hut? If you have the idea and create revenue from it, maybe you should consider starting your own from scratch. One way to ease into this type of business is to watch someone else who is doing what you want to do and copy their strategies. Watch their advertising, watch their business hours, their effective employee count, etc. You might even take a job at such a business to get as much information and experience as possible. Learn all of the ins and outs and use this information to your benefit. Last but certainly not least is the consideration of royalties. With your own business you don’t have to pay a royalty to anyone. In a franchise you pay a royalty (usually a percentage of your profits) that is generally calculated on your gross profits. The key word here is gross profits. This means the franchise gets its money regardless of whether you make any money at all. Even if you lose money you will still have paid a royalty in almost every case. These could have been very valuable dollars that you now could use if it was your own business. Actually those dollars could mean the difference between failure and success. Go back and evaluate your strengths and weaknesses. Then start your information-gathering and decision-making process going. Continue to take notes and highlight as you review these reports.

Several benefits of buying an existing business are obvious. The immediate benefit of owning an existing business is its track record. If the business is producing revenue, customers, goodwill, etc., you have some of the tested, proven benefits of a franchise but without the ongoing royalties. Therefore, you are basically buying cash flow. A smart idea would be to look for a business that is being mismanaged or one that is run down. If there is room for improvement, you can benefit by applying good management skills to increase the cash flow even further. Next you might scrutinize the business thoroughly to see where you could reduce expenses and thus maximize cash flow even further. If you really are interested in this business of business, then consider the following as food for thought. Why not make a business of seeking out and finding mismanaged, undervalued small businesses? Buy them, turn them around and sell at a profit. You could also be enjoying the cash flow they generate right up to the point of sale. The possibilities are limitless once you really start digging, looking and listening. Special Report Two: Choosing Your Business 2-5

The next step is to start watching things with interest. Start gathering some more informational books and CDs on the subject of business. Then go to work and try one. Start with the most minimal outlay of cash. Just get some experience and then increase the dollar amount to something bigger. Over time you’ll be surprised at how much fear will be alleviated by the experience you gain.

If you are still unsure of what type of business you want to start, the following list should help you narrow your focus to a few businesses you may be interested in. This list is certainly not all-inclusive and should give you an idea of the unlimited possibilities that are out there waiting for you!

Possible Businesses

Accounting Services Advertising Air Conditioning (Heating) Installation, Repair, Service Animal Boarding, Care, Grooming, Sitting, Training Answering Service Antique Dealer Appliance Sales and Service Art Gallery or Teacher Athletic Trainer Automobile Detailing, Paint & Body, Rentals, Repairs, Sales, Upholstering

Baby-Sitting Services Bakery, Cake Decorator Barber or Beautician Bed and Breakfast Beverage Sales Bicycle Sales and Repair Boat Charter, Excursions, Rentals, Sales, Storage Bookkeeping Services Builder, Improvements, Inspection, Repair Business Broker, Coach Business Machine Sales and Service

Cabinet Maker Camera and Radio Repair Candle Sales Candy Store Canoe Charter, Excursions, Rental Special Report Two: Choosing Your Business 2-6

Car Wash Carpenter Carpet Installer, Cleaner Catering Services Ceramic Sales, Supplies, Instructor Chauffeur Service Child Care Service (Day Care Center) Cleaning (Dry Cleaner) Cleaning (house, office, etc.) Services Clothing Sales (new or used) Computer Consultant, Maintenance, Repair, Sales, Training Contractor Copying Services Cosmetics Sales Counselor Courier Service Craft Instruction, Sales and Supplies

Dance Instructor Delivery Service Desktop Publishing Services Detective Agency Diaper Service Discount Notes and Mortgages Drafting Services Dressmaker

Editor Educational Products and Services Electronic Repair Services Employment Services Equipment Rental, Sales, Maintenance, or Repairs

Fence Sales and Installation Financial Planning, Services Fitness Services Florist Food Cart (hot dog), Market, Specialty Furniture Sales, Refinishing Services

Special Report Two: Choosing Your Business 2-7

Gift Shop Golf Instructor, Equipment, Sales, Services Graphic Designer

Handyman Services Hardware Store, Repair, Sales Health Club Hobby Shop Home Health Care Services Horse Boarding, Breeder, Trainer

Ice Cream Parlor Inspector Insurance Agent Interior Designer, Decorator Internet Developer, Services

Janitorial Services Jewelry Store Journalist

Karate Instructor Kennel Services

Land Clearing Services Landscaping Services (Maintenance, Mowing, Spraying, Equipment Repair) Laundry Services, Laundromat Limousine Service Locksmiths

Maid and Personal Services Mail Box Services Mailing List Services Manicurist Marketing Research Services Martial Arts Instructor Massage Therapist Special Report Two: Choosing Your Business 2-8

Medical Billing Services Medical Supply Services Merchandiser Message Service Mobile Home Repair, Washing Mortgage Broker Moving & Storage Services Musical Instrument Instructor, Sales, Repair

Nanny Natural (health) Foods Distributor, Sales Newspaper Distributor Nursing Home

Office Cleaning Services Office Equipment, Furniture, and Supplies Sales, Maintenance, Repair Online Auctions Online Research Optical Aids and Services Outdoor Furniture Sales, Cleaning, Repair

Package Preparation, Supplies, Shipping Painter Paralegal Services Party Planner Pawnbroker Payroll Services Pest Control Services Pet Sales and Supplies, Store Photography Physical Therapist Picture Framing Pizza Restaurant Plant Nursery Plumber Printer Proofreader Property Management, Maintenance Public Relations Services Public Speaker

Special Report Two: Choosing Your Business 2-9

Quality Control Consultant Quilt Maker

Real Estate Broker, Investor, Salesperson Recreational Services Relocation Services Rental Business Restaurant Resume Services Retail Stores, Services

Sandwich Shop Screen Printing Secretarial Services Security Sales, Services Sign Maker, Sales Software Developer Sport Goods Sales, Maintenance, Repair Sprinkler System Installer, Maintenance, Repair, Sales Storage Services Swimming Pool Installation, Maintenance, Repair, Sales

Tailor Talent Agent Tanning Salon Tax Services Taxidermist Telecommunication Services Telemarketing Sales Tennis Instructor, Maintenance, Repair, Sales Translation Service Travel Agent Tee Shirt Sales Towing Services Trucker Tutoring Services Tuxedo Services (rental, cleaning)

Upholsterer Special Report Two: Choosing Your Business 2-10

Vending Machine Sales, Maintenance, Repair Video & DVD Rentals and Sales Voice Mail Services

Web Site Designer, Developer Wedding Consultant, Planner Window Coverings, Cleaning, Tinting Word Processing Services Writer

X-ray Services

Yoga Instructor Yogurt Shop

Special Report Two: Choosing Your Business 2-11


©2003 Whitney Education Group, Inc.®


There may be times when you will need the services of an attorney during your business start-up process. Referral from another small business owner is the best method for finding an attorney to suit your needs and the second best method is checking with your state’s Bar Association. You should always hire an attorney who specializes in or at the very least is very knowledgeable in business matters. You can handle many legal issues such as completing simple forms, getting licenses, copyright and trademarks without an attorney. However, you must determine your comfort level in completing such forms before ruling out the use of an attorney. The checklist below addresses local, state, and federal issues you or your attorney will need to research for your business.

1. Zoning, Licenses, and Permits Since new businesses will need a local business license in most communities, you should check your community’s requirements. Also, if you plan to work from home, you should check into local zoning requirements for any special permits or additional licenses. Date Research Completed_____________________________________________ 2. Registering A Business Name If you operate a sole proprietorship, you will need to register your business name. In some states you may file a “DBA” (doing business as) with your local county office. In other states you may be required to file a Fictitious Name Affidavit with the Secretary of State. You may also be required to file a notice in a local newspaper. Date Research Completed_____________________________________________

Special Report Three: Starting Your Business 3-1


Local Earnings Tax If your community has a local earnings tax, you should check on the filing requirements with the appropriate agency. Date Research Completed_____________________________________________

1. Registration Partnerships, Limited Liability Companies, and Corporations are required to register at the state level. Contact your Department of State for requirements. Date Research Completed_____________________________________________ 2. State Taxes State taxes may include sales and use, intangible and corporate income taxes. Check with your state’s Department of Revenue. Date Research Completed_____________________________________________

1. Federal Licenses Your business will most likely not require a federal license. The federal government regulates such businesses as investment counseling, interstate transportation, food, drug, tobacco, and firearms. However, if you are in doubt about needing a federal license, call the Federal information number in your area. Date Research Completed_____________________________________________


Federal Taxes You will need an Employer’s Identification Number for your business. To obtain this number you’ll be required to complete a Form SS-4. This form and instructions for completing it are available from the Internal Revenue Service by phone at 800-TAX-FORM (800-829-3676) or by computer at the IRS Web Site at www.irs.gov. You can also call 800-829-1040 for information about IRS-sponsored small business workshops. Date Research Completed_____________________________________________

Special Report Three: Starting Your Business 3-2

When starting a business, you should factor in the expenses you’ll incur to get the business up and running. The following checklist gives you some basic expenses as well as space to add any expenses unique to your particular business.


Stationery and Business Cards: Envelopes Letterhead Second Sheets Business Cards Other ( ) _________________________ _________________________ _________________________ _________________________ _________________________ _________________________


Business Registration: _________________________ Sole Proprietorship; Partnership; Limited Liability Company; or Corporation _________________________ Other ( ) _________________________ Permits, Licenses: _________________________ Required Permits _________________________ Occupational License _________________________ Other ( ) _________________________ _________________________ _________________________ _________________________ _________________________ _________________________ _________________________ _________________________ _________________________ _________________________ _________________________ _________________________ _________________________ _________________________ _________________________ _________________________ _________________________ _________________________



Equipment and Supplies: Equipment Office Furniture Office Supplies Remodeling Costs Other ( )


Other Expenses: Insurance Legal Fees Telephone Postage Advertising Printing Shipping Travel Other ( )


Total Expenses:

Special Report Three: Starting Your Business 3-3

Bookkeeping involves collecting financial information needed to track profit and losses and prepare appropriate tax returns. Basically, this process involves keeping invoices and receipts/records to document income and expenses; and, creating financial reports to reflect the results of these records. Accurate financial records are essential to the success of your business. They show you, the business owner, if and where income and expenses are out of balance and where improvement is needed. They also provide bankers and other sources of capital a financial snapshot of your business and help them determine whether or not to lend money to or invest in your business. It also makes preparing your tax return much easier as well as more accurate so that you avoid over- or under-paying taxes.

Cash Or Accrual Method
When setting up your financial records you will have to choose between the cash or the accrual accounting method. The cash method simply records income and expenses as they come in and go out of the business. The accrual method allows the business to deposit money in the same accounting period that expenses will occur for a sale or service performed.

Chart Of Accounts
The next step is to set up a chart of accounts. Basically, all charts of accounts include a numbering system to identify different categories of accounts: assets, liabilities, income, direct expenses, indirect expenses, and non-operating accounts. Within each category of account are more specific types of accounts. Most software systems have a chart of accounts that you can customize for your business. Also, the Small Business Administration website has a sample chart of accounts that you can download to your computer to help you get started.

Financial Statements
Your financial statements will include your profit and loss statement, balance sheet, and cash flow projections. The profit and loss statement will show you how much money your business made or lost during a designated period of time (month, quarter, year). Your assets, liabilities, and equity are listed on your balance sheet for a specific date to show the financial health of the business as of a specific date. The cash flow projections for many small businesses are completed on a monthly basis to show how the money is coming in and going out of the business, based on the previous months history.

Special Report Three: Starting Your Business 3-4

The goals included in your business plan can now be broken down into specific steps and deadlines for obtaining them. For example, you may have the following goals as part of your five-year plan.

Year #1
$100,000 Sales; $10,000 Net Profit

Year #2
$200,000 Sales; $20,000 Net Profit

Year #3
$300,000 Sales; $30,000 Net Profit

Year #4
$400,000 Sales; $40,000 Net Profit

Year #5
$500,000 Sales; $50,000 Net Profit To obtain these goals you need to have your plan broken down into specific steps with deadlines for completing them. The following example shows how you can organize these steps so that on a weekly and monthly basis you continue to move forward toward the annual goal.

Month #1 – Set up the business Week #1
Establish a Business Entity Calculate Start-up Expenses Address all legal issues including licensing

Week #2
Write a Business Plan

Week #3
Establish a Business Identity Determine a Location

Week #4
Set up your Books Meet with your accountant

Month #2 – Advertise the business and follow-up Week #1
Attend industry related, chamber of commerce, etc. meetings to network. Follow-up on all leads generated from networking.

Special Report Three: Starting Your Business 3-5

Week #2
Start implementing your advertising methodology. Will you design print pieces or hire someone? Will you focus on direct mail or newspaper?

Week #3
Test your distribution methods with sales obtained to date.

Week #4
Follow-up on any items not completed during month #1.

Special Report Three: Starting Your Business 3-6

The following start-up checklist can be used to insure you have completed all the necessary steps when starting your business. 1. Set aside space in your home for your business; or locate retail space, if needed for your type of business. Date Completed_____________________ Check zoning regulations in your community for any special permits or additional licenses. Date Completed_____________________ Determine the entity of your business: sole proprietorship, partnership, limited liability company, or corporation. Call our consultants at 800-741-7877 for assistance. Date Completed_____________________ Select and register your business name as required by the business entity. Date Completed_____________________ Obtain and file any needed licenses, permits, and registrations. Date Completed_____________________ Design and print your logo, business cards, and stationery. Date Completed_____________________ Develop your business plan. Date Completed_____________________ Establish a bank account for your checking and credit needs. Date Completed_____________________ Set up your bookkeeping and accounting system. Date Completed_____________________ Purchase any needed equipment and supplies such as stationery, business cards, equipment, and office supplies. Date Completed_____________________ Set up your telephone and mail services. Date Completed_____________________











Special Report Three: Starting Your Business 3-7


Obtain the proper insurance. Date Completed_____________________ Other _____________________________ Date Completed_____________________ Other _____________________________ Date Completed_____________________ Other _____________________________ Date Completed_____________________




Special Report Three: Starting Your Business 3-8

One of the most important areas that will determine your business success is customer satisfaction. The reality is that if your customers are NOT satisfied, your business will cease to exist. Keep in touch with them by sending out surveys, thank you cards, and periodic updates about any new products and/or services. Repeat business is certainly easier and less expensive to cultivate than new business and could eventually make up to 80 percent of your business. Therefore, always keep customer service at the forefront of your business. If you get negative feedback from surveys, analyze the situation and adjust accordingly. On the other hand, if you receive positive feedback, don’t get complacent.

Employees often have incredible insight into the business so meet with them often to get their feedback about customer satisfaction as well as their own satisfaction with the business. The suggestion box has been used for years at many businesses. When monetary reward, recognition, and/or time off are part of the “suggestion box” procedure, it gives the employee an incentive to provide feedback to the business.

Since growth is essential to your business’ survival, revisit your business plan and look at your goals and the strategies and timeframe to obtain them.

Specific Goals
Are your business goals specific and written down? It is a well-known fact that specific, written goals are achieved most of the time and generalized unwritten goals are almost never attained. Do the goals include deadlines for obtaining each one? If you do not set deadlines for the goals you may not take the methodical steps necessary to obtain the goals. Are you prepared to make changes to the goals as circumstances change? The goals for growing your business can be set in stone or it will fail at the first roadblock or change. Your goals must be flexible enough to adapt to changes in the market, in your customer base, in the economy, etc.

Marketing Plan
Does your marketing plan include growth strategies? These strategies should include the methodology you plan to use such as product development, advertising campaigns, delivery methods, etc.

Special Report Three: Starting Your Business 3-9

Will you expand the products and/or services you currently offer? You may decide to add similar or complementary products and/or services to the ones you currently offer. Or, you may decide to add a totally different line. Do you plan to expand your customer base? Growth for your business may demand an expanded customer base. Does your plan include methods for getting more customers? Are you going to diversify your business? Perhaps your growth strategies include plans to enter into a field outside your current business. Have you completed the research necessary to enter the new field? You may not know the answers to these questions in the beginning; however, as your business becomes successful these issues will need to be addressed.

Managing Your Business
Jack Welsh, former CEO of General Electric once told Business Week Magazine, “Most small companies are simple, informal, and grow on good ideas. Think small.” We would have to agree that when you are small, you could keep things simple and informal. It is also true that in that environment good ideas and creativity thrive. However, as the business grows you need to be prepared to step out of the daily functions of operating the business and be prepared to take on the role of CEO and strategist.

Business Life Preservers
Most entrepreneurs would agree that sudden growth can be just as scary as starting the business. You have to be able to adjust to change and adapt new strategies quickly. We offer three life preservers when your business is growing rapidly. 1. Ask for help. Find a mentor, business associate, the Small Business Administration, SCORE, etc. who will share their experience and insight with you. Call our consultants at 800-7417877. Delegate. One of the hardest things that you’ll have to do is give up control of the business. However, it is critical to your business’ success and to you individually. YOU CANNOT DO IT ALL! Don’t ever give up! It is a well-known fact that the majority of businesses fail. Did you know that most entrepreneurs have failed at least once, usually several times, before success came?



Special Report Three: Starting Your Business 3-10


©2003 Whitney Education Group, Inc.®


Starting and growing a business involves financing. At some point in the life of your business, you will have to arrange financing. Banks play by some pretty conservative rules because they have to cope with both federal and state banking regulations as well as traditional lending standards. To overcome these obstacles, you need to put together a proposal that fits into one of the conventional categories the banking world uses to describe most loans. Understanding the type of loan your business needs gives you the advantage when putting together your business proposal for the bank. The following types represent some common business loans.

Accounts Receivable Loan
Small companies often turn to this type of financing to free up their working capital. Banks usually require that a business has a good credit rating; and, they only loan a percentage of the amounts due on accounts less than 60 days past due. The loan funds are then repayable as customer checks come in to the business.

Asset-Based Loan
This is a loan where assets of a company, including receivables, raw materials, inventory, machinery, and equipment, are used as collateral in exchange for funds to use as working capital. This type of loan is also used when a targeted company is being acquired by a larger company and the buying company uses the targeted company’s assets to finance the purchase.

Business Loan
A business loan requires equal monthly payments and principal and interest is calculated over the life of the loan. This type of loan is often beneficial to small companies who cannot make large payments in the first year, as required by some term loans.

