What do you want to do in the future? Are you living your dream? Your passion? Or, is it time to make a career change? Today, Michael Bowman of Anderson Business Advisors and Bowman’s Business Brief talks to long-term client Eddie, an electrician who shares words of wisdom on the world of real estate by attending the Anderson Advisors Tax and Asset Prevention Workshop. He worked hard, saved money, and slowly acquired properties. Eddie is a perfect example of how to protect your hard-earned money and assets for the future.
Highlights/Topics:
- Why and how Eddie started an electrical business? Followed in his father’s footsteps
- Why real estate? After 32 years, Eddie sold the successful business to follow his passion for properties
- What mistakes did Eddie make? Tried to do it all by purchasing residential properties for rentals, repairing them, getting loans, and collecting too many assets
- What lessons did Eddie learn? He went back to school, got his real estate master’s, and changed how he did things
- Why more real estate education? Eddie needed to know how to hold onto, structure, and insure properties to pass them onto his children as legacy wealth
- What concerns did Eddie consider? Types of entities/structures (i.e. LLCs), liabilities, costs, fees, growth, and tax benefits
- How to welcome knocks on the door and sleep at night? Tax and Asset Protection Workshop taught Eddie about processes, funds, where to go, and how to do things
- Why was Eddie served with papers due to two lawsuits? Real estate is high-liability business; despite liens/loans on properties, Eddie’s wise decisions helped him win
- Why are lawsuits never fun, but scary and painful? Have the means to take care of it, before it’s too late; lawsuits take time, value, and money
- Does Eddie’s business continue to grow? Still building, going to town, and doing about 12-13 houses a year
Resources
Anderson Advisors Tax and Asset Protection Event
Full Episode Transcript
Michael: Welcome to the Bowman’s Business Brief as part of Anderson Business Advisors webcast and podcast. Today, I’m really excited about having one of my long-term clients on the line here, giving us some words of wisdom that he has, and some experiences that he has. He’s been a client since September of 2007, so it’s been around for a long time. With me today, I’ve got my client Eddie. Eddie, go ahead and introduce yourself.
Eddie: Yes sir, Eddie here.
Michael: Yeah, I still remember us meeting back in Atlanta, right? Or Orlando.
Eddie: Yeah, it was Orlando for the first time we met. We bonded pretty good there, but your information was something I was searching for for years.
Michael: That’s right. Give the audience some background to your history with your business, you’re an electrician and everything else like that.
Eddie: Well, I grew up as an electrician. I got my masters in 1986 and I started my own business and I had my business for about 32 years. I just sold it not too long ago. It was a very successful business and during the process, I always loved real estate anyway. I work for one of my biggest clients here in Atlanta. They owned a considerable good part of Atlanta and I was lucky enough to be able to work with these gentlemen on this company. I really saw how well they were doing and I really enjoyed working in the commercial and residential business of all the real estates. I decided that I like to do that, too, in the future. I started saving up my funds from my electrical business and build up some funds, and then I started slowly purchasing properties and managing the properties.
Michael: That’s been the key thing there. You weren’t just born into a family that had a ton of real estate. You actually worked hard, saved, and slowly started to acquire properties. That reminds me of myself.
Eddie: Zero in the family. Dad was an electrician also, but we had six kids. There was no money to go around. We had to earn every penny we had.
Michael: Well, I think it gave you a great foundation. I was raised the same way. I remember graduating from law school and starting putting money away, putting money away, then finally getting one rental property and building on from there. We got that in common. That’s why we bonded so well that first meeting.
Eddie: Yeah, I had a good father. He instilled hard work in us, there’s no question.
Michael: That’s awesome. You got into a single family right away? What was your first entry type of investing?
Eddie: First entry was started to purchase residential properties just for rentals. I repaired them myself, got the loans from myself, and at the very beginning, that’s how I started. As I went on and on, after I retired from the business, I went back to school, got my real estate masters, and really started changing the way I do things, because a lot of ways I was doing it was not really in the way it should be done and I started to collect too many assets.
Michael: Real estate education’s a pretty key, right? Like learning from other people’s mistakes.