Commercial Loan
A commercial loan requires no installment payments and is repaid in a lump sum at the end of the term. Commercial loans are most often used to finance inventory, but they may also be used for other purposes approved by the bank. Special Report Four: Borrowing Money for Your Business 4-1

Commercial Mortgage
A commercial mortgage is used to finance a business location. Generally the loan is a 5 to 10 year loan, amortized over 15 to 20 years, with a balloon payment due at the end of the term of the loan.

Factoring is a variation of an accounts receivable loan where the bank or factoring company buys a company’s accounts receivables outright. Since the bank or factoring company takes on the credit risk and collection responsibility, they usually require that the receivables meet strict criteria. The discount or amount charged is often higher compared to other forms of financing.

Inventory Loan
This is a short-term loan where the bank takes an interest in the company’s inventory as collateral. This type of loan is often referred to as “floor planning” for big-ticket retailers such as automobile dealerships.

Line of Credit
A line of credit is a loan that allows a company to take funds either at specific intervals or as needed. A line of credit can be established for a term of days, months, or years; and interest and fees vary from bank to bank.

Personal Loan
The principal of a business can use his or her personal assets to secure a loan for his business. A personal loan may be easier to negotiate than a business loan since personal property such as stocks, bonds, savings accounts, certificates of deposit, etc. are used to secure the loan.

Small Business Loan
Under the Small Business Administration loan guaranty program, the SBA will guarantee up to 85% of a small business loan. The lender forwards your loan application and a credit analysis to the nearest SBA District Office who analyzes the entire application, then makes its decision. This process may take up to 10 days to complete and upon SBA approval, the lending institution closes the loan and disburses the funds.

You can use your business plan as a blueprint for preparing a loan proposal. The loan proposal can even follow the same outline as the business plan by substituting the executive summary with a loan request summary. Remember, however, that the loan proposal should be written from the perspective that your loan request is low risk to the lender, and your proposal supports that fact.

Special Report Four: Borrowing Money for Your Business 4-2


Loan Request Summary

Loan Purpose: Indicate specifically how you will use the loan proceeds. For example, instead of stating that you need the money for working capital, state that you will use the money to buy inventory to increase sales, make improvements to production, etc. Loan Amount Requested: State the specific amount of money needed. If the funds are needed for more than one item, give a detailed listing of the individual expenditures and the total amount. Repayment Plan Desired: Give two realistic repayment plans. For example, the loan will be repaid from the sale of products/services at a projected amount (give an exact amount) on a monthly, quarterly, annual basis. If the sale of the products/services does not generate enough income to cover the repayment plan, then the business will reduce operating costs (give an exact amount) and/or sell an asset to make the payment (specify what asset and its market value). Collateral (if any): Most loans to new businesses will require collateral as security for the loan. Therefore, the asset used as collateral must have enough value to cover the percentage required by the lender. For example, they may only lend up to 70% of the value of the asset.


Your Business

History of your business: State when your business started, who owns it, where it is located, and a brief summary of what it has accomplished. Ownership structure: Identify the type of business entity (sole proprietorship, partnership, limited liability company, or corporation). Products and services: List your products and/or services. Accreditations and licenses: Include any accreditations and licenses your business has.

III. Market Analysis and Strategy
Overall market and direct competitors: List the national trends in your market along with your direct competitors. Explain why your product and/or service is superior. Product and/or service: List what you sell and how you distribute your product and/or services. Selling strategy: Describe your distribution methods and how you will adapt to market changes.

Special Report Four: Borrowing Money for Your Business 4-3

IV. Management Team
Key individuals: Identify the management team of your business and include their background and experience.


Financial Data

Pro-forma financial statement: List revenues, expenses, and net income or net loss for the previous year and the current year. Project the anticipated revenues and expenses for three years into the future. Balance Sheet: List the business’ assets, liabilities, and owner’s equity as of a certain date. Federal Tax Returns: Include copies of the last three years. Personal Financial Statement: Include your personal financial statement.

VI. Appendix
Include any supporting documentation including but not limited to licenses, personal resumes of your management team, credit reports, reference letters, contracts, legal documents, loan applications, advertising materials, and articles about your business.

Special Report Four: Borrowing Money for Your Business 4-4


©2003 Whitney Education Group, Inc.®


For businesses that provide services at the customers’ location (lawn services, air conditioning maintenance and repair, etc.), the main concerns about the physical location of the business will be cost and zoning issues. Retail businesses, on the other hand, need to take into consideration the location’s compatibility with the business, the location’s traffic patterns, and the location’s proximity to competitors as well as cost and zoning issues.

Operating your business out of your home is the least expensive location choice since the expenses generally fall under the categories of furniture, office equipment, and supplies. However, if your business is not suitable for being based out of your home the next step will be to research location costs in your area. Will you rent or buy? Most business start-ups rent space in the beginning because they don’t have the funds to start the business and buy real estate at the same time. Therefore, you need to know market rent in your area. Once you have determined the average rent, the next step will be to determine what the rent includes. For example, is the location only wired for standard phone usage or does it have additional wiring for computers, fax machines, etc.? Is electricity included in the rent or will you be responsible for a separate bill? What deposits are due and how much are they? Once you have found the ideal location (home, office, or retail), don’t forgot to research zoning and permitting requirements.

Zoning Issues
Regardless of your location you will have to consider zoning issues. Every city and/or county in the country has a zoning and/or planning office so check out local regulations before committing to a particular location. Remember certain types of business may not be allowed in some areas. For example, a manufacturing or industrial business may not be allowed in an area designed for offices or retail space.

Special Report Five: Locating Your Business 5 - 1

Unique Issues to Your Business
Issues unique to your business should already be outlined in your marketing plan. As stated in that section of this guide, your marketing plan has identified the product or service your business offers, the benefits of your product or service, the price you will charge, how you will distribute it, how you will promote your product or service, who your consumer is, what your cost of doing business is, who your competition is, and the most efficient distribution channel. This information should help narrow the choices of locations for your business, since it identifies all the elements needed for determining how important the location of your business will be to your business’ success.

If you are considering buying a location for your business or any real estate, you should call our consultants at 800-741-7877 to find a real estate training academy near you. It is taught by our national instructors and will enhance your communication and negotiation skills, and provide training in how to work with bankers, brokers, and Realtors. The training takes you step-by-step through the mechanics of a real estate transaction. It covers everything from writing a contract that protects your interests and limits your liabilities to creative financing strategies and much, much more. At a minimum you should review any contract for sale and purchase in its entirety and make sure that it includes all of the following information.

Property Description
The description of the property should include the legal description, street address, and any fixtures and/or personal property that go with the property.

Purchase Price
The purchase price must be listed on the agreement. In addition, the deposit amount, any additional deposits, mortgage money (if applicable), and the balance of funds to close is listed on the agreement.

Date of Acceptance
The date of acceptance is the date given for all parties to accept, execute and deliver the agreement in order for it to be a legal and binding agreement.

Financing Contingencies
For example, if you include a financing contingency, you can then withdraw from the offer if you can’t obtain a loan to make the purchase.

Special Report Five: Locating Your Business 5 - 2

Evidence of Title
Evidence of title is required to insure that the title is marketable title. Although the law may not require it, title insurance protects the buyer from claims against the title.

Closing Date
The closing date is the date that the transaction is closed and documents are delivered.

Addendums and Contingency Clauses
Use addendums or add/delete text on the face of the contract to protect your position as a buyer. In addition, using a contingency clause will allow you to cancel the contract if certain conditions are not met.

Other Things To Consider
Both the buyer and the seller should sign the agreement. Any statements from the seller about the condition of the property should be included in a contract clause called “warranties and representations.”

Special Report Five: Locating Your Business 5 - 3


©2003 Whitney Education Group, Inc.®


Something that often scares newcomers to real estate investing is how to tell when a property needs too much fixing up to make it a good investment. We have bought and sold hundreds of properties, and we rarely come across any in such bad shape that they are beyond repair. The reason is simple: If the property is in really bad shape, the owner may be motivated to sell way below the market value of a similar property that is in good condition. If you are dealing with an extremely low sale price because the property needs repairs, you have more borrowing power for your repair or rehab loan. That means a greater opportunity for profits. However, you have to train your eye to know the difference between cosmetic distress and serious problems. A building might be so neglected that you’re afraid it’s going to fall down around you. But in reality a few trips to the dump, a fresh coat of paint, and some cleaner and disinfectant may revive the property to fair market value. Here are a few things to watch out for.

Structural Damage
Outside, look for a dramatic lean in any direction. Inside, look for floors slanted toward a corner of the house. These are indications of a possible foundation problem. Before you reject the property, call in several contractors and get free estimates on repairs, then use that information to negotiate a better price.

Termite Damage
Termite damage usually scares off investors, but termites can take up to 10 or 15 years before they do irreparable damage. Russ Whitney once bought a house that had severe termite damage in the supporting beams in the basement. The property had been on the market a long time and was bargain priced. Obviously the termite damage had scared off many other potential buyers. After he bought the property, he had a contractor replace the beams, using mobile jacks as support; it wasn’t particularly complicated or expensive. Russ pulled money out of the property up front with the rehab, and then made $15,000 a few years later when he sold it. You can make good deals on termite-infested Special Report Six: Real Estate Investment Strategies 6 - 1

properties. Just figure the cost of replacing the bad wood and exterminating the termites. If you can do that and still make money, buy it.

Roof Damage
Always examine the roof. You might also ask several roofers to do it for you. Pick their brains until you become proficient enough to do your own evaluations. Roofers make money by selling you a roof, so keep that in mind as you consider their recommendations. If it looks as if the roof will need replacing in the near future, calculate that into your offer. Set enough money aside from your homeimprovement loan and let it accumulate interest until the roof starts leaking; then replace it.

Major Plumbing
When you are evaluating a property, turn on all the faucets, flush all the toilets, and make sure all the drains run freely. The most common way plumbing can become a problem is in older buildings with galvanized and/or cast-iron plumbing. After years of use, this type of pipe collects sediment, which builds up and causes a loss of water pressure and stopped-up drains. We have found a product called Drain Snake, available in plumbing-supply stores, which seems to remedy the problem. (When using this or any other chemical product, always use caution and follow the directions on the label to avoid personal injury or property damage.)

In larger multi-unit buildings, you may have one furnace that heats the entire building. Be sure it operates efficiently or that the cash flow will support the bill. Get a heating and air-conditioning contractor you trust to do the evaluation for you. These are the areas in which you could have a major expense if there is a problem. In most cases, roofs and plumbing and heating units need major repairs or replacement only every 20 to 25 years, so problems with them are the exception, not the rule, but it’s always good to check. When you do see a major problem, don’t automatically rule out the property. If you can cover the repairs and still make money, the property is a good investment. If you can’t, it isn’t. The whole process is just that simple. You might want to hire a professional inspector in the beginning to confirm your opinion, but eventually you’ll get to the point where you can accurately evaluate a property on your own.

There is only one hard, fast rule about when to buy and when not to buy: If you will lose money, don’t buy. And you can figure out just how profitable a property might be with basic, elementary school arithmetic. To evaluate a property’s profitability, you need to look at four areas.

Special Report Six: Real Estate Investment Strategies 6 - 2

Net Profit
The easiest to see and most simple to calculate, net profit is the amount of money you have left over after all your expenses are paid.

This is the amount your property increases in value. There are two types of appreciation: natural, which is the amount the market goes up; and forced, which is adding value with improvements for a higher and better use. During periods of moderate growth, natural appreciation usually ranges between 5 and 10 percent annually; in high-growth cycles, it could be well over 10 percent, and sometimes as much as 20 percent; in low- or no-growth cycles, the value may remain the same or increase only by 1 or 2 percent. To find out the current rate of natural market appreciation, call a couple of real estate agents. It’s their job to know these things, but it’s also always wise to check with more than one to be sure you’re getting an accurate picture. Forced appreciation is the area through which the bigger and more shortterm profits are usually made. Most real estate will appreciate naturally to a small degree if you do absolutely nothing; if you put a little money and effort into the right property, you can make significant gains.

Equity Buildup
A portion of each mortgage payment you make (which the tenants actually pay) is applied to reducing the principal balance of the mortgage. When rents are paying the mortgage, you can consider the equity buildup as part of your overall profit.

Tax Shelter
Real estate investing is a business, and you are therefore entitled to take a variety of business-related deductions on your income tax. Often these deductions will offset income earned from another source and reduce your overall tax liability. The deductions you can take by owning investment property include depreciation, interest (the interest portion of your mortgage payments), maintenance, and any other expenses related to managing your property, such as gas or car expenses for driving to and from the property, cleaning supplies, bookkeeping supplies, forms, and other administrative materials. Though we know that real estate typically goes up in value, the IRS will allow you to take a tax deduction for depreciation based on wear and tear on the building (not the land). The formula for calculating investment-property depreciation can change with changes in the tax laws, so check with your accountant.

Return On Investment
Now, let’s look at how you use these areas of profitability to determine the return on your investment (ROI). Calculate your ROI by dividing your profit by the amount of cash it took you to achieve that profit.

Special Report Six: Real Estate Investment Strategies 6 - 3

To illustrate ROI, we’ll use a four-unit building Russ bought for $75,000. The owner was willing to hold the mortgage and take a 10 percent down payment, or $7,500. By arranging to close on the third day of the month (after collection of that month’s rent, of which he would get a prorated share), he was able to purchase the building for $3,700 cash out of pocket. The building was fully occupied, and each unit rented for $500 a month. The following details show you how the numbers worked.

To Determine Net Profit
Add up the gross rents. Add up all the expenses (taxes, insurance, maintenance, utilities, vacancy allowance, and so on) and debt service (mortgage). In our example, we’re using 5 percent for the vacancy allowance, which is the amount of time each year we can expect the units not to have tenants. To determine the vacancy rate for your area, contact a real estate agent or property management company. You can ask the seller for documentation on the other expenses. Then subtract the expenses from the rents. That will be the net profit (or loss) for the first year.

Calculating Net Profit
Monthly gross rents (4 units at $500 each) = $2,000 Annual gross rents (12 x $2,000) $24,000 Monthly expenses = $800 Annual expenses $ 9,600 Gross annual operating profits $14,400 Debt service (12 x $596.75, the monthly $ 7,161 Mortgage payment) Net overall operating profit $ 7,239 Your first-year ROI is the net profit divided by the cash out of pocket it took for you to buy the property, which is $7,239 divided by $3,700, or 196 percent return on investment.

If you know your market, you will be able to estimate how much specific improvements will increase the value of your property. Appreciation turns into a cash profit when you sell or refinance. Original purchase price of property Cost of improvements Revised appraised value of property Forced appreciation $ 75,000 $ 1,300 $ 130,000 $ 55,000

Appreciation ROI on this property was 1,486 percent (the amount of appreciation divided by the investment, or $55,000 divided by $3,700). In this example, we used forced appreciation only that is; we forced the value of the property up by improving it. When adding in natural market appreciation, contact a real estate agent for the figure that applies in your area.

Special Report Six: Real Estate Investment Strategies 6 - 4

Equity Buildup
As rents pay down the mortgage balance, the equity increase is considered profit. It is a paper profit until you sell or refinance, but it is there for you to use when you need it. Initial loan amount Amount applied to principal New principal balance Equity buildup $68,000 $ 500 $67,500 $ 500

Equity buildup ROI is 14 percent (the amount of equity divided by the investment, or $500 divided by $3,700).

Tax Shelter
With an investment in real estate, most of the time your expenses will offset most, if not all, of your income for tax purposes. You will make additional income gains by deducting depreciation and letting that offset the taxes on income from other sources. How much of a tax shelter you will receive depends on your tax bracket and sources of income. Generally, you can count on a 5 to 15 percent ROI from a tax shelter. Now let’s go back and total up the first-year ROI from the $3,700 we used to buy this building: Return on cash invested 196% Appreciation 1,486% Equity buildup 14% Tax shelter *10% _______________________________________________________________ Total ROI 1,706% *Average estimate And this doesn’t even consider the money Russ made later by refinancing the building on the increased appraised value. Is it any wonder so many great fortunes have been built through real estate? On any investment, we look at the first-year anticipated net profit, and if that doesn’t give us at least a 20 to 30 percent return on our investment, we usually don’t go any further. The exception would be if there were a tremendous upside to the building something we know would give us a greater return in the future. It might be that the building has a lot of vacancies we know we can fill, or that nearby property-use trends are changing and we can benefit from that. Don’t put anything in concrete; be flexible and use logic and reason to make a good deal.

Special Report Six: Real Estate Investment Strategies 6 - 5

For more investment strategies, call our consultants at 800-741-7877 to find a real estate training academy near you. It is taught by our national instructors and will enhance your communication and negotiation skills, and provide training in how to work with bankers, brokers, and Realtors. The training takes you step-by-step through the mechanics of a real estate transaction. It covers everything from writing a contract that protects your interests and limits your liabilities to creative financing strategies and much, much more. Then, once you’ve mastered the basics, you can attend our advanced training specializing in such topics as wholesale buying, foreclosures, purchase options and much more.

Special Report Six: Real Estate Investment Strategies 6 - 6


©2003 Whitney Education Group, Inc.®


Financing is one of the most intricate and important parts of successful investing. It is both an ongoing and ever changing facet of business. After a while, it becomes routine and somewhat trying. Most of the real estate deals that we make today are prospected, located, negotiated, signed on both ends and then held up because of financing. It is important for you to understand that the big money deals are much easier to finance.

This is the technique Russ used to build his line-of-credit when he was 20. He had no local banking relationships at all, other than his checking account, so he deposited $1,000 in a local community bank, and then asked for a short-term loan, using that money as collateral. He took the loan money, deposited it in a second bank, and took out another loan to repay the first loan early. Then he went back to the first banker and asked for another loan to pay off the second loan - also early. Using this process, he established himself with local bankers as trustworthy and reliable, so they would feel comfortable with him when he applied for a larger loan to buy real estate. And don’t be overly concerned about interest. If you borrow $1,000 at 10 percent, you’ll only pay $8.30 a month in interest - a wise investment for the returns you’ll gain. If you have $2,500, $5,000, or $10,000 in the bank, you can build tens of thousands of dollars in accessible seed cash very quickly. Let’s assume you have $10,000. Take $5,000 to one bank and start your signature loan line-of-credit. Then take the other $5,000 to another bank and do the same thing. Expand to five banks each, using the same strategy and you’ll have $50,000 in cash at your disposal, relatively quickly, any time you need it. From there, the sky is the limit with the right cash-generating vehicle.

Stay away from the largest banks, as they tend to be impersonal and inflexible in their loan policies, especially when dealing with smaller depositors. Community banks are almost always more aggressive in trying to acquire customers, and they offer more personalized service. This is an important step even if you have credit, and especially if you don’t. If your credit rating is good, chances are it’s focused on the consumer side - bank credit cards, store charge accounts,

Special Report Seven: Real Estate Financing Guide 7 - 1

personal home mortgage, etc. - and not the commercial side. You need to build a relationship with several bankers as a commercial borrower. If you don’t have credit, or if you have poor credit, this will help you overcome that disadvantage. There is an abundance of ways to start setting yourself up with some seed capital. Let’s assume you’re dead broke. You can use your charge card to get a $1,000 cash advance, or you may be able to borrow $1,000 from your mom, dad, or whomever. Just get the $1,000 and put it in a local community bank.

About a week after your account has been set up, call and request an appointment with the branch manager. Bankers are very open to this type of meeting - they like contact with the community. Just don’t barge in unannounced and expect them to drop what they’re doing to chat with you. Go in as scheduled, in a businesslike manner, and ask about the different services the bank offers, what types of loans it makes, what types of customers it’s looking for, even what the goals of the bank are. At the end of the meeting, ask for a short-term passbook loan of $1,000, which is, by happy coincidence, the amount of money you have on deposit with the bank. Since this is your first meeting and you don’t have an established relationship with the bank, the banker will probably lend you the money but will want to put a lien on your savings account. This way the loan is 100 percent secured, which is a very safe loan. When you repay the loan, the lien will be released. By short-term, we mean a period of six months or a year, which is standard for a passbook/signature loan. You can pay it back sooner, of course - and, if you follow my plan, you probably will. “Passbook loan” is a generic term, and different banks may have different names for this type of loan, but any experienced banker will understand what you mean. You won’t make installment payments on this loan; you’ll make scheduled interest payments once or twice a year, and pay the amount of the loan in full at the end of the term. Chances are the banker will want to know why you want the loan. Your answer could be that you want to consolidate some bills, pay off a charge card, or something of that nature. There’s an endless list of reasons why someone would want a short-term loan. Explain that you have a commission check, tax refund, or family gift due in the next 60 days, and you’ll be using those funds to repay the loan. Will the banker wonder why you don’t just use your savings? Probably not, because borrowing against savings is a common and smart thing to do. If the subject comes up, point out that you want to keep your savings safely in the bank, earning interest, and that it’s a lot easier to repay a loan than it is to replace spent savings. That’s just a fact of human nature, and an experienced banker will understand, and probably like your reasoning.

Once you’ve received the proceeds of your passbook loan, take that $1,000 to another community bank, open another savings account with it, and go through the same procedure. Then use the money from the second loan to pay back your first passbook loan early. Give the first banker a call, tell him Special Report Seven: Real Estate Financing Guide 7 - 2

you’ve enjoyed doing business with him and you’re looking forward to building a long-term relationship with him and his bank. Leave your initial deposit in the bank, and wait a few weeks. Then go back in, with an appointment, and ask for another loan. The second or third time you do this, the banker usually will not put a lien on your savings account. That means you’ve gotten a signature loan, which is an unsecured loan guaranteed only by your signature. But even though your savings account may not have a lien on it, leave the money where it is. Don’t shake up the banker by pulling your money out. Use your loan money to pay back the passbook loan at the second bank. Then, as you’ve already done, call the second banker, thank him for the excellent service, wait a few weeks, and apply for a signature loan at that bank also.

Now, though you have not bought a business or property or made any money, you have accomplished something significant. You have established a line-of-credit at two banks where you can sign for $1,000 (or more) at each, for a total of $2,000 any time you need it, without having to come up with collateral. After you’ve established a few $1,000 lines-of-credit, you can begin building them to $2,500, then $5,000, then $10,000, and on up. It’s possible you may have to do several guaranteed loans before you get the signature loan, depending on your overall financial status and the bank’s policies. That’s okay, because the cost to you is a little bit of time and a very nominal amount of interest; the benefits are that you’ve begun laying the foundation of your wealth. After you’ve paid back both signature loans, take $500 from each savings account, go to a third bank, and repeat the entire procedure. When Russ did this the first time, he went to five different banks, deposited and then borrowed $1,000 from each of them. After he was finished, he had a $5,000 line-of-credit - money available to him on his signature alone.

If you’re thinking that you couldn’t get an unsecured signature loan, think again. Credit cards are essentially unsecured loans, and if you have one in your wallet, you have access to almost instant cash up to your credit limit. If you can get unsecured money from one source, why shouldn’t you be able to get it from another? After Russ had successfully negotiated and paid back two or three passbook/signature loans, he began receiving offers for more lines-of-credit from other banks. You’ve probably gotten plenty of these, too: a direct-mail marketing promotion that tells you you’ve been pre-approved for a credit card, a loan, or a line-of-credit of $1,000, $5,000, or more, and all you have to do is sign the application to open your account. He received one that was a book of checks; when he wrote a check, he was actually writing myself a loan.

Special Report Seven: Real Estate Financing Guide 7 - 3

Some companies that market credit cards by mail ask for an up-front fee to establish your account. Don’t pay it. Legitimate lenders don’t need you to give them money before they can lend you money. You may not realize how valuable even small lines of signature credit can be. Most people see themselves spending their borrowed money on consumer items, thereby building debt, and they feel quite noble when they decline an offer for more credit. But as you start to change your relationship with money, you’ll see that you can use these borrowed monies to build wealth.

For example, let’s say you’ve had a bankruptcy and bad credit, but you have a valid reason. The reason can’t be that you’re a loser, deadbeat who just likes to rip people off. But if you’ve had a divorce, loss of job, fallen on legitimate hard times, or some other valid circumstance, there are lenders who will work with you and lend you money. Let’s assume you have to start with a secured credit card. First of all, a secured credit card means you send the credit card company or bank $250 to $500. They issue you a credit card with that limit. Actually it’s almost the same as the passbook/signature loan, just a different form of loan. Anyway, as you use the card and make your payments on time, the Credit Card Company or bank will report your successful payments to the credit bureau. This good credit will start to show up on your credit report. This is the start to repairing your credit and building towards bigger credit lines. Let’s say you build a little credit and use the funds to buy an inexpensive, fixer-upper property with owner financing. Now when you do your financial statement, you’ll be able to show a credit card and a house that you’ve been paying on successfully. This is how you begin to build from nothing or less than nothing. .

There are several conflicting theories on this. We’ll explain them and you use your own judgment. One of the easiest loans to get is an equity line-of-credit on your own home. Some financial advisors say that you should not do this and that you should always try to pay your home off. We agree and disagree. If one is sitting on tens of thousands of dollars in equity and can tap this source for seed capital, they should consider it. The equity is not making you any money sitting in the house. Why not put it to use and leverage it into sound moneymaking investments that can catapult your net worth and cash flow? Russ and his wife used the equity in their first home to get started. Without that, they had little or no money to start with. They’ve used the equities in several of their homes over the years when needed. Once you are making some good money and have your assets building, you should consider paying the home down. That would be smart business and a good decision.

Special Report Seven: Real Estate Financing Guide 7 - 4

If you have cash value built up in your insurance policy, chances are you’re only getting a two to three percent return on your money. Whole life is one of the biggest rip-offs (in our opinion) we’ve ever seen. The insurance companies have you overpay on premiums for the promise of this cash savings plan for you, and pay you two percent to three percent while they have your money. Guess what? They buy real estate; invest in mortgages and other securities and assets! Last time we looked, several of the biggest insurance companies (we won’t mention names, but they are household names) had real estate portfolios averaging some 5.6 billion dollars, each. The insurance companies are getting your money cheap. Then they’re investing it in real estate! This is what you should be doing! Consumers are such saps. It’s ridiculous. But here’s your chance to fight back, take control and win.

If you own a home that has long-term seller financing, try approaching the seller for a discount. For example, let’s assume you bought a house or rental property for $100,000. You put up a $10,000 down payment and the seller is carrying the financing for 25 years at eight percent. If you’ve owned the property for a year or more, it’s possible (in many cases) that the seller’s circumstances have changed. The seller may have been “motivated” to sell and agreed to hold the financing for 25 years, but they now may want or like to get the cash sooner. You owe the seller approximately $90,000. You’re making monthly payments now and for the next 25 years. The seller is locked into these terms. Suppose you approach the seller with this proposal: “Mr. Seller, I owe you $90,000 and I’ll be making the payments to you for the next 25 years. How would you like to get some or all of your cash within the next month or so, so you don’t have to wait the 25 years to get it?” Many times sellers will jump at this type of offer. Remember now, you are giving the seller a bonus by paying him off. Contractually, you don’t have to do this; therefore, there should be some consideration to you for giving the seller this bonus. Customarily, your consideration would be a discount on what you owe. Typically, we would start at least 25 percent off what’s owed. Sellers will obviously want to negotiate in some cases, so you must be prepared with the least amount of discount you can live with. If he goes with 25 percent, you’d have $90,000 less 25 percent, or a $22,500 discount. If the seller agreed, you’d have to come up with $67,500 and you’d be paid in full. Just for having a little bit of knowledge, you could make $22,500 for a day’s work. Did you need an MBA for that? Did you need to be born wealthy or lucky? Of course not. You need some knowledge, some ideas, and a little action. Now, of course, your question is where do you get the $67,500 to pay the seller off. Simple - you go to several of the banks you’ve established rapport with and ask for a $67,500 loan. The property is Special Report Seven: Real Estate Financing Guide 7 - 5

worth $100,000. You’re asking for a $67,500 loan or only 67 percent loan to value. A banker who is not lent up (see banking segment) would jump on that loan. Then consider, when you’re explaining the need for the loan, that you are getting a $22,500 discount and reducing your debt from $90,000 to $67,500. The bank is going to think you’re a genius, trust me. We’ve negotiated up to 30% discounts, so it is a realistic technique and will work.

Once you have a few apartment units, you should go to your bank and ask for a line-of-credit for your rents. Here’s the simple explanation, logic and reason. You tell the banker that your rents are due on the first of the month, as is your mortgage payment. However, your tenants sometimes don’t pay until the 5th or 7th of the month. Tell him that you like to get all your payments made on the first and would like to get a $2,000 (whatever your rents are, plus add a little extra) line-of-credit. What you’ll do is cut the mortgage payment checks on the first, using the line-of-credit. Then as your rents come in, you’ll pay the line-of-credit (L.O.C.) off each month. Your banker will love this sound business reason and logic for the loan. These are the types of loans banks love and the kinds of service they’re in business to provide. Don’t be surprised if, when you ask for $5,000, the banker actually asks you if you think that’s enough. If you’re conservative with your request, they’ll usually offer more. Surprise, surprise!

Don’t overlook this hidden little gold mine. Short-term partners can help you grow much quicker. The concept for finding them and splitting the profits is simple. You’re the pro. You find the deals, you do all the work in finding, negotiating, buying and fixing (if necessary) the property. The partner puts up all the cash and you split the profits up to 50/50. When Russ was just getting started, he was having trouble getting loans from banks and he was low on cash. He found a six-unit building that was bargain priced. The seller was willing to take a pretty low down payment and he was willing to hold all the financing. This was a perfect scenario, especially since the property had a hefty positive, monthly cash flow. The only problem was that he did not have enough cash to cover the down payment and the fix-up costs (fix-up was approximately $20,000). Also at this point, he could not borrow any more money from the bank. So there he was, stopped from proceeding any further toward his goal of financial independence. This will probably happen to you, too, sooner or later. Remember this, there’s always a way to keep it going. You just need to keep feeding your mind with new books, tapes, workshops and any other means that come along. Here’s what Russ did. He approached the seller, since the seller was short on cash and didn’t have any immediate buyers. Russ was totally truthful with him. He explained his goals to him and showed the seller his other properties. Then Russ found out the seller’s needs. His job was being transferred and he had to move. He didn’t want to leave the property in the hands of a property manager - he Special Report Seven: Real Estate Financing Guide 7 - 6

wanted to sell. He was also an investor who had made money in real estate before, so he understood the game somewhat. Russ told him he thought he could solve both of their problems. Why not become partners on the property? Russ proposed that the seller sell the property to a partnership that the two of them would form. They would buy at the seller’s price and terms and split the down payment and each pay half. (The seller just reduced the amount of the down payment by half, so he actually came up with no cash himself.) Their new partnership would then have a mortgage payable to the seller’s wife and the payments would be made to her. The seller and Russ together (with the seller’s good credit) would go to the bank and borrow the fixup money. Now the seller would be the stronger qualifier, but Russ would get credit as a borrower who’s now qualifying for more loans, and paying them successfully. They agreed to borrow $25,000, even though the fix-up costs were only about $20,000. They each put $2,500 cash in their pockets. (So Russ ended up with none of his money in the deal and now owned 50 percent of it.) His end of the partnership was to oversee the entire fix up, and handle the management of the property. He would be paid 10 percent of the gross rents off the top for managing ($240 per month). The partnership would then would pay all of the building expenses from the rents and split the profits 50/50. This was a great deal for Russ and, boy, what a motivating catalyst. Russ solved his no-money problem, saw that this could continue to work, and it just made his confidence and belief in himself grow a hundred fold. It was a great deal for his new partner, too. He made some money by selling the building, and then made another profit as 50 percent owner of the new partnership when he sold. He was able to move with the peace of mind that the property was in good hands. That’s a great WINWIN deal.

Above is one example on how partners can be useful. It is also a good example of the creative use of a partner. Other ways to find partners might be through the use of simple, three-line classified ads in your local newspaper. You might run an ad that says: Money partner wanted. Secured by real estate plus 50%. Call 951-8100. We’ve used real estate agents as partners, too. Let’s say you want to buy a property and a “scrap” real estate agent lists it. If it’s a $200,000 property, the commission to the real estate agent could be anywhere from $14,000 to $20,000. Remember that the seller is the one who pays the commission. We’ve approached real estate agents many times on good deals and proposed that, if we buy the property, they kick in their commission as the down payment and we’ll give them up to a 50 percent ownership and split of profits. That’s found money for them and us (or you). If the real estate agent doesn’t sell the building, he makes nothing. Here’s a chance for the real estate agent to get found money and turn it into long-term profits. I may also (as part of the inducement) tell the real estate agent that, when we sell, we’ll let him list the property, handle the sale, and let him get another commission on the re-sale. There are many creative ways to use partners. Keep an open mind and an open ear for any and all possibilities. Special Report Seven: Real Estate Financing Guide 7 - 7

Our KEYS TO CREATIVE REAL ESTATE FINANCING advanced training will open the door to huge cash flows and profits.

• • • • • • • • Create a mortgage, then flip it for financing Exchange properties without tax consequences Structure financing with bad credit or no credit Prepare and present a powerful financial statement Make your home equity worth 10 times its value Convert real estate notes into purchase money Discover money partnerships in your own hometown Win favorable terms from equity-only, “hard” money lenders

Call our consultants at 800-741-7877 to register for this advanced training.

Special Report Seven: Real Estate Financing Guide 7 - 8


©2003 Whitney Education Group, Inc.®


Property is assessed and taxed regardless of whether it is for business or personal use. Therefore, an understanding of the taxing process will prevent your property from being overtaxed. While the importance of the property tax as a source of revenue for individual states has greatly diminished, it is still the primary source of revenue for local government. It is estimated that there are 65,000 different government entities, including 13,000 cities and counties that currently impose a property tax.

“Assessed Value” is the equitable assessed valuation an assessor places on each parcel of taxable real estate within an assessment jurisdiction that is a uniform percentage of market value. ** International Association of Assessing Officers

Recording each property was originally prescribed by the federal government. Recognizing the need to record expansion beyond the original thirteen colonies, the federal government established the sixmile survey system following the end of the revolutionary war. A number of standards grew from this act. Tracts or subdivisions of properties are identified through the use of a plat map. Within the plat, additional subdivisions could be made and identified by a number. Our block and lot identification systems grew from that. Every property is given a property identification number that must be properly noted in all correspondence with the assessing and taxing authorities. A major federal influence of the 20th century is conformity in record keeping and appraising. With the advent of federally insured loans, Federal Housing Administration (FHA), Veterans Administration (VA), and Farmers Home Administration (FHA), standardized forms began to be used, especially in the area of appraisals. The expansion of the secondary market brought further standardization since the mortgage associations insisted on utilization of their prescribed forms for any transaction in which they participated. The original survey system also set some standards for addressing the size of property that is still used today - the use of chain measurement and the acre: 1 chain equals 66 feet 1 chain x 10 equals an acre 1 acre 43,560 square feet 1square mile equals 640 acres Special Report Eight: Property Taxes 8 - 1

In the assessment process, land and what is on it are assessed separately and exact measurements are essential. Each state sets the standards upon which the appraisal process is based, including key dates, valuation standards, method of appointment and term of the property assessor, exemptions and tax relief, staff qualifications and operating manuals.

The first step in the assessment process is an inspection of the property to be assessed. Most state laws require an inspection to be made on a regular basis. However, this time frame varies state to state. The assessor takes on-site notes of every conceivable aspect of a property. Generally, replacement or maintenance improvements do not add to value, however, if usable or livable space is increased, then it most certainly will. Also, energy efficiency improvements, such as storm doors and windows, stripping and a more efficient boiler do not increase value.

TYPES AND CLASSES OF PROPERTY Unimproved property is the land itself. Improved property is the land plus what was put there (i.e., a home and garage). When a parcel is being considered, the land and the improvements are assessed separately. The results are then combined to provide the overall assessment. Whether the land is valued by per acre price, square footage or frontage, it is a lot easier to determine value on the land itself. Another thing to consider is the different classifications of properties. These classifications are important because there are different ways to set value, and different methods are used in the same jurisdictions, depending on the class of property.

COST APPROACH The cost approach starts with the actual construction cost that it would take to duplicate the building. Then subtract the various forms of depreciation and arrive at the figure by adding in the value of the land. There are three ways to estimate replacement cost: the quantity survey, in place and the unit method. The quantity survey is what a contractor would do before constructing a building. Cost of materials, labor and overhead would all be itemized in detail. Although it is the most complete, it is the most difficult to do and therefore, the least used. In place is based on the same principle as the quantity survey, but the cost is estimated by the value of components. A shingle roof costs “x” amount per square foot and the exterior walls would cost “y” dollars a square foot to replicate. The unit method uses either the square or cubic footage of the building and multiplies it by a known cost factor. These factors have been developed by the construction and insurance industries. Because of ease of use, it is the fastest and most used determinant.