Eddie: Well, there’s no question. I learn from a lot of people’s mistakes, but I also learned a lot from my mistakes. I’m high on education. I needed more education and as I got educated with the real estate, I was starting to understand that I was not educated enough.
Just for real estate, I needed to be educated in holding on to these properties, structuring these properties, insuring these properties, and trying to keep these properties along with my family, my will, and my children. I needed to have a structure that I just didn’t know how to do it.
Michael: That’s interesting. You decided to go ahead and bite the bullet and sent through a tax and asset protection class, huh?
Eddie: Yes. Well, it was pretty much my wife. She said, “You need to do something, Eddie. You need to do something.” I started looking into some classes and everything and that’s when I actually found you guys, so it was a wonderful thing.
Michael: Did you have any sort of structure before you met us you. I think you had an LLC or something, right?
Eddie: No, I did not, Michael. I had several properties but they were all still in my name. It was a big mistake and then as I went to school and got to learn a little bit more about entity structuring from the classes in real estate, I was learning that I needed to have some kind of structure to start creating some LLC’s. I did create some LLC’s but I did it online. I really did it the totally improper way.
Michael: What were your thoughts about structuring an entity? Was it mystical? Or there were just a lot of information, a lot of confusion out there?
Eddie: Well, I was really confused. I was actually really nervous because I was starting to create a lot of assets and I was really, really concerned about being sued and liabilities and just all of that for my family. I didn’t want to lose anything, all the hard work I’ve earned from being uneducated about it.
Michael: No kidding. You started to go to this class and then you met a character named Michael Bowman and he sits down with you where he started going through your assets. Tell me about the meeting. What were you thinking about that point?
Eddie: Well first of all, Mr. Bowman did a terrific job at the meeting and he was just one of those fellows that I bonded with pretty nice. He became very professional and became a good friend in the process, and just really briefed me on everything that was out there. He gave me a lot of options and I remember at that first meeting, we sat down and I went through all these properties that I had. I think I had like seven or eight properties at that time.
You and I sat down and after sitting down with you, after that meeting, I realized how uneducated I was with that situation, that all the things that you started to remind me of all the options that you started to create for me. That’s pretty much where we started creating what we needed to do and sit down and start working things out. We didn’t have a will at that time so you brought in that factor with me and taking care of my assets in case I pass, all kinds of things that needed to be done that I was worried about. Michael, to this point, I’m so glad I found you guys. I sleep better and I do a lot of sleepless nights.
Michael: I love hearing that story. What about some apprehensions about the cost or confusion or creating more complications in your life? Did you have those kind of concerns?
Eddie: Well, sure I did. Even maintaining the LLC’s with business fees, every year with business fees, doing all. It doesn’t compare to what you’re saving and what you do. The fees and creating this whole thing, the cost of it is irrelevant, it really is irrelevant.
Michael: I bring that up because a lot of times, we will all be talking with individuals and they’ll have the great need, but then they look at the cost or they’ll say, “Oh my gosh, it must be a lot of work.” All of a sudden, you look at it, what’s the cost of a lawsuit? What’s the cost of not doing something and then the tax savings? We got you all structured out and it was pretty nice to watch you grow into running the business and keeping the corporate formalities. You’ve done a great job with that. You’ve got a corporation that you do a lot of your quick turns in through, right?
Eddie: Yes I do. You and I sat down. We talked about a management company we created, D-enterprise, which was the management company that runs all these properties and they have contracts with all the LLC’s to take care of it and run it.
Michael: The interesting thing was I watched you grow, I watched you run the business, I watched you get some tax benefits and that was successful on its own, and then all of a sudden, something happened. You got a knock at the door, didn’t you?
Eddie: Yeah. This is why we do this, Michael, for that unexpected knock on the door. So far in my 21 years of doing real estate, it’s been the second knock. I’m really not worried about knocks on the door. They can knock on my door all they want. What we created is it runs so fluidly here at the office and it’s so easy for me to just go through everything. The way you taught us, the process, the funds and go from where to where and to do things, as long as we stay in the process of doing things properly and respecting the corporations and the LLC’s the way they should be, I sleep great at night. I don’t really have any problems with knocks on the door. Actually, I’m waiting for them, go ahead.