Special Report Eight: Property Taxes 8 - 2

DEPRECIATION There are three types of depreciation that will have to be considered when assessing property: physical, functional and external. Physical depreciation falls into two categories, incurable and curable. Incurable depreciation is the normal wear and tear on the structure and is estimated in terms of life span. If a building has a life span of 30 years and it is 10 years old, the depreciation factor would be one third. Curable depreciation takes into consideration damage to the structure that would have to be repaired. If the roof badly needs replacement, the cost of a new roof would be deducted from the value. Functional Depreciation is derived from obsolescence. A tiny kitchen unable to accommodate modern appliances, bathrooms without showers, or a cellar built with rocks – complete with sump pump – that can never be finished are all things that would cause a reduction in a building’s value. External Depreciation is usually associated with location problems - a home on a major highway, a high school or factory next door, a hazardous waste site discovered two blocks away. These are all factors that would reduce value.

MARKET DATA APPROACH The market data or direct sales approach defines value as equal to that of similar or comparable buildings that have been recently sold. It is the method most taxpayers are comfortable with and the method easiest to present to a special master or judge. However, the biggest rap against it is that not enough effort is put forth to find quality comparables. The comparables must be as close to each other as possible.

INCOME APPROACH The income approach, based upon the earnings of a building, is used primarily for office and large apartment buildings. Rents and leases determine the value here, not the replacement cost. Two inner city buildings could be almost identical, but if one rent roll is much more than the other, it will be much more valuable, even if they are only a block apart. It is not unusual for negotiations to purchase a building to be focused almost entirely on a multiplier of the rent roll – taking into consideration the shape of the building, of course. These are investment properties and to have value, they must allow the investor to recapture his initial investment and, at the same time, generate a fair return on his/her investment. If these two factors are not present, investors should choose to put his/her money elsewhere. Communities look to attract investors to provide badly needed jobs and housing, and the income approach attempts to satisfy both parties. UNDER THE INCOME APPROACH YOU: • Arrive at gross income. • Derive net income. • Select a method to get a rate of return, the capitalization rate. • Select a method for capital recapture. • Compute the value. Special Report Eight: Property Taxes 8 - 3

MASS APPRAISAL APPROACH What has evolved is an appraisal process based on three basic approaches, but really using the cost approach as its model. It involves the collection of market and cost data and the creation of a model for large classifications of properties. It also allows a real property assessor’s office to have a sufficient database that one can adjust up or down from the model for every conceivable alteration or change, creating, in reality, an individual assessment for each property. Always bear in mind that conditions change in areas and in properties. That’s the reason why assessors, armed with such a model, still re-inspect on a regular basis. And this is precisely one of the reasons why people challenge tax bills, for the model might not reflect the accurate conditions of the property, or take into account an external factor which is starting to affect property values. It also assumes that the assessor has in their possession a record of property that is 100 percent accurate.

It is not the real property assessor or his assessment of the property that determines your real estate bill. In fact, he is really quite removed from the process. Various independent boards, agencies and authorities levy charges and taxes that might be included on your bill. In some cases, they are billed separately and carry a different due date. Examples are school boards, water and sewer districts, fire, health, economic development, etc. In Lee County, Florida, the county tax collector reports that there are 27 different county assessment bills mailed each year.

The process begins when the chief executive meets with the budget director. They review the local economy and tax growth, and discuss what programs the chief wants to expand or contract. Out of this meeting comes a rough guideline on where the budget will go, such as a 3 percent growth rate or a 2 percent overall decline. The budget director then sends a memo to all the department heads outlining the projected needs and sets a deadline for each department to submit a proposed budget. When all the departments respond, they are reviewed to insure they have complied with the guidelines.

At this point, a preliminary budget is in place. The chief executive and budget director review the document, approving or disapproving the agencies’ requests and making changes. What typically follows is a series of meetings with each agency head until an agreement is reached with each for their next fiscal year budget.

The budget director determines the total amount needed to fund the budget, say $100 million. The local tax collector provides an estimate of other tax revenues that they expect to receive during that year, for example $10 million. Now, the amount required is $90 million. Next, they review all the aid programs they might receive from the federal government, state, county, etc. – perhaps $15

Special Report Eight: Property Taxes 8 - 4

million worth – and reduce the required amount even further to $75 million. This is the executive budget presented to the legislature and made public. The property assessor now takes the assessment roll, reduces the amount by the exemptions that are in effect, both institutional and individual, and gives the chief executive a certified assessment roll. The assessment roll is the total dollar value of the properties the real estate tax will be levied against. They take the dollar number required to be raised, $75 million in our example, and figure out how much money will be raised per $1,000 of assessed value. The mill, 1/1000 of a dollar or a tenth of a cent, measures this amount of money. The resulting ratio or number is then multiplied against every individual assessment to determine a preliminary or proposed tax assessment. The process is called millage. Meanwhile, the legislative process has started. Each department’s budget is reviewed at committee meetings and public input is called for at public hearings. The legislature puts together its version of the budget and submits it to the chief executive for his signature. That is the law, but in reality, once the legislature has determined what it wants, a series of negotiations take place with the chief executive and his staff. The budget submitted by the legislature, in almost every case, is one in which they have already reached an agreement. BUDGET ADOPTION The chief executive signs the budget into law and the real property assessor takes the assessment rolls, figures out the millage rate and prints out the tax roll. That roll is certified by the property assessor and given to the tax collection official. The tax collector then sends a real estate tax bill to every property owner or person to be notified, such as a mortgage holder or mortgage-servicing bureau. In large jurisdictions, the bill could be a computer tape, listing all taxes due on properties for which a mortgage-servicing bureau might be responsible.

Fiscal years and tax collection cycles differ in most communities. For years, governments were forced to issue tax anticipation notes (TANs) to generate revenue to cover expenses during the initial phase of the fiscal year until sufficient revenues were raised. For example, in Lee County, Florida, its budget year starts January 1, but the real estate taxes, its main source of revenues, is not due until March. Government and the public naturally had to pay interest for the use of this money, adding an additional budgetary expenditure. To reduce this expenditure, most jurisdictions began to offer their citizens a discount if they prepaid their taxes. Lee County, Florida offers the following tax discounts: 4% if paid in November 3% if paid in December 2% if paid in January 1% if paid in February Actual Amount if paid in March Most jurisdictions also offer taxpayers the additional options of paying taxes on an installment or quarterly basis. You should become familiar with the discounts and installment plans of your jurisdiction because improperly applied discounts are a major source of errors on your tax bill. Special Report Eight: Property Taxes 8 - 5

In Florida, taxes become delinquent April 1 of each year, at which time a 3 percent penalty is added to the bill. Florida is a tax certificate state, which means that, in addition to normal foreclosure options, it auctions directly to the public a certificate covering those taxes in arrears. By statute, the tax collector must conduct a tax certificate sale on or before June 1st for the preceding year’s delinquent taxes. He must advertise the sale, including the legal description of each property in arrears, the listed owner of the property and the amount of the certificate to be sold. The advertisement must be in a local, general circulation newspaper. (In Lee County, the ad is placed for four consecutive weeks.) The face amount of the tax certificate includes the amount of delinquent taxes, the 3 percent interest, a 5 percent tax collection commission and the property’s proportionate share of the advertising costs. There is a maximum interest rate of 18 percent that someone could bid for the certificate. These certificates allow the owner two years to redeem the property by satisfying all charges, including the tax certificate holder’s interest rates. One bids in terms of the interest rate. If you were the only bidder and bid 18 percent, you won. If someone else bid 17-1/2, then to win, you would have to bid lower.

All states pass enabling legislation, giving its real estate taxpayer some sort of relief. It is referred to as enabling legislation because the local legislative body must pass a bill implementing its use. While state law restricts the type of exemptions to be given, local jurisdictions have to opt for implementation, so check to see what exemptions apply in your area. There are three categories of exemptions: institutional, government purpose and individual. Institutional exemptions provide relief for broad categories of properties based upon use. Religious institutions, hospitals, cemeteries, schools, tribal lands and certain not-for-profit and charitable institutions are the most common ones. Government purposes exemptions are enacted to assist the government in preserving, protecting or enhancing sections of its community. Historical sites or districts are an example of government granting an exemption or abatement in the name of preservation. Agricultural purposes, wetlands and forest preservation reflect a protective type of exemption. Economic development, urban renewal, and rehabilitation are enhancement exemptions. Individual exemptions are granted solely on the merit of the individual or individuals owning the property. Examples are the disabled, the blind, homestead exemptions, and, by far the two most popular, the senior citizen and veteran exemptions. Generally, there are differences in how much relief you receive by class of exemption. Institutions such as houses of worship are usually fully exempt from property tax. Government purpose exemptions tend to be partial abatements for a stated period of time. Exemptions tied to one’s income are commonly referred to as “circuit breakers.”

Special Report Eight: Property Taxes 8 - 6

Every state gives the property owner an avenue to contest an error or the assessment of their property. While the names might change, the structure is very similar in nature.

These are civil procedures. Therefore, the law presumes that the assessor is correct and he or she gets the benefit of the doubt. It is up to you to present the evidence and your case, dispelling any doubt as to the soundness of your approach. If you are presenting five factors as to why the assessment is wrong and one of them is weak, start with three of the strong ones (laying the groundwork), review the weak one and finish with your best point. That first impression and your summation is what should be remembered most.

Remember that you are not contesting the tax – that is set by the executive and the legislative body. You are only appealing the assessment process and its conclusion. Also, many months may go by before you receive a hearing, let alone a decision from the courts. Here is a snapshot view of what the appeal process may look like in yearly or fiscal year cycle. January to February 28 March to April May to July August 15 September 9 September 14-29 Last day plus 20 days October 25 November 1 December 24 The filing period for any exemptions for which you qualify. You prepare your case. You request an informal conference. Your proposed tax notice is mailed. The last day an appeal can be filed (25 days from the day it was mailed). The Value Adjustment Board (VAB) hears the appeal. The VAB must render all decisions. The tax roll is certified by the real property assessor. Tax bills are mailed out. The last day to file a judicial appeal (60 days after the tax roll is certified or within 60 days of when the VAB rendered your decision).

The informal conference has two steps. First, if you see an error on the bill, go to the tax collector’s office and request an explanation. Here is where you make sure that the prepayment discount or the late payment fee was determined properly. The second is to actually call and request an appointment with the assessor who was responsible for the assessment on the property itself. Now, the real property assessor and his staff may or may not be in the same office as the tax collector. In Lee County, Florida they are, but in many jurisdictions they are separate departments. Before you prepare for the conference, think about the dynamics of such a meeting. This is the individual who you feel did not do their job properly, so how you approach them is important. No one likes to be told they did a poor job.

Special Report Eight: Property Taxes 8 - 7

There are three types of errors with which you are going to confront them: a faulty assessment based on an error, a condition with the property that would change its value or one where you feel comparables indicate you are being over assessed.

Any error entered on a record or into a computer base describing your property could make a major difference in the actual assessment. Simply tell the assessor, “Look, I know you based your assessment on my property record, but whoever filled it out originally made this error.” You then show how and where they are wrong. They will tell you that they will take this new information under advisement. Shortly thereafter, you will receive a new proposed tax bill in the mail. They have no intention of allowing you to go further to a hearing and disclose publicly that their property card contained wrong data.

You have a fire, water damage or bad leak that floods your basement every time it rains. You have even been forced to install a sump pump in your basement. Numerous supporting photographs have been brought along as evidence. Your position is, “Gee, I know you couldn’t possibly have known about this condition. I’m sure you will agree that this severely diminishes my chance of selling my house for what it once would have brought on the market. Its value is now much less.” Here again, a review or maybe even a reassessment may be conducted but the chances are you are going to prevail. The same assessor will present the government’s side at a hearing and they will not be anxious to be sitting there when you show these conclusive photos and state that your assessor ignored them.

This is the hardest to present at an informal meeting because they feel they have adequately done their job. Look to see if you have been uniformly assessed, ask your market value and what the Coefficient of Dispersion is. Talk about the overall condition of your property compared to the ones around it. The high school they built next door will hurt the value and your property will not be worth the same as other similar properties in your city. You might be offered a compromise here, but it will rarely be what you are looking for. After all, you are questioning their ability. Don’t be bashful in letting them know that you are fully prepared to go to the next step, the formal hearing. If they are not receptive, start preparing the necessary papers for your formal hearing even before the new proposed tax bills are mailed, since you only have twenty-five days to have your formal appeal submitted. Make sure you end on a professional note because you will be facing this same assessor at the formal hearing.

It is called the Tax Commission, the Board of Equalization and Assessment, the Board of Assessment Review or, in Florida, the Value Adjustment Board. It’s a board, independent of the Office of the Chief Assessor, whose primary responsibility is to hear property owners appeal their appraisals and, thereafter, render a decision. The appraisal office can provide you with the forms necessary to initiate your formal appeal. In most cases, you will be required to submit a processing fee for each property. The majority of jurisdictions, as in Lee County, Florida, will refund the fee when you win your case. Remember, this is a formal hearing and relevant information not furnished, such as an unrecorded second mortgage could put you in violation of the law. The same goes with the information you Special Report Eight: Property Taxes 8 - 8

provide. It must be accurate to the best of your knowledge. You will receive a formal notification and the time you will appear. You will then be called to appear by the special master. Your case will be reviewed to make sure you submitted your case in advance of the prescribed time frame and if so, you will be sworn in to make your case.

The assessor will testify, making his case why you shouldn’t receive tax relief. There will be a court reporter or a recorder to transcribe the entire process. You mustn’t lose sight of the original premise that the assessor is presumed to be correct, so you must show they made a mistake or an omission or didn’t consider relevant data. At this point, you are probably thinking, “Hey, that’s unfair. The assessor has five days to review my materials and I don’t get to see his.” Most jurisdictions feel this is true and will allow you to review and copy his file on the case before the hearing, although with some, you may have to resort to filing an official freedom of information request to gain access. Don’t let the setting intimidate you. Most boards of review members are elected officials who will not want to appear as “anti-taxpayer.” In Florida, the board is composed of three elected members of the county and two elected members of the school board. They are hearing the appeals of the people who vote them into office and, in a close one, which way do you think they will lean? It’s human nature. So, respect them and give them the tools so they can vote your way. It’s not the tax that’s too high, it’s the assessment, so act accordingly.

The next step is waiting for the determination. Jurisdictions are aware of the tax process timetable, so they attempt to respond as quickly as possible. Under Florida law, the VAB has twenty days after its last deliberation to render decisions on every appeal. The next recourse is usually the courts, and if you still feel your case has merit, go for it. The problem here is that most people will not go to court without an attorney. Attorneys, as we know, are expensive so, if your tax bill is $3,000 and you win a major victory, say a 1/3 reduction or $1,000, it might barely cover your legal costs. It is primarily the commercial and large apartment complexes that go to court and receive major tax breaks.

Many jurisdictions are starting to recognize this inequity and have extended the small claims concept to the assessment appeal process. They have established a Small Claims Assessment Review with a minimal filing fee, conducted by a court appointed referee. Attorneys are not needed. These are usually restricted to owner-occupied cases, and you have the option of going to one or the other for each appeal. However, you can’t go to small claims and then go to the circuit court or Supreme Court of the state. Every state has real property laws in their state statutes, which are available at the public library, or in most states the state statutes are on-line. Pay special attention to the pages explaining administrative and judicial review of property taxes. They are not as complicated as you may think.

Special Report Eight: Property Taxes 8 - 9

Auditing of a real property tax bill can be divided into three distinct areas of possible errors. The first two, site discrepancies and building errors, are directly related to the property record. The third deals with the manner in which the property was assessed. The property record is the official record of the property and the basis upon which the assessor will make his determination of value. Any error or omission on that record, however small, could have a major impact on the ultimate assessment and final tax bill. Every property record in your jurisdiction is public information and in most states the information is available on-line. However, you will most likely need a certified or true copy if you pursue the appeal process. The fee for getting a copy in most jurisdictions is only one dollar, and it is a wise investment. IS IT THE CORRECT PROPERTY? First, make sure the property listed is correct. The best way to do so is to get a property description from your deed. A sample from a deed follows: Lot 32, THE ROOKERY, a Subdivision, according to the plat thereof as recorded in Plat Book 38, page 58, of the Public Records of Lee County, Florida. Documentary Tax Pd. $ 202.95 DO THE DIMENSIONS MATCH AND IS THE MATH CORRECT? Make sure that the dimensions on your deed match those on the property record exactly. If there are any discrepancies, have the property measured. Redo all the math calculations, making sure they are correct (i.e. 8,000 square feet or 1/3 of an acre). The lot might be 80 x 125 feet, but there are main-line water and sewer pipes that run through one side, eliminating 15 feet of usable space. The assessor hadn’t considered this when he quoted as usable 60 x 100 feet. ARE THE PROPERTY EASEMENTS, DEED COVENANTS, AND ZONING RESTRICTIONS LISTED? Perhaps the deed contains an easement by the electric company and they have power lines running on the property. This would be applicable if part of the backyard opens onto a golf course and may not be fenced off, so it is open for communal use. Is the lot on the corner of a commercial strip, although a local zoning ordinance restricts it to residential development? ARE ANY SITE DETERIORATION FACTORS OR OFF-SITE FACTORS LISTED? Is the property subject to spill-offs or major soil erosion? A fast food restaurant opened next door to your duplex, high traffic roads are located nearby, the airport runway was extended to two blocks away (big noise problem), a factory opened up two blocks away and a high school is down the block. These are all reasons for a property appraisal lower than normal market value. Special Report Eight: Property Taxes 8 - 10

ARE THE EXEMPTIONS LISTED? Have you applied for and been granted any of the exemptions allowed in your jurisdiction? ARE THE APPROPRIATE TAXING DISTRICTS NOTED? Assessment districts cut through county, city and school district boundaries. It is very possible to have a wrong district listed. PROPERTY IMPROVEMENTS Remember, the property record is the official assessment of the property and any error or omission would mean a change of the assessment. Now let’s go over the audit process for improvements to the property. IS THAT YOUR HOUSE? Make sure the diagram on the property record is your building and/or buildings. Verify the building description. Does it list the house as a two-family when it is a one-family home? Does it list the house as two stories, when in reality it is a one-story building with an unfinished dormer? Is it a full basement, fifty percent basement, poured concrete, cinder block, concrete slab, or crawlspace? It is very important to check square or cubic feet estimating. Is the Livable Square Footage Accurate? Here again, very, very important. Is the Math Accurate? Redo the calculations to make sure the numbers are accurate. Verify the Building Composition. Has it been listed as brick when, in reality, it is a frame house? Verify the Roof Composition. Shingle, not tile or slate. Verify the Heating System. Does it state gas when it is electric or oil? Is the property central air or does it have separate units? Does it have a one, two, or three car garage? Are the interior components such as special flooring, fireplaces, etc. described accurately? ARE ANY ADDITIONS OR IMPROVEMENTS LISTED? If a porch, back deck, patio, pool or tool shed are listed, check the size, construction and condition of each. Were there replacements due to depreciation that should not be considered as improvements? YEAR BUILT? Is the correct year the building was built used in depreciating the improvements? ARE THERE ANY DEFECTS IN THE BUILDING NOT LISTED? This is the last check under the property audit and it is one of the most important. Are there defects in the building because of inferior construction that the assessor was not aware of? Is the pool broken and been out of use for years? Is the entire building substandard? Does the basement flood? Are there major cracks because of settling? Was there fire or water damage, anything that would diminish its value? Is the layout of the house out of the ordinary such as a one-bedroom house in the suburbs, one bath for three bedrooms, one closet in the entire house? Is there anything in the interior plan of the building that would diminish its value while not being seen from the outside? You should prepare a detailed list of these, complete with photographs and repair estimates, if possible. ERRORS IN ASSESSMENT The third phase of the audit process deals with the assessment process itself. The assessment could be wrong, not because of any erroneous information about the property, but because it was over assessed in relationship to other properties in your area. Special Report Eight: Property Taxes 8 - 11

CHECK THE COEFFICIENT OF DISPERSION The coefficient of dispersion (C.D.) is the assessed value divided by its market value that is set by the jurisdiction. You have to inquire what the figure is for your area. Do the math for your property based upon the assessor’s number. Is it in line with the mandated C.D. for your area? If not, your case is building. UNIFORMITY OF ASSESSMENT Was your property assessed uniformly with others in your community? Check the courthouse for recorded deeds, the multiple Listing Service (MLS) at a local realtor’s office or data at the assessor’s office itself for fifteen recent sales of properties similar to yours. Take what they were assessed at, divide by the sales price and get the C.D. for each. Add up the fifteen percentages and divide that number by fifteen and you will have an average assessment sales ratio or C.D. Is this figure in line with the one on your property? If not, although yours might have been assessed correctly, they have not been uniform in their assessment practices and your assessment should be lower. PURCHASE PRICE Another way to challenge the assessment process is if the property was recently purchased and the purchase price was lower than the value set by the assessor. You have to show that it was a hands-off transaction and that the seller was not distressed and sold at a much lower price than value. If it sold for a much lower figure because the property was distressed and in need of repair, then document the repairs and their cost and make that your case for appeal. Compare your assessor’s value determination to the asking price of similar homes in your area using the local newspaper and/or the MLS. Most will agree that the asking price is always a little inflated in relationship to the value. If you find them to be similar, then you again have a good case to argue that you have been unfairly assessed. COMPARABLES The next approach is obtaining actual comparables for the property. The closer to your property the comparables are, the better case you will have. Most experts in the field will tell you to get a minimum of three comparables of identical homes with lower assessed value than yours. We agree, but also look for three more properties with similar assessments that are clearly more valuable than yours. This little extra touch really adds to the contrast and strengthens your case substantially. BURDEN OF PROOF Remember, when disputing the assessment on your property, the burden of proof is on you, the contester. The assessor is deemed to be correct.

The following listing is provided to give you an overview of the process for each state as well as the name, address, telephone number, and website of the applicable office. However, since changes may have occurred since the printing of this book, you should contact your state or local office and inquire about any recent changes.

Special Report Eight: Property Taxes 8 - 12

ALABAMA Department of Revenue, 50 N. Ripley Street, Montgomery, AL 36132 205-242-1525; www.ador.state.al.us/ Alabama uses a classification system with the market-value approach; and, the taxes are considered ad valorem (according to value). It provides exemptions for homesteads, senior citizens, the disabled and a limited veteran exemption. ALASKA Dept of Community & Business Development, 550 W. 7th Ave., Ste 500, Anchorage, AK 99501 907-465-2280; www.dced.state.ak.us/ The assessment responsibilities lie with the municipalities (boroughs) to assess property at its full and true value using the market value approach. However, not all municipalities levy property taxes. There are also exemptions provided for the senior citizen and disabled veterans and localities may provide a substantial homestead exemption. ARIZONA Department of Revenue, Taxpayer Information, P.O. Box 29086, Phoenix, AZ 85038 602-542-5221; www.revenue.state.az.us/ Arizona uses a fairly complicated classification system. County assessors use either the replacement cost less depreciation method or sales analysis; however, limits are placed on the percentage the assessment can go up in any given year. They also have exemptions for veterans, the disabled and seniors who have lost their spouse. ARKANSAS Assessment Coordination Department, 1614 West Third Street, Little Rock, AR 72201 501-324-9240; www.accessarkansas.org/dfa/ Arkansas uses the coefficient of dispersion method for assessing properties by applying a percentage to the “true market value” of the property. The taxes are considered ad valorem (according to value), collected by county government, and provide limited exemptions for disabled veterans and lowincome seniors. Arkansas has a reputation as difficult to appeal. CALIFORNIA State Board of Equalization, PO Box 942879, Sacramento, CA 94279-0090 800-400-7115; www.boe.ca.gov/ California is a full-assessment state using the market value approach at the county level, but limits the amount an assessment can go up in any one year. Exemptions include homestead, intangible personal property, low-value, and veteran exemptions as well as others. California has an appeals process in place. COLORADO Dept of Local Affairs, Div of Property Taxation, 1313 Sherman Street, Room 519, Denver, CO 80203 303-866-2371; www.dola.state.co.us/ Special Report Eight: Property Taxes 8 - 13

Colorado uses a limited classification with a market-value approach; and, the assessment responsibility is at the county level. Exemptions are provided for the disabled and senior citizens. It also has an appeals process to protest the amount of the property value. CONNECTICUT Office of Policy and Management, 450 Capitol Avenue, Hartford, CT 06106-1308 860-418-6200; www.opm.state.ct.us/ Connecticut uses the market-value approach with a coefficient of dispersion. It provides exemptions on a limited basis for the disabled, veterans and senior citizens and allows for a cap on certain senior citizen property taxes. It also allows its municipalities (townships) to opt for additional disabled veteran, senior citizen, homestead, and environmental exemptions. DELAWARE Division of Revenue, Economic Development Office, Carvel State Office Building, 820 N. French Street, Wilmington, DE 19801 302-571-3302; www.state.de.us/revenue Delaware is a full assessment state using the market value approach at the county level. The individual county also dictates the type and amount of exemptions allowed. For example, Sussex County has exemptions for qualifying disabled and senior citizens as well as a senior citizen school property tax credit and a tax subsidy filing. An appeals process is in place. FLORIDA Dept of Revenue, Tax Information Svcs, 1379 Blountstown Highway, Tallahassee, FL 32304-2716 850-488-6800; www.myflorida.com/dor/property Florida is a full assessment state using the market value approach; and, provides exemptions for homestead, senior citizens, disabled veterans, blind persons, the disabled and widow or widower. County government is responsible for the assessment process and taxes are considered ad valorem (according to value). An appeals process is in place. GEORGIA Dept of Revenue, Property Tax Division, 4245 International Pkwy, Suite A, Hapeville, GA 30354 404-968-0707; www2.state.ga.us/departments/dor/ptd/index.html Georgia uses the market value approach with a coefficient of dispersion; and, property is assessed at the county level. It provides exemptions for homestead, senior citizens and veterans and taxes are considered ad valorem (according to value). An appeals process is in place. HAWAII Taxation Department, 830 Punchbowl Street, Honolulu, HI 96813 808-587-4242; www.state.hi.us/tax/ Hawaii is a full assessment state using the market approach. It provides homestead, senior citizens, disabled and limited environmental exemptions. The county government is responsible for the assessment process and an appeals process is in place. Special Report Eight: Property Taxes 8 - 14

IDAHO Department of Revenue and Taxation, State Tax Commission, 700 W. State Street, Boise, ID 83722 208-334-7733; www2.state.id.us/tax/ Idaho is a full assessment state using the market value approach with property assessed at the county level. It provides for homestead, farmer, disabled, senior citizen, and veteran (POW) exemptions. An appeals process is in place. ILLINOIS Property Tax Appeal Board, Wm. G. Statton Office Building, 401 South Spring, Room 402, Springfield, IL 62706 217-785-6067; www.state.il.us/agency/ptab/ Illinois uses a market value approach and property is assessed at the county level. (The only jurisdiction that has opted for the classification system is Cook County.) It has exemptions for homestead, home improvement, senior citizens, and disabled veterans; and, an appeals process is in place. INDIANA State Board of Tax Commissioners, 100 N. Senate Avenue, Room N-1058, Indianapolis, IN 46204 317-232-3777; www.in.gov/dlgf/ Indiana recently changed to the market value approach to assess property at the county level. It provides exemptions for homestead, senior citizens and veterans; and, has an appeals process in place. IOWA Dept of Revenue and Finance, Taxpayer Services, P.O. Box 10457, Des Moines, IA 50306-0457 515-281-3114; www.state.ia.us/ Iowa is a full assessment state using the market value approach and property is assessed at the county or city level. It has sixteen (16) property exemptions and five (5) tax credits including homestead, elderly and disabled, mobile home, agricultural, and family farm. KANSAS Department of Revenue, Division of Property Valuation, 915 SW Harrison Street, Room 400N, Topeka, KS 66612 785-296-2365; www.ksrevenue.org/pvd/ Kansas uses the fair market approach to assess property at the county level. The state has a homestead property tax refund for those who are at least age 55, totally and permanently disabled or blind, or have at least one dependent child. However, there are also five additional requirements to qualify for the refund. An appeals process is also in place. KENTUCKY Revenue Cabinet, 200 Fair Oaks Lane, Frankfort, Kentucky 40620 502-564-8338; www.revenue.state.ky.us/ Special Report Eight: Property Taxes 8 - 15

Kentucky is a full assessment state using the market value approach. It provides exemptions for the disabled and for senior citizens. The exemptions only apply to the basic property tax. County government is the jurisdiction given the primary assessment responsibility. An appeals process is also in place. LOUISIANA Tax Commission, 923 Executive Park Ave, Suite 12, P.O. Box 66788, Baton Rouge, Louisiana 70896 504-925-7830; www.louisianaassessors.org/ Louisiana has a classification system in which classes are assessed at different levels using the fair market value approach. A standard homestead exemption is provided as well as additional improvement exemptions that may be determined by the individual parishes. MAINE State Tax Assessor, Property Tax Division, 14 Edison Drive, Augusta, Maine 04332 207-287-2011; www.state.me.us/revenue/propertytax/ Maine is a full assessment state that uses an alternative to the fair-market approach similar to the highest and best use concept at the township or municipality level. Exemptions are provided for senior citizens and to veterans. An appeals process is in place. MARYLAND Department of Assessment and Taxation, 301 W. Preston Street, Baltimore, Maryland 21201 410-767-1184; www.dat.state.md.us/ The state’s Department of Assessments and Taxation issues assessments based on the fair-market approach; and, then each unit of the state (state, county, and city) sets their own tax rates. Exemptions are provided for the blind, disabled veterans, and homestead. An appeals process is in place. MASSACHUSETTS Department of Revenue, 51 Sleeper Street, Boston, Massachusetts 02205 617-887-6367; www.dor.state.ma.us/ Massachusetts employs a classification system and uses the coefficient of dispersion method with the fair market value approach at the local level. It allows exemptions for senior citizens, the disabled, blind persons and qualifying veterans. Local jurisdictions may also opt for a homestead or environment exemption. An appeals process is in place. MICHIGAN State Tax Commission, Treasury Building, 4th Floor, Lansing, Michigan 48922 517-373-0500; www.michigan.gov/treasury/ Michigan classifies property and uses the coefficient of dispersion method with the fair market value approach at the local level. It permits exemptions for blind persons, homestead, senior citizens and veterans. An appeals process is in place.

Special Report Eight: Property Taxes 8 - 16

MINNESOTA Department of Revenue, 600 North Robert Street, St. Paul, Minnesota 55146-7704 612-296-3403; www.taxes.state.mn.us/ Minnesota employs a classification system with different assessment levels per class and uses the fair market value approach. Exemptions are granted for the disabled and senior citizens with homestead provisions. Responsibility for the assessment process is divided between county, town and city governments; and, an appeals process is in place. MISSISSIPPI State Tax Commission, Property Tax Division, 1577 Springridge Road, Raymond, MS 39154 601-923-7631; www.mstc.state.ms.us/ Mississippi uses a classification system with different levels of assessment assigned to each class. The assessment is then based on fair market value at the county level. Exemptions are granted to the senior citizen and disabled. An appeals process is in place. MISSOURI State Tax Commission, 621 E. Capitol Avenue, P.O. Box 146, Jefferson City, Missouri 65102-0146 573-751-3505; www.dor.state.mo.us/stc/ Missouri employs the classification system with different levels of assessment assigned to each class. The assessment is then based on fair market value at the county level. A property tax credit program is in place for senior citizens and disabled veterans; and, an appeals process is also in place. MONTANA Department of Revenue, 124 N. Roberts, 3rd Floor, PO Box 5805, Helena, Montana 59604-5805 406-444-6900; www.discoveringmontana.com/revenue Montana employs the classification system with different levels of assessment assigned to each class. The assessment is then based on fair market value. Property is assessed at the county level; however, the state is responsible for the assessment roll. Exemptions are provided for homestead property and veterans; and, an appeals process is in place. NEBRASKA Dept of Revenue, Property Tax Division, 301 Centennial Mall S., Lincoln, Nebraska 68509-4818 402-471-2920; www.state.ne.us/ Nebraska is a full-assessment state using the fair-market-value approach at the county level. A homestead exemption is available for senior citizens over age 65, the disabled, disabled veterans and their widow(er); and, an appeals process is also in place. NEVADA Department of Taxation, 1550 E. College Parkway, Suite 115, Carson City, NV 89706 775-687-4820; http://tax.state.nv.us/ Special Report Eight: Property Taxes 8 - 17

Nevada uses the coefficient of dispersion method for assessing properties at fair market value at the county level. Exemptions are provided for the blind, disabled veterans, orphans, and widows; and, a rebate program is available for senior citizens meeting specific criteria. An appeals process is also in place. NEW HAMPSHIRE Department of Revenue Administration, Property Appraisal Division, 45 Chenell Drive, PO Box 457 Concord, New Hampshire 03302-0457 603-271-2687; www.webster.state.nh.us/revenue/ New Hampshire is a full assessment state that uses a variation of the fair market value approach at the municipal level. Exemptions are provided for the physically handicapped and senior citizens, and a tax credit is available for qualifying veterans. Localities may opt to increase the exemptions. NEW JERSEY Department of the Treasury, Division of Taxation, 50 Barrack Street, Trenton, New Jersey 08646 609-292-6400; www.state.nj.us/treasury/taxation/ New Jersey is a full assessment state using the fair market approach at the municipal level. Exemptions are in the form of tax deductions given to qualified disabled persons, veterans, senior citizens and their surviving spouses. An appeals process is in place. NEW MEXICO Taxation and Revenue Dept, 1100 S. St. Francis Drive, P.O. 630, Santa Fe, New Mexico 87504-0630 505-827-0870; www.state.nm.us/tax/ New Mexico uses the coefficient of dispersion method with the fair market value approach at the county level. Exemptions are provided for qualified low income and senior citizens; and, an appeals process is in place. NEW YORK Office of Real Property Services, 16 Sheridan Avenue, Albany, New York 12210-2714 518-486-5446; www.orps.state.ny.us/ A classification system of assessment is used in Nassau County, New York City and certain other municipalities. The rest of the state uses the full assessment method at the municipality level with limited exemptions provided for the disabled, homestead, senior citizens, and veterans. New York has an appeals process in place. NORTH CAROLINA Department of Revenue, Property Tax, P.O. Box 871, Raleigh, North Carolina 27602 919-733-7711; www.dor.state.nc.us/practitioner/property/ North Carolina is a full-assessment state using the fair market value approach at the local level. Exemptions are granted for the disabled, senior citizens, and disabled veterans. An appeals process is in place.

Special Report Eight: Property Taxes 8 - 18

NORTH DAKOTA Office of State Tax Commissioner, State Capitol, 600 E. Boulevard Ave., Bismarck, North Dakota 58505-0599 701-328-2770; www.state.nd.us/taxdpt/ North Dakota employs the classification system using a fair market value approach at the local level. Exemptions are available for the disabled, homestead, senior citizens and veterans. An appeals process is in place. OHIO Department of Taxation, 30 E. Broad Street, Columbus, Ohio 43266-0030 614-466-5744; www.state.oh.us/tax/ Ohio uses the coefficient of dispersion method with the fair market value approach at the local level. Exemptions are available to the disabled and senior citizen under the homestead exemption. An appeals process is in place. OKLAHOMA Tax Commission, 2501 N. Lincoln Building, Oklahoma City, Oklahoma 73194 405-521-3178; www.oktax.state.ok.us/oktax/ Oklahoma uses the coefficient of dispersion method with the fair market value approach at the county level. It offers homestead, senior citizen, and totally disabled exemptions. An appeals process is in place. OREGON Department of Revenue, Property Tax Division, 955 Center Street. N.E., Salem, Oregon 97301-2555 503-378-4988; www.dor.state.or.us/ Oregon is a full assessment state using the fair market value at the county level. Veterans are given reduced assessments; and, the disabled and senior citizens may defer paying their property taxes. An appeals process is also in place. PENNSYLVANIA Department of Revenue, 4th and Walnut Streets, Harrisburg, Pennsylvania 17128 717-787-8201; www.revenue.state.pa.us/revenue/ Pennsylvania uses the coefficient of dispersion method with the fair market value approach at the city or county level. Exemptions are allowed for the disabled, senior citizens, and veterans as well as low income tax deferrals, when offered by the local taxing body. An appeals process is in place. RHODE ISLAND Division of Taxation, One Capitol Hill, Providence, Rhode Island 02908 401-277-2885; www.tax.state.ri.us/ Rhode Island is a full assessment state using the fair market value approach. Localities (townships and municipalities) can opt for a coefficient of dispersion method. Exemptions are available for veterans and localities may opt for exemptions for the disabled and senior citizens. An appeals process is in place. Special Report Eight: Property Taxes 8 - 19

SOUTH CAROLINA Tax Commission, Property Division, 301 Gervais, P.O. Box 125, Columbia, South Carolina 29214 803-898-5000; www.sctax.org/dor/ South Carolina uses the classification system with different levels of assessment assigned to each class using the fair market value approach at the county level. Exemptions are provided for certain veteran classifications and the disabled. In addition, a homestead exemption is available for senior citizens and the totally blind or disabled. An appeals process is in place. SOUTH DAKOTA Dept of Revenue, Division of Property Taxes, 445 East Capitol Avenue, Pierre, South Dakota 57501 605-773-3311; www.state.sd.us/revenue/ South Dakota is a full assessment state using the fair market approach at the county level. Exemptions are provided for the disabled, senior citizens and veterans. A property tax refund program is also in place for qualifying senior and disabled citizens. An appeals process is in place. TENNESSEE Division of Property Assessments, 1400 James K. Polk State Office Building, 505 Deaderick Street, Nashville, Tennessee 37243-0277 615-401-7737; www.comptroller.state.tn.us/ Tennessee employs the classification system with different levels of assessment assigned to each class using the fair market value approach at the local level. Exemptions are granted to the disabled and senior citizens. An appeals process is in place. TEXAS Office of the Comptroller, Property Tax Division, 4301 W. Bank Drive, Suite 100, Austin, Texas 78746 512-305-9999; www.cpa.state.tx.us/taxinfor/proptax/ Texas is a full assessment state using the fair market value approach at the county level. Exemptions include a homestead exemption, with additional exemptions for the disabled, senior citizen, and disabled veteran. An appeals process is also in place. UTAH State Tax Commission, Property Tax Division, 210 North 1950 West, Salt Lake City, Utah 84134 801-297-3600; www.tax.ex.state.ut.us/property/ Utah is a full assessment state using the fair market value approach at the county level. Exemptions are provided for qualifying primary residences, the blind, the disabled, senior citizens and disabled veterans. An appeals process is in place.