Michael: I love the confidence. We were just talking earlier that there were two lawsuits that the structure helped out in and I think it would be great for the audience to hear. Go ahead and give me some background. What led to the lawsuit? You can start with the lawsuit number one and lawsuit number two.
Eddie: Just to back up a little bit on that, Michael. The confidence level is just pretty much off the roof, because I can operate my business and do things I need to do without worrying about any of that stuff and tip toeing or walking on eggshells like most people do. I don’t walk on eggshells anymore. I used to do that. I make my decisions in business and I live with it. If I screw up, I kick myself in the tail, but I have every confidence that what I’m doing is in the right direction and I don’t have to worry about the consequences if I do screw up.
Michael: Yeah. Screwing up could mean just something that just happens in the regular course of life or business or anything else like that.
Eddie: We all know real estate is a high liability business.
Michael: Absolutely. One of those litigious areas because all the tenants out there.
Eddie: Everybody on your property, right. I found out a long time ago, they’re not looking for people who don’t have any money, they’re looking for people with money.
Michael: I’ve never heard of a homeless person being sued, that’s for sure.
Eddie: Yeah. Well you know what, I never got a job from a homeless person either.
Michael: That’s right. Leading up to these lawsuits, give me some background and how these all came about.
Eddie: The first knock on the door was a big thunder, because that’s the first time it’s ever happened to me.
Michael: How’d you how feel when you got served those papers?
Eddie: I was actually scared to death, Michael. I mean, I was scared to death even though I had the structure and everything in place. To tell you the truth, this was the time to see if this building block and all this time I spent and money was going to hold up. Anything you do in life, you know what, you have to try it out. You have to take it for a road spin.
Michael: That was like the test drive of the structure, huh?
Eddie: It was a test drive of the structure and a learning process, but I can tell you what, it ran all over them.
Michael: Give us some history. Gives us the road map of this.
Eddie: The history of the first one they knocked on my door. I had built three commercial properties locally here. I use a small community bank. It was about $3.5 million. We had a problem with one of the pieces of property. It wasn’t due to any non-payments or anything like that. We have some structural problems and they will be coming back to me because what they were saying is they didn’t want that building in their portfolio anymore.
Michael: Well, now they tell you when there’s a problem arising, huh?
Eddie: Yeah. Everything was approved. We had inspection, there was already tenants in it and everything else. Everything was going well on my side. Anyway, they knocked on the door and they filed suit on all three of them. They were calling all three because they had the loans and they had the right to call three, they said.
Michael: All of a sudden all that hard work, putting tenants in there, building it out and…
Eddie: All my years of working there. We did the electrical in and out because I was the electrical contractor and all of the tenants. A lot of time spent for the management and everything else. Anyway, they were all going very well when they knocked on the door. That’s when I got the love letter in the mail and they started to subpoena me and put liens on everything. That’s when I called you for that first time.
Michael: I still remember sitting out there in the lobby of the hotel talking to you and walking me through it, for sure.
Eddie: I was really glad I met you. You made me feel a lot more comfortable to proceed and do what I needed to do. Do you want me to talk about that one and the other one the same time or you want me to…
Michael: No, let’s do this one and then we’ll do the next one. They were going after all three properties, even though it’s only with one of the properties.
Eddie: Yeah, what do they lien the properties already, anyway. At the bank and they lien all three of them. Anyway, I hired my attorneys. We went through the whole situation. We went back and forth for at least probably about 13 months with fees and everything, doing everything they needed to do, the discovery and what they learn all about my structure and everything. My attorneys went back and forth. There was a lot of in between, obviously, going back and forth.
What happened was on our last meeting, they sat us all down. They said at this time that they wanted to work out something else about not taking the other properties and things like that because, “It was going to be too difficult,” their words were. I think that is too difficult was it because after they started to find out the way this was structured, all the properties were in different LLC’s here in Georgia, and then the holding companies were holding in Nevada from what you what you guys created, and then go to Nevada and finding out that the holding company was owned