Special Report Eight: Property Taxes 8 - 20

VERMONT Department of Taxation, Division of Property Valuation and Review, 109 State Street, Montpelier, Vermont 05609-1401 802-828-2865; www.state.vt.us/tax/ Vermont uses a classification system and the coefficient of dispersion method with the fair market value approach at the local level. Exemptions are provided for qualifying veterans; and, an appeals process is in place. VIRGINIA Department of Taxation, Property Tax Division, 600 East Main Street, 4th Floor, P.O. Box 47471, Richmond, Virginia 23219 804-786-4021; www.tax.state.va.us/ Virginia is a full assessment state using the fair market approach at the local level. Exemptions are provided for the disabled and senior citizens as well as properties that have had substantial renovation. An appeals process is also in place. WASHINGTON Department of Revenue, General Administration Building, 11th Ave and Columbia Street, Olympia, Washington 98504 360-570-5900; http://dor.wa.gov/ Washington is a full assessment state using the fair market value approach at the county level. Exemptions are provided for the disabled and senior citizens; and, additional exemptions are given for property improvements. Also, senior citizens that do not qualify for the exemption may be allowed to defer the taxes. An appeals process is in place. WEST VIRGINIA Department of Tax and Revenue, PO Box 2389, Charleston, West Virginia 25328-2389 304-558-3333; www.state.wv.us/taxdiv/ West Virginia uses a classification system and coefficient of dispersion method with the fair market value approach at the county level. Homestead exemptions are provided for qualifying disabled, disabled veterans, and senior citizens. An appeals process is in place. WISCONSIN Department of Revenue, 2135 Rimrock Road, P.O. Box 8971, Madison, Wisconsin 53708-8971 608-266-9758; www.dor.state.wi.us/ Wisconsin is a full assessment state that uses a classification system and the fair-market-value approach at the local level. Exemptions are provided for homestead and to qualifying veterans. An appeals process is in place.

Special Report Eight: Property Taxes 8 - 21

WASHINGTON, D.C. Office of Tax and Revenue, Customer Service Center, 1st Floor, 941 North Capitol Street NE, Washington, DC 20002 202-727-4829; http://cfo.washingtondc.gov/ Washington, D.C. is a full assessment jurisdiction using the fair market approach that also utilizes property classifications. Exemptions are provided for homestead, lower-income households, and senior citizens. An appeals process is also in place.

Special Report Eight: Property Taxes 8 - 22

Entrepreneur’s Start Up

©2003 Whitney Education Group, Inc.®


The name “C Corporation” refers to a legal business entity chartered by the state. To have a C Corporation you must file Articles of Incorporation and pay the required state fees and taxes with the appropriate state agency (usually, the Secretary of State).

A C corporation has a separate legal and tax life distinct from its shareholders. A corporation pays taxes at a corporate income tax rate and files its own corporate tax forms each year (IRS Tax Form 1120).

To retain the corporate existence and thus the benefits of limited liability and special tax treatment, those who run the corporation must follow corporate rules. Annual meetings must be held, minutes of the meetings must be taken, and officers must be appointed. Most importantly, the corporation should issue stock to its shareholders and keep adequate capitalization on hand to cover any anticipated business debts.

Generally, corporations are taxed on its own profits. Any profits paid out in the form of dividends are taxed again to the recipient as dividend income, at the individual shareholder’s tax rate. However, most small corporations seldom pay dividends. The employee/owners are paid salaries and fringe benefits that the corporation may deduct on their taxes. The result is that only the employee/owners end up paying any income taxes on this business income and double taxation rarely occurs.

The C Corporation protects you from the IRS dealer tax penalties. If someone buys and then quickly resells property in their own name, they will be hit with some stiff tax penalties called the “dealer tax penalties.” Some people think that there is a limit to the number of quick transactions per year before one is classified as a dealer. This is not the case. The IRS tax code does not specify a number. So that is one reason why it is so important for a new investor to get incorporated right away.

Special Report Nine: Frequently Asked Questions 9 - 1

A C Corporation also provides protection from being sued by a tenant or contractor. And, there are tax savings when buying items such as computers and cars, and reimbursing yourself for business training classes using a C Corporation that can save you thousands of dollars yearly.

Popularity has grown with the Limited Liability Company (LLC) because it combines some of the best features of a partnership and a corporation. The owners (called “members”) of the LLC are not personally responsible for debts and there is no dual taxation. However, business earnings are taxed to its members. Another difference between an LLC and a corporation is that LLC’s do not have to distribute income in proportion to the interest of a member. Distribution of profits in an LLC is subject to employment tax. Unlike S Corporations, this entity allows for more than 75 shareholders and in some cases, two or more classes of stock may be created. Overall, in an LLC, no member has personal liability and members enjoy the flexibility it provides for ownership and business management.

Member-managed or manager-managed. In a member-managed LLC, all members (owners) manage all business transactions. A manager-managed LLC only has a certain number of members making the decisions, while the other owners share the profits. In this type of entity, decision-making members decide who will have what responsibility in the company. Sometimes, titles are given such as “president” and “vice-president”.

The IRS treats single-owner LLCs as sole proprietorships, and all business revenue and expenses are shown on Form 1040 schedule “C”. If two or more members own the LLC, it may be classified as either a partnership or a corporation for tax purposes. Refer to www.irs.gov for additional information.

A Limited Partnership is a partnership that has at least one limited partner and one general partner. To set up an LP you need to file a certificate with the state where the limited partnership was formed. This is usually filed with the Secretary of State.

The general partner is responsible for all the business operations, controls cash distributions to the partners, and handles management decisions. The general partner has unlimited liability and stands to lose the most if sued. Creditors of the partnership can go after the general partners’ personal assets if the limited partnership’s assets are insufficient. The general partner is also liable to third party lawsuits, such as a slip and fall. Therefore, instead of you being the general partner, set up a corporation or limited liability company. It will give greater liability protection to its owners.

The limited partner has no control over management decisions and generally has no liability other than their financial contribution to the partnership. Should the company be sued, creditors cannot confiscate their personal assets. In exchange for this limited liability, the limited partner forfeits his rights to manage and control the partnership. Special Report Nine: Frequently Asked Questions 9 - 2

The limited partnership does not pay taxes as an entity. It files an information tax return to the IRS and issues Form 1065 to the partners. Each partner then files income or loss on their individual tax return and must pay income tax on all gains whether or not the profit is distributed.

To protect your personal and business assets, you can set up several limited partnerships. One limited partnership can own your real estate and another partnership can own your cash and another your cars. This is added protection in the event that one partnership is sued; then, only a portion of your assets can be touched.

Asset protection – That is when the lawsuit comes from outside of your business (such as a car wreck) your properties are protected from being seized in a lawsuit. Lawsuit Protection – That is when the lawsuit comes from inside your business. (A tenant slips, falls and sues. By structuring your limited partnership with your corporation as one partner and you as the other, stops the lawsuit from affecting you personally. Tax savings – The limited partnership can pay for trips, computers, etc.

The sole proprietorship is the most common type of business organization in the United States today. Simply put, sole proprietorship means single owner. All income, expenses and debt lie totally with the owner. All of the profits are the owners. There is no continuity of ownership. The business terminates with the death of the owner or the dissolution of the business.

There is no form of asset protection involved in a sole proprietorship. The business debt is your debt and if sued, you are personally liable for the result of the suit. If someone suffers an injury related to your business, sues you and wins, they can take your business assets and your personal ones as well. You can buy liability insurance against this event. Many times sufficient coverage is cost prohibitive for the small business owner.

Many sole proprietorships operate under a DBA (Doing Business As) or fictitious name. This means that you, John Jones, as a sole proprietor are “doing business as” Ace Contracting, your “fictitious name”. Your governmental authority may require you to register yourself as a DBA and to publish the Registration of a Fictitious Name in the local newspaper. In addition to the cost of the ad, this can require a processing fee and the filing of an application with the clerk of court.

A sole proprietorship does not file a separate tax return. All business revenue and expenses are shown on schedule “C” of form 1040 (your individual tax return). Your business profits are subject to self-employment taxes (social security and Medicare taxes). If you have employees, it is also necessary to file a payroll tax return. Special Report Nine: Frequently Asked Questions 9 - 3

CRA stands for Community Reinvestment Act, a federal legislation passed in 1988 to combat community discrimination.

Banks can no longer participate in the illegal practice of flagging communities as unsafe or high-risk investments. Banks are monitored for CRA compliance. The FDIC reviews banks and rates them according to the following four levels of compliance: • Outstanding • Satisfactory • Needs Improvement • Substantial Non-compliance Therefore, every bank must have a folder that states its CRA objectives; a copy of the last CRA review; and, these must be made available to customers. On the Internet, the FDIC (www.fdic.gov under “Regulations and Examinations”) lists the banks that are getting ready to undergo their next review. They will also tell you how banks fared on their last exams. When searching for a CRA loan, go to a bank that had unsatisfactory marks, and you will be well received.

Higher debt-to-income ratios are allowed: 33-35% of your income for housing payments; 40-45% total indebtedness.

• • • • • • Market or below-market interest rates Low down payments Lenient credit guidelines (Nontraditional credit obligations such as rent, utilities, phone bill, and car insurance are acceptable verifications of credit.) No PMI required (Private Mortgage Insurance – insurance that is provided by a nongovernment insurer that protects the lender if the borrower defaults.) Lower monthly payments Qualify for more mortgage money

First-time homebuyers – anyone who has not owned their own home in the last three years, including displaced spouses; and, low-to-moderate income bracket

You can talk to the CRA officer at a big bank, CRA office within your county, City/County Community Reinvestment agency, City/County Planning Departments, Department of Human Services, Special Report Nine: Frequently Asked Questions 9 - 4

Social Service providers, or Not-for-profit agencies (Habitat for Humanity). Or, you can go to the U.S. Catalog of Federal Domestic Assistance (Reference book in library or available at www.cfda.gov.).

C.D.B.G. – Community Development Block Grant funds are federal money that is allocated to the states who then award to entitlement areas, typically urban revitalization areas. H.O.M.E. – Home Ownership Made Easy funds are federal money distributed by the state. It is used to fund down payments and/or closing costs, as determined by local advisory committees that make recommendations to local government. S.H.I.P. – State Housing Initiatives Partnership (Florida) are State funds given to local governments who determine how to utilize these funds. Typically down payment and/or closing costs are subsidized if you are a first time homebuyer in the low-to-moderate income category or you haven’t owned a home in 2 years. H.A.P. – Housing Assistance Plan is similar to H.O.M.E. and S.H.I.P. programs and is sometimes limited to rental housing.

Ask for copy of the bank’s guidelines. Find out who administers its CRA loans. Ask if that individual is available to speak with you. When you present yourself to the banker, state you are an investor and want to invest in low- to moderate-income property, and you want to understand the bank’s CRA objectives. (Most will not do mobile homes (vehicles) but will do manufactured homes.) Make sure you understand what they will or will not do.

Improvements in the community will make it a pleasant place to live (while potentially accelerating the appreciation of the property!)

Navigating the maze of funds available help you (the investor) find money for prospective buyers.

Even if your credit rating is bad, there are things you can do today to clean it up. With approximately 60 percent of the information on credit reports outdated or incorrect, it is a good idea to check your credit report yearly. Since three separate companies (Equifax, Trans Union & Experian) maintain your credit history, it is best to get a copy of each when reviewing your credit. While one may state a flawless record, the other one may report some negative information that would make it difficult to obtain a loan.

Special Report Nine: Frequently Asked Questions 9 - 5

No matter how bad your credit has been in the past, don’t give up. Here are a couple of things to consider. First, a bad credit report from any individual entity can only stay on your report for seven years. After that, it is removed and cannot be used against you. The only exception to this rule is bankruptcy. It can be reported for 10 years, but after that it is also removed. Second, most lenders are more concerned with how you’ve handled recent credit than what happened years ago. Even with a bankruptcy, if you’ve not had any further bad credit and have kept your bills paid on time since then, you may still be able to qualify for a loan after two or three years. If you don’t have a strong credit history, then start developing good spending habits. Put yourself on a budget; determine what are legitimate monthly expenses (rent, gas, utilities, phone). Then decide what you can do without, or what you can do with less. Instead of eating lunch out every day, bring your lunch to work. If you currently have the premium cable package, change to basic. Instead of the cappuccino every morning, reward yourself only on Fridays for sticking to your budget. Changing just a few spending habits can make a huge difference in your monthly income. Begin now to clean up your credit report and limit your spending. In no time at all, you will have lenders ready to make you a loan.

FICO stands for Fair Isaac & Company. Credit scores are reported by three major credit bureaus, Equifax, Experian and TransUnion. Scores are not the same on each bureau’s report because each bureau places a slightly different value on different items. Scores may range from 364 to 840. Lenders today have found that there is a relationship between loan delinquencies and credit scores. Studies have determined that half of all borrowers with FICO scores below 550 are more likely to be 90 days late once on their mortgage. However, it was determined that only two out of 10,000 were delinquent with a score of 800 or more. Since then lenders have started to take a closer look at FICO scores when making their decision to approve mortgage loans. A lender will generally not give you a loan with a score of 530 or lower. FICO scores are calculated using a “scorecard”. Some things that affect FICO Scores are: • Too many credit inquiries • Delinquencies • Revolving credit card balances near the maximum limit • Too many accounts opened within the last twelve months • Short credit history • Tax liens, judgments, or bankruptcies • Too few revolving accounts • Too many revolving accounts FICO scores may affect more than whether or not you get approved. It can also affect how much interest you pay on the loan. Other factors that influence an underwriter’s decision may be low debtto-income ratios, larger down payment and savings history. One of the most important things to remember when shopping for a mortgage loan is to have as few inquiries for your credit report as possible. Do not let each lender or mortgage broker ask for a credit report. Wait until you have Special Report Nine: Frequently Asked Questions 9 - 6

determined what lender you want to use then have that one company obtain a credit report. Several credit inquiries within the last 90 days will not only have to be explained, but will also lower your FICO score. Your credit history is important, but your credit score will determine your interest rate.

Start to eliminate any unnecessary and burdensome credit cards, specifically the high-interest-rate store cards — Sears, JC Penney and others at typical rates of 20% or above. Avoid or cancel gas company cards — cards with rates that typically run as high as 24.99%. High interest VISA and MasterCard cards using two-cycle billing methods (e.g., Discover), and any other high-interest credit cards should be replaced with lower interest rate cards offered on a regular basis by various banking institutions. In order to qualify for these lower-rate cards, keep in mind that you will need to have a stellar credit rating. Otherwise, you will not qualify for the best rates and you may not qualify for one of their credit cards at all.

The best way for you to determine whether or not you will qualify for the lowest interest rate credit cards is by closely reviewing your credit history. If you have been denied credit within the past 60 days or if you are, or have been, unemployed recently, you will qualify for a free credit report from the credit reporting agency that the lender used to evaluate your credit file. Otherwise, the major reporting agencies will charge you about $8 to get a copy of your report. If you have any credit concerns you should probably pull a report from each of the three major agencies. If you want to avoid the fee, you can get an excellent, free overview of your credit history and credit rating by visiting www.eloan.com. An excellent breakdown of the factors that went into evaluating your overall score will be included. Based on this score, lenders determine your likelihood of repaying loans, and this weighs heavily in deciding whether or not you will qualify for the best interest rate credit cards. If, after you have checked your credit reports and credit scores, you conclude that you have a high rating, you will likely want to apply for one or two of the low rate credit cards. Simply pick the one or two cards that best meet your needs and apply for them.

In recent years, credit card issuers have significantly increased their mail solicitations to marginally qualified individuals and offered them credit cards at high interest rates. At the same time, these cardholders are encouraged to be consumers, to live the American Dream, and buy! Now, lenders say they need “protection” — perhaps from themselves. The chances are high that, in time, such cardholders might need to seek relief through bankruptcy. The profits of card issuers and lenders are at an all-time high. They have already covered potential losses from bankruptcies by increasing interest rates to the highest limits permitted by the individual states, many of which seem more intent on helping the card issuers than in protecting their citizens. Pending legislation is an attempt to slow the alarming, increasing trend of bankruptcy applications by restricting or eliminating the consumer’s ability to totally wipe out personal debts. Instead, consumers who are already under the gun would be forced to repay debts over an extended period of time, Special Report Nine: Frequently Asked Questions 9 - 7

based on a typically complicated arithmetic “test” that would “determine” the filer’s ability to repay at least a portion of their debts. If, under this formula, it is determined that an individual can repay a portion of their debts, he or she will be put into a mandatory repayment program by the courts and the bankruptcy filing will be denied, at least partially.

You can file Chapter 13 to stop a foreclosure on your house, make up missed mortgage payments and to keep your house. You can also pay off back taxes and stop interest from accruing on your tax debt. Filing Chapter 13 papers with the bankruptcy court stops creditors in their tracks. When you file for Chapter 13 bankruptcy (or any other kind of bankruptcy), something called the “automatic stay” goes into effect immediately. Chapter 13 stops creditors from trying to collect what you owe them. At least temporarily, creditors cannot legally garnish your wages, empty out your bank account, go after your car, house or other property, or cut off your utility service or welfare benefits. Some people file Chapter 13 bankruptcy simply to buy time. If, for example, you are behind on several of your mortgage payments and the bank is about to foreclose on you, you can file Chapter 13 bankruptcy papers to stop collection efforts, and then attempt to sell the house before the foreclosure.

For the entire length of your case (three to five years), you will be living under a strict budget; the bankruptcy court will not allow you to spend money on anything it deems a luxury. If you have a regular job with regular income, the bankruptcy court will probably order that the monthly payments be automatically deducted from your wages and sent to the bankruptcy court. If you file Chapter 13 bankruptcy, it can stay in your credit file for up to ten years from the day you file your papers. However, most Chapter 13 bankruptcies stay on your credit file for no more than seven years. That’s still a long time. Once you have fulfilled your repayment obligations, you can take steps to improve your credit. Some Chapter 13 programs state that if you have paid off at least 75% or more of your debts, and attend money management seminars, you can apply for credit from specified local creditors. A business, even a sole proprietorship, cannot file for Chapter 13 bankruptcy in the name of that business. If a business gets into financial trouble, they generally file Chapter 11 bankruptcy when they need help reorganizing their debts.

Chapter 7 is the simplest and easiest form of bankruptcy. Chapter 7 bankruptcy law permits families to keep certain property so that they can continue to function in society. Any individual, couple or business can file Chapter 7. It causes unsecured debt to be discharged (wiped out) but leaves secured and priority in place.

In Good Faith Filings: Unemployment caused by layoff or illness; debts left over from an ill-fated attempt to start a new business ; or a temporary disability that becomes permanent. Less than Good Faith Filings: Living off lines of credit and credit cards when it is apparent you are not going to be able to pay back the increasing balances. Special Report Nine: Frequently Asked Questions 9 - 8

Most people regain credit within two years by demonstrating good payment habits following their bankruptcy. However, it will stay on your credit report for seven years. By making these payments on time each month, good credit is being reported on their behalf. So, with most of their old debt discharged and nothing but on-time payments being reported for at least two years, many ex-bankruptcy debtors find themselves regaining a good credit rating again. You need to be sure to make your payments on time to recover from bankruptcy.

First, you need to make sure that the condo association will let you sublease the unit. You should get a copy of the “Condominium Document” from the Realtor. This will delineate rental rules and will disclose many other things relevant to your purchase and ownership. Many condominiums require an interview by the Board of Directors before they will approve the property transfer. If this is the case, you can ask about the state of the condo budget and the “reserves” in place. A condominium association can elect to hold reserve accounts for the future replacement of items of common property (roof, parking lot pavement, elevator replacement, air conditioner replacement, exterior painting, etc.). If reserves are kept, you will pay a few more dollars per month in association fees to fund the reserve accounts. This helps to preclude the potential for a large assessment when common property items need replacement or major repair. If no reserves are in place, you should budget for assessment. Discuss this with the Realtor and with the Association President if possible.

Yes, you can lease/option a mobile home. You can buy land, put a used mobile home on the land, build a garage and refinance to pull cash out. You can then sell or lease/option the property. This can be very profitable. You can also do a lease option on an existing mobile home. Many mobile home parks don’t allow renters, so see if the park in which you are interested will allow a rent-to-own tenant. They should not have a problem with that if you present yourself in a professional manner.

It’s good to keep complete control of all expense items except utilities during the lease period. Lot rent, outstanding financing, insurance and taxes or fees should be controlled and paid by you, as owner. This ensures that you don’t get any unpleasant surprises from unpaid bills. All these items should be rolled into the rental figure that you charge the tenant/buyer. If they fail to exercise their option, the only change you have to make for a new tenant/buyer is utilities.

Yes, generally hard money can be used in any purchase situation as long as the loan-to-appraised value of the property is 65% or less.

Special Report Nine: Frequently Asked Questions 9 - 9

Hard moneylenders loan money for qualified projects quicker than conventional lenders, but at a higher rate and for a shorter period of time. The loan-to-value usually ranges from 50%-65%, but may be up to 80% for purchase or special circumstances. However, the interest rate is generally from 10% and higher and points range from 3-10 points at the lender’s discretion. The borrower must pay the closing costs and due diligence and commitment fees (1/3% to 1/2% of the loan amount). Also, third-party reports may include appraisals or environmental reports and must be paid by the borrower.

1. A project description that is clear, concise, realistic, and honest. 2. The Project must be viable, have no title or environmental risk, and have an exit strategy. Borrower must be experienced, flexible and confident in their abilities and the feasibility of the project. 3. The Borrower must not be insistent on terms, and allow the lender to use their own judgment to make the best deal possible relative to their risk in the project. 4. The Borrower must be willing to pay the lender’s investigative cost and all closing costs, including any third-party reports. The borrower must provide a project profile for review by the hard moneylender. The profile may be several pages and consists of details of the borrower, the property or project, the funding requirements, and the exit strategy.

The choice is yours. Consider the costs associated with conventional financing and the time involved versus the convenience of seller financing. Also, compare the interest rates associated with each method.

There are many personal reasons why sellers offer financing but these two are most often the motivation. First, the seller avoids capital gains tax on the gain portion of the proceeds of the sale. Second, the amount that the buyer pays for the property is thousands of dollars more than if the seller had “cashed out” in the transaction.

Fannie Mae, or Federal National Mortgage Association (FNMA), is a private corporation. Freddie Mac, or Federal Housing Loan Mortgage Corporation (FHLMC), is a stockholder-owned corporation chartered by Congress in 1970. Neither company lends money directly to the consumer. Instead, they buy loans on the secondary market and package them into investments known as mortgage-backed securities. Both also have guidelines used by lenders to qualify the loans for purchase.

Visit www.cfda.gov and www.hud.gov for more information. Special Report Nine: Frequently Asked Questions 9 - 10

The National Housing Act of 1934 created the Federal Housing Administration (FHA), a government agency within the Department of Housing and Urban Development (HUD), in order to encourage lenders to invest money in the mortgage market, thus providing economic stimulus to the depressed construction market. Remember that FHA does not make loans to borrowers, it does not process loans and it does not build or insure houses.

HUD’s Federal Housing Administration mortgage insurance program helps low- and moderateincome families become homeowners by lowering some of the costs of their mortgage loans. This program provides mortgage insurance to protect lenders (banks, mortgage companies, and savings & loan associations) against the risk of default on loans to qualified buyers. Insured loans may be used to finance the purchase of new or existing single-family and multifamily homes, manufactured homes, as well as to refinance debt.

In order to obtain an FHA-insured loan, prospective homebuyers are required to pay one of two types of mortgage insurance premiums (MIPs). The first type is the ‘Upfront MIP’; the second type is an annual premium MIP. The ‘Upfront MIP’ is calculated as a percentage of the loan, regardless of the duration of the mortgage and, as the name implies, it is payable in cash or can be financed in the loan. The annual premium for MIP is calculated on the unpaid balance of the loan and is included in the monthly mortgage payment.

Many people select FHA-insured loans because of low down payment requirements (as little as 3%) and the fact that FHA will accept “riskier” borrowers. If your funds for a down payment are modest or if you want to conserve your money for other types of investments, consider going the FHA route. Check with local lenders for their 30-year fixed interest rates on FHA mortgages and obtain a good faith estimate of closing costs.

Yes, HUD limits amounts that may be insured. This ensures that the program serves low- and moderate-income people. FHA has set limits on the dollar value of the mortgage loan. These figures vary over time and by place, depending on the cost of living and other factors (higher limits also exist for two- to four-family properties).

Section 203(k) insurance enables homebuyers and homeowners to finance or refinance a home plus the cost of its rehabilitation through a single mortgage. This program offers a solution that assists both the borrower and lender by insuring a single, long-term, fixed- or adjustable-rate loan that covers both the purchase and rehab of a property. This type of loan saves borrowers time and money, and also protects lenders by allowing them to have the loan insured before work has been completed on the property.

Special Report Nine: Frequently Asked Questions 9 - 11

The home must be at least one year old. The extent of rehabilitation may range from relatively minor to virtual reconstruction and the total value of the property must still fall within the FHA mortgage limit for the area. The value of the property is determined by either (1) the value of the property before rehab plus the cost of rehab, or (2) 110 percent of the appraised value of the property after rehab, whichever is less. All persons who can make the monthly mortgage payments are eligible to apply. Income eligibility requirements vary depending on your demographic area. Check with your local lending institution for income eligibility guidelines. Some of the eligible activities for rehabilitation include, but are not limited to: • Structural alterations and reconstruction • Modernization and improvements to the home’s function • Elimination of health and safety hazards • Changes that improve appearance and eliminate abandonment • Reconditioning or replacing plumbing; installing a well and/or septic system • Adding or replacing roofing, gutters, and downspouts • Adding or replacing floors and/or floor treatments • Major landscape work and site improvements • Enhancing accessibility for a disabled person • Making energy conservation improvements Applications must be submitted to the local HUD Field Office through an FHA-approved lending institution.

Section 8 Housing is privately owned rental units participating in the low-income rental assistance program. Landlords receive subsidies on behalf of qualified low-income tenants, allowing the tenants to pay a limited proportion of their incomes toward the rent.

HUD guidelines for Section 8 are available on the HUD website at “www.hud.gov.” They expect the landlord to provide “minimum housing”, not great or exceptional housing, but at least minimum housing. If the tenant does not honor their end of the contract, you, as the landlord, have some rights. For example, if the tenant doesn’t live up to their end of the contract, they lose their donation, which is very good leverage for getting you paid.

The land trust is the most effective form of ownership to maintain your privacy and protect your real estate. The solution for holding title to real estate is simple: put it in a land trust and develop a legal entity as the beneficiary. If properly setup and implemented, your name will be hidden from public Special Report Nine: Frequently Asked Questions 9 - 12

records. To transfer real estate into a land trust there are virtually no tax consequences, nor does it require a separate tax identification number or income tax return. You will continue to report the property for income tax purposes, as though you still own it.

If you have several properties, you can title each land trust by the address of the property such as “123 Main Street Land Trust.” This will help you to easily keep record of every trust.

The Trustee is the legal manager of the property. His/Her name will be displayed on the title therefore, that person should have a different last name than you. You can use your attorney or accountant as the Trustee. You, the owner, are considered the Beneficiary. If you deed into trust, state, “Jeff Smith quit-claim deed to 123 Main Street Land Trust.”

Your corporation would normally need a real estate broker’s license to manage real estate, but not for your own property. Since you can trace the ownership of the management company and the property back to you, you do not need the license.

The signature of a witness, and potential future testimony, helps to prove that a document was created and executed in the manner and time frame stated. Otherwise, it’s hard to prove that you did it when you say you did.

The preference is to use a warranty deed because any recorded instrument affects the chain of title. When a title company reviews the chain of title, they make a judgment call on the potential problems. When you deliver a warranty deed, you are standing behind (guaranteeing) the good title to the property. Depending on the title company and the area of the country, quitclaim deeds raise questions. The number one question is “If you didn’t deliver a warranty deed, there must be something wrong. What is it you’re not telling us?”

Most people collect money in the corporation as the property manager. The easiest way to handle expenses is to have the corporation pay all expenses from the collected rents.

The profits belong to the property owner - the Limited Partnership. Whenever you want to distribute Special Report Nine: Frequently Asked Questions 9 - 13

profits, the corporation will pay them to the LP (deposit to the LP bank account). The LP general partner (yes, it’s the same corporation) will then issue 2 checks - 1 for 1% to the general partner and 1 for 99% to the limited partner.

Yes, you can have your corporation as trustee, however, you may want to consider another alternative. One major purpose of using a land trust is privacy. With a trust, only the trustee’s name is typically in the public records. With a corporation, the president’s name is in the public records. If you are the president of your corporation and your corporation is the trustee...it is quite easy to see that you are associated with the property.

You can offer the property for lease option at any time. You do not have to wait until you pay off the loan.

There are a few ways to apply Russ Whitney’s method of “forced appreciation” on every piece of property you own. With little out-of-pocket cash, you can increase the value of your property by putting up a new mailbox or adding shutters. You can also replace the front door and tile the entry. Painting the kitchen cabinets will give the kitchen a fresh look and adding a new faucet, if budget permits, will add to the overall appeal. Next, try some new door handles and new shower curtains. Putting up a “nice” shower curtain for around $20 will give the bathroom an inexpensive facelift. Paint or replace the trim and switch plate covers. Refresh the landscaping around the property by planting shrubbery – you want the property to have a nice curb appeal.

Property that is held as an investment can be exchanged for property of like kind wherein the capital gains taxes will be deferred. Exchanges can consist of any parcel of real estate – land for houses, stores for land, duplexes for houses. All proceeds from the sale go into a trust account with an attorney or in escrow with a title company. You cannot show any receipt of funds (meaning you cannot put the money in your bank account). However, the intermediary holding the money must not have had transactions with you (either personal or business) in the past two years. You then have 45 days to designate a new property or group of properties to exchange. Once you find the property, you have 180 days to close.

Any cash taken out and any lowering of mortgage balances is taxable. But, if you do it right, you never have to pay taxes on 1031 exchanges. As long as you are making like-exchanges, the money is Special Report Nine: Frequently Asked Questions 9 - 14

not taxable. After a significant time has passed, you can refinance to take out cash. However, you should wait at least six months. You don’t want to refinance two days after you make the exchange – this wouldn’t look good in the eyes of the IRS!

One little unknown benefit of an LLC occurs when property owned by two partners is sold. One partner can take cash distribution and pay his portion of the tax while the other partner can take his share of the profit and roll it over into a 1031 tax-free exchange purchase.

A specific requirement for a tax-deferred exchange under Section 1031 is that the property must be held for investment or for productive use in a trade or business. Further, the property cannot be held as inventory. When you purchase a property with the intent to resell it ASAP, that’s considered inventory. If you purchase land and subdivide the land for resale as lots, that’s considered inventory.

A 1031 Exchange is nothing to worry about. All it does is notify everyone concerned of the seller/ buyer transfer of the property involved under the Starker Exchange Provisions. This does not impact you as a buyer.

Sure! Call the other Landlords. You may make some very good contacts. You will also get the pulse of your different target areas. You may find that certain landlords are charging more or less than others. Also, you may find that some property management companies are getting more or less than others. If you do find this, the next step would be to find out why. By knowing this information in your local area, you are able to consistently get top-of-the-market rent for top-of-the-market rental units. Remember, this is your money we’re talking about, so learn all you can.

Screen your tenants by doing the following: • Review their credit report • Review any criminal report • Search for any prior evictions • Verify employment • Check the previous two landlords

It is in your best interest to collect the last month’s rent in advance. If the tenant defaults on his rental agreement, the deposit will help offset some of the legal costs of an eviction. A cleaning/security deposit is collected to defray damages occurring while the tenant occupies the unit. As the landlord,

Special Report Nine: Frequently Asked Questions 9 - 15

you have the right to keep any or all of the deposit money if the tenant has damaged your property beyond what would be considered normal wear and tear. Use good judgment when determining what is and what is not normal wear and tear. Normal use will age any property.

State law determines what notice you must give for a rent increase. Ask your attorney or call Legal Aid for an answer. On a month-to-month tenancy, you most likely will not be required to give more than 30 days notice, perhaps less, but you must verify the law that applies in your state.

A landlord has the right to legally enter a rental in case of an emergency, to make needed repairs or to show the property to prospective new tenants or buyers. Some states allow landlords the right to enter during a tenant’s extended absence (generally seven days or more) to maintain the property as necessary and to inspect for damage or needed repairs. In most cases, a landlord may not enter just to check up on the tenant and the rental property. Typically most states require landlords to provide advance notice (usually 24 hours) before entering a rental unit. Without advance notice, a landlord or manager may enter rented premises while a tenant is living there only in an emergency, such as a fire or serious water leak, or when the tenant gives permission. To find out how much notice a landlord must give a tenant before entering, check with your state’s landlord-tenant statutes.

If no lease is in effect, present the tenant with a new lease requiring a pet deposit and an increase in rent due to increased insurance costs. If a current lease does not mention pets, inform the tenant that your policy will be that no pets are allowed or that a pet deposit must be paid. If the tenant complies, you can change the rules on lease renewal.

In accordance with the Federal Fair Housing Amendments Act, landlords may not prohibit service animals used by disabled people. A service animal is considered to be “any guide dog, signal dog, or other animal individually trained to provide assistance to an individual with a disability.” If other tenants feel you are being unfair to them, simply tell them that you are complying with Federal law.

Another avenue that can generate income is eliminating the Pet Deposit that you currently require and replacing it with a $10 to $20 or more per month Pet Fee, in the form of additional rent for each cat or dog. Using this strategy serves to keep the first month’s check low, while at the same time generating $120 to $240 or more in additional annual rent. By adopting a more liberal pet policy you are improving your ability to retain residents by accepting pets that would be rejected elsewhere and, thereby, limiting your tenant’s option to vacate.

Begin by discussing the situation with the tenant. They may voluntarily vacate, perhaps take a vacation, while you complete the inside work. Outside work can be done during the work/school day when no one is home. Read the lease document carefully. If it’s a “boilerplate” lease, you may have a remedy for major repairs built in.

Special Report Nine: Frequently Asked Questions 9 - 16

On the 2nd day (or whatever day you decide), send a three-day notice warning you will initiate an eviction. At the end of the 3-day warning period, start the eviction. Period. No exceptions. Most tenants will pay before the end of the 3-day period, or pay when the eviction is started. If the eviction was started, do a stipulation, which puts the eviction on hold, but can be reactivated if non-payment re-occurs. If you do not know how to do an eviction, go to the courthouse and ask which attorneys do the most evictions in your county. Do not ask which are the best attorneys! You will find that usually the best, and the cheapest, attorneys do the most evictions. Then hire that attorney and ask for a copy of all of the forms served. During the process, you may negotiate with the tenant to leave to end the process sooner. Some landlords have removed doors to apartments, shut off water or electricity, or simply started moving a tenant’s belongings to the curb, when they hadn’t paid rent. This type of retaliation is not only nasty, but also illegal. Non-payment of rent is a normal, occasional business expense. You will never eliminate it, but you can learn how to minimize it.

Try offering them a hundred dollars, if they will go now and leave the place in decent shape. This may be way cheaper in the long run. In some states, rather than hire an attorney for eviction, you can file a small claim for non-payment on the rent. It’s cheaper and, in many cases, faster to get to court. If you are going to be a volume landlord, learn to do your own evictions when necessary.

If the equity in your home is limited, a Title 1 loan may be able to help you. In a Title 1 loan, the banks make the loans and the FHA insures them (authorized by Title I of the National Housing Act). You can use the loan for materials when you do fix-ups on your own, or pay for a contractor’s or dealer’s materials and labor. However, make sure you furnish the lender with a completion certificate when the work is finished.

Special Report Nine: Frequently Asked Questions 9 - 17


©2003 Whitney Education Group, Inc.®


DATE___________________________ DESCRIPTION 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

Special Report Ten: Time Managment Forms 10 - 1

TIME 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. PERSON COMPANY LOCATION

PERSON/COMPANY 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. PHONE NUMBER

Special Report Ten: Time Managment Forms 10 - 2

Week of _____________________ Through _______________________ MONDAY TUESDAY






Special Report Ten: Time Managment Forms 10 - 3

MONTH OF _________________________

Special Report Ten: Time Managment Forms 10 - 4

NAME_________________________________________ PHONE # _______________________

Special Report Ten: Time Managment Forms 10 - 5


©2003 Whitney Education Group, Inc.®


Building Wealth: From Rags to Riches Through Real Estate
This book teaches you how to get start-up money and turn it into instant success in sixty days or less, how to turn debt into huge amounts of cash, how to make money, whether the economy is up or down, and how to use other people’s money to build your fortune.

How to Obtain, Increase and Preserve Your Credit
In addition to obtaining or building credit, this book (on CD) shows you how to choose and use your credit wisely. It reveals vital credit information whether you are building, re-establishing, expanding or protecting your credit.

Overcoming The Hurdles and Pitfalls of Real Estate Investing
This book tells the amazing story of how Russ, at age 25, turned $1000 into $4.7 million in just 18 short months. It includes the inspiring personal notes of one of America’s youngest self-made millionaires.

Building Wealth Home Study Course
The Building Wealth System is a complete home study version of Russ’ Intensified Real Estate Training. The system includes manuals, software, videos, and CDs so you can learn the powerful techniques of this dynamic training right in your own home.

Building Wealth Live! Quick Start System
This program is a condensed home study version of Russ’ Intensified Real Estate Training and includes manuals and CDs to learn the methods and techniques taught in the “live” training.

Business Success System
This training program, consisting of three in-depth manuals, teaches you how to start or buy a business, how to market your business, and how to invest the profits of your business to build wealth. Special Report Eleven: Additional Resources 11 - 1

Discount Notes and Mortgages
This training program teaches you, through the use of manuals, videos, and CDs, how to buy real estate mortgage notes and other financial instruments at a discount and then broker them to sources right in your community.

Millionaire U Video Collection
This 21-tape video collection covers the three days of Intensified Real Estate Training including the real-world ins and outs of identifying, negotiating, and buying and managing massive cash flow real estate.

Mortgage Payoff Acceleration Program (MPAP)
This unique home business is part of a premier nationwide membership company that assists homeowners in reducing the term of their mortgage in the form of a simulated biweekly, automatic debit service.

One in a Million 90 Day Challenge
This program uses audiocassettes, a life log, and an achievement manual to study and improve five areas of your life: attitude, health/physical fitness, relationships, spiritual growth, and monetary.

Travel Agency in a Box
This program comes complete with everything you need to become an Independent Travel Agent including photo identification card, an interactive CD, and comprehensive reference materials and web access. Travel agent discounts on lodging, cruises, car rental, etc. are included.

Wealth Intelligence Network
This is a membership network that includes Hotline Consultants for taxes, real estate, small business, insurance, investments, debt and credit management and consumer buying and a monthly magazine providing money strategies and investment tips.

Business Success System Software
The Business Success System software is powerful, integrated software designed to meet the demands of today’s small business owner. It includes a business assessment, business letters, a legal assistant, a business plan creator, and an agenda template.

Real Estate Success System Software
The Real Estate Success System software automates the loan and property analysis process and provides templates for contracts and offers, financial statements, and loan pre-qualification.

Special Report Eleven: Additional Resources 11 - 2

Real Estate
Call our consultants at 800-741-7877 to find a training academy near you. It is taught by our national instructors and will enhance your communication and negotiation skills, and provide training in how to work with bankers, brokers, and Realtors. The training takes you step-by-step through the mechanics of a real estate transaction. It covers everything from writing a contract that protects your interests and limits your liabilities to creative financing strategies and much, much more. Then, once you’ve mastered the basics, you can attend our advanced training specializing in such topics as wholesale buying, foreclosures, purchase options and much more.

Teach Me To Trade
The training takes you step-by-step through the mechanics of a real-time stock transaction. It covers everything from general market forecasting to advanced technical analysis of stock examples, and much, much more. Then, once you’ve mastered the basics, you can attend our advanced training specializing in such topics as master trading, single stock futures and much more. Call our consultants at 800-741-7877 to find a training academy near you. It is taught by experienced and successful instructors who will teach you how to structure your investment plans and analyze stocks before you buy them.

To order any of our books, home study courses, software or other products, call 800-741-7877 or go to www.russwhitney.com and order online. All products from Whitney Education Group, Inc.® are dedicated to helping you become wealth intelligent.

The U.S. Small Business Administration (SBA) provides a variety of technical, financial and advocacy services to America’s small business community. In addition, the SBA provides a wealth of information on starting a business at their home page (www.sba.gov) under “Starting”. The Agency’s small business financial assistance programs are comprised of a wide range of loan programs, each targeted at different markets. While the SBA does offer a limited number of grant programs, these are generally designed to expand and enhance small business technical assistance. The SBA does not generally offer grants to start or expand small businesses. Special Report Eleven: Additional Resources 11 - 3

Regional Office for Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont 10 Causeway Street, Suite 812, Boston, MA 02222 617-565-8415

Connecticut District Office
Federal Building, 330 Main Street, 2nd Floor, Hartford, CT 06106 203-240-4700

Maine District Office
Federal Building, 40 Western Avenue, Room 512, Augusta, ME 04330 207-622-8378

Massachusetts District Offices
10 Causeway Street, Room 265, Boston, MA 02222-1093 617-565-5590

Springfield Branch Office
1441 Main Street, Suite 410, Springfield, MA 01103 413-785-0268

New Hampshire District Office
143 North Main Street, Suite 202, Concord, NH 03301-1257 (603) 225-1400

Rhode Island District Office
380 Westminister Mall, 5th Floor, Providence, RI 02903 (401) 528-4561

Vermont District Office
Federal Building, 87 State Street, Room 205, Montpelier, VT 05602 802-828-4422

Special Report Eleven: Additional Resources 11 - 4

REGION II Regional Office for New Jersey, New York, Puerto Rico, Virgin Islands
26 Federal Plaza, Suite 3108, New York, NY 10278 212-264-1450

New Jersey District Office
Two Gateway Center, 15th Floor, Newark, NJ 07102 973-645-2434

New York District Offices
Elmira Branch Office, 333 E. Water Street, 4th Floor, Elmira, NY 14901 607-734-8130 Rochester Branch Office, 100 State Street, Suite 410, Rochester, NY 14614 716-263-6700 Melville Branch Office, 35 Pinelawn Road, Suite 207W, Melville, NY 11747 516-454-0750 New York District Office, 26 Federal Plaza, Room 31-00, New York, NY 10278 212-264-2454 Buffalo District Office, Federal Building, 111 West Huron Street, Room 1311, Buffalo, NY 14202 716-551-4301 Syracuse District Office, 401 South Salina Street, 5th Floor, Syracuse, NY 13202 (315) 471-9393 Puerto Rico and US Virgin Islands District Office Federico Degetau Federal Building, 252 Ponce DeLeon Boulevard, Suite 201, San Juan, PR 00918 787-766-5272

REGION III Regional Offices for Delaware, District of Columbia, Maryland, Pennsylvania, Virginia, and West Virginia
900 Market Street, 5th Floor, Philadelphia, PA 19107 215-580-2SBA

Special Report Eleven: Additional Resources 11 - 5

Delaware District Office
824 N. Market Street, Suite 610, Wilmington, DE 19801 302-573-6294

District of Columbia District Office
1110 Vermont Avenue, N.W., Suite 900, Washington, DC 20005 202-606-4000

Maryland District Office
10 South Howard Street, Suite 6220, Baltimore, MD 21201-2565 410-962-4392

Pennsylvania District Offices
Harrisburgh Branch Office, 100 Chestnut Street, Room 108, Harrisburg, PA 17101 717-782-3840 Wilkes-Barre Branch Office, 7 North Wilkes-Barre Boulevard, Wilkes-Barre, PA 18702 570-826-6497 Philadelphia District Office, 900 Market Street, 5th Floor, Philadelphia, PA 19406 215-580-2SBA Pittsburgh District Office, 1000 Liberty Avenue, Room 1128, Pittsburgh, PA 15222 412-395-6560 Virginia District Office 400 North 8th Street, Suite 1150, Richmond, VA 23240-0126 804-771-2400 West Virginia District Office West Pike Street, Suite 330, Clarksburg, WV 26301 304-623-5631

REGION IV Regional Offices for Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, and Tennessee
1720 Peachtree Road, N.W., Suite 496, Atlanta, GA 30309-2482 404-347-4999

Special Report Eleven: Additional Resources 11 - 6

Alabama District Office
2121 8th Avenue North, Suite 200, Birmingham, AL 35203-2398 205-731-1344

Florida District Offices
North Florida District Office, 7825 Baymeadows Way, Suite 100-B, Jacksonville, FL 32256-7504 904-443-1900 South Florida District Office, 100 S. Biscayne Boulevard, 7th Floor, Miami, FL 33131 305-536-5521

Georgia District Office
1720 Peachtree Road, N.W., 6th Floor, Atlanta, GA 30309 404-347-4147

Kentucky District Office
Federal Building, 600 Martin Luther King, Jr. Place, Room 188, Louisville, KY 40202 502-582-5971

Mississippi District Offices
101 West Capitol Street, Suite 400, Jackson, MS 39201 601-965-4378 Gulfport Branch Office, 2909 13th Street, Suite 203, Gulfport, MS 39501 228-863-4449

North Carolina District Office
200 North College Street, Suite A2015, Charlotte, NC 28202-2137 704-344-6563

South Carolina District Office
1835 Assembly Street, Room 358, Columbia, SC 29201 803-765-5377

Tennessee District Office
50 Vantage Way, Suite 201, Nashville, TN 37228-1500 615-736-5881

Special Report Eleven: Additional Resources 11 - 7

REGION V Regional Offices for Illinois, Indiana, Michigan, Minnesota, Ohio, Wisconsin
Federal Building, 500 West Madison Street, Suite 1240, Chicago, IL 60661-2511 312-353-0357

Illinois District Offices
500 West Madison Street, Room 1250, Chicago, IL 60661-2511 312-353-4528 Springfield Branch Office, 511 W. Capitol Avenue, Suite 302, Springfield, IL 62704 217-492-4416

Indiana District Office
429 North Pennsylvania Street, Suite 100, Indianapolis, IN 46204-1873 317-226-7272

Michigan District Offices
477 Michigan Avenue, Room 515, Detroit, MI 48226 313-226-6075 Marquette Branch Office, 501 South Front Street, Marquette, MI 49855 906-225-1108

Minnesota District Office
100 North 6th Street, Suite 610, Minneapolis, MN 55403-1563 612-370-2324

Ohio Branch Offices
525 Vine Street, Suite 870, Cincinnati, OH 45202 513-684-2814 Cleveland District Office, 1111 Superior Avenue, Suite 630, Cleveland, OH 44114-2507 216-522-4180 Columbus District Office, 2 Nationwide Plaza, Suite 1400, Columbus, OH 43215-2592 614-469-6860

Special Report Eleven: Additional Resources 11 - 8

Wisconsin District Offices
Madison Office, 740 Regent Street, Suite 100, Madison, WI 53715 608-264-5263 Milwaukee Office, 310 W. Wisconsin Avenue, Suite 400, Milwaukee, WI 53202 414-297-3941

REGION VI Regional Offices for Arkansas, Louisiana, New Mexico, Oklahoma, Texas
4300 Amon Carter Boulevard, Suite 108, Ft. Worth, TX 76155 817-885-6581

Arkansas District Office
2120 Riverfront Drive, Suite 100, Little Rock, AR 72202 501-324-5871

Louisiana District Office
365 Canal Street, Suite 2250, New Orleans, LA 70130 504-589-6685

Oklahoma District Office
210 Park Avenue, Suite 1300, Oklahoma City, OK 73102 405-231-5521

New Mexico District Office
625 Silver Avenue, S.W., Suite 320, Albuquerque, NM 87102 505-346-7909

Texas District Offices
Corpus Christi Branch Office, 606 N. Carancahua, Suite 1200, Corpus Christi, TX 78476 361-888-3331 Houston District Office, 9301 Southwest Freeway, Suite 550, Houston, TX 77074-1591 713-773-6500 Lubbock District Office, 1205 Texas Avenue, Lubbock, TX 79401-2693 806-472-7462

Special Report Eleven: Additional Resources 11 - 9

Rio Grande Valley District Office, 222 East Van Buren Street, Room 500, Harlingen, TX 78550 956-427-8533 San Antonio District Office, 727 East Durango, Room A-527, San Antonio, TX 78206 210-472-5900 Dallas/Fort Worth District Office, 4300 Amon Center Boulevard, Suite 114, Ft. Worth, TX 76155 817-885-6500 El Paso District Office, 10737 Gateway West, Suite 320, El Paso, TX 79935 915-633-7001

REGION VII Regional Offices for Iowa, Kansas, Missouri, and Nebraska
323 West 8th Street, Suite 307, Kansas City, MO 64105-1500 816-374-6380

Iowa District Offices
Des Moines District Office, New Federal Bldg, 210 Walnut Street, Room 749, Des Moines, IA 50309 515-284-4422 Cedar Rapids District Office, 215 4th Avenue, S.E., Suite 200, Cedar Rapids, IA 52401-1806 319-362-6405

Kansas District Offices
Kansas City District Office, 323 West 8th Street, Suite 501, Kansas City, MO 64105 Wichita District Office, 100 East English Street, Suite 510, Wichita, KS 67202 316-269-6616

Missouri District Offices
Springfield Branch Office, 620 S. Glenstone Street, Suite 110, Springfield, MO 65802 417-864-7670 St. Louis District Office, 815 Olive Street, Room 242, St. Louis, MO 63101 314-539-6600

Nebraska District Office
11145 Mill Valley Road, Omaha, NE 68154

Special Report Eleven: Additional Resources 11 - 10

Regional Offices for Colorado, Montana, North Dakota, South Dakota, Utah, Wyoming 721 19th Street, Suite 400, Denver, CO 80202-2599 303-844-0500

Colorado District Office
721 19th Street, Room 426, Denver, CO 80202-2599 303-844-2607

Montana District Office
301 South Park, Room 334, Helena, MT 59626 406-441-1081

North Dakota District Office
Federal Building, 657 2nd Avenue, North, Room 219, Fargo, ND 58108-3086 701-239-5131

South Dakota District Office
110 South Phillips Avenue, Suite 200, Sioux Falls, SD 57104-6727 605-330-4243

Utah District Office
Federal Building, 125 South State Street, Room 2231, Salt Lake City, UT 84138-1195 801-524-5804

Wyoming District Office
Federal Building, 100 East B Street, Room 4001, Casper, WY 82602-2839 307-261-6500

REGION IX Regional Offices for Arizona, California, Hawaii, Nevada, and Pacific Islands
455 Market Street, Suite 2200, San Francisco, CA 94105 415-744-2118

Special Report Eleven: Additional Resources 11 - 11

Arizona District Office
2828 North Central Avenue, Suite 800, Phoenix, AZ 85004-1093 602-745-7200

California District Offices
Fresno District Office, 2719 North Air Fresno Drive, Suite 200, Fresno, CA 93727-1547 559-487-5791 Los Angeles District Office, 330 North Brand Boulevard, Suite 200, Glendale, CA 91203-2304 818-552-3210 Sacramento District Office, 660 J Street, Suite 215, Sacramento, CA 95814 916-498-6410 San Diego District Office, 550 West “C” Street, Suite 550, San Diego, CA 92101-3540 619-557-7250 San Francisco District Office, 455 Market Street, 6th Floor, San Francisco, CA 94105 415-744-6820 Santa Ana District Office, 200 West Santa Ana Boulevard, Suite 700, Santa Ana, CA 92701 714-550-7420

Hawaii District Office
300 Ala Moana Boulevard, Room 2-235, Honolulu, HI 96850-4981 808-541-2990

Nevada District Office
300 Las Vegas Boulevard South, Suite 1100, Las Vegas, NV 89101 702-388-6611

Pacific Islands
Guam Branch Office, 400 Route 8, Mongmong, GU 96927 671-472-7419

REGION X Regional Offices for Alaska, Idaho, Oregon, and Washington
1200 6th Avenue, Suite 1805, Seattle, WA 98101-1128 206-553-5676

Special Report Eleven: Additional Resources 11 - 12

Alaska District Office
222 West 8th Avenue, Room A36, Anchorage, AK 99513-7559 907-271-4022

Idaho District Office
1020 Main Street, Suite 290, Boise, ID 83702-5745 208-334-1696

Oregon District Office
1515 S.W. Fifth Avenue, Suite 1050, Portland, OR 97201-5494 503-326-2682

Washington District Offices
Spokane District Office, 801 West Riverside Avenue, Suite 200, Spokane, WA 99201-0901 509-353-2809

Seattle District Office
1200 6th Avenue, Suite 1700, Seattle, WA 98101-1128 206-553-7310

The Service Corps of Retired Executives (SCORE) and the Small Business Development Center (SBDC) provides free one-on-one counseling to those interested in starting and expanding a business. This includes critiquing your business plan, legal requirements, marketing, and licenses needed for your business.

Business Information Centers (BICs), supported by local SBA District Offices, can assist you by providing access to state-of-the-art computer hardware and software, and through counseling by Service Corps of Retired Executives (SCORE) volunteers. BICs have resources for addressing a broad variety of business start-up and development issues. You can receive help with writing a comprehensive business plan, evaluating and improving your marketing and sales techniques, diversifying into a new product and/or service area, pricing your products, or exploring exporting opportunities. The BIC web site is http://www.sba.gov/bi/bics.

Since small business owners are in the unique position of having gone through the process you are just starting, seek them out whenever possible. They can provide you with a wealth of knowledge and experience. Special Report Eleven: Additional Resources 11 - 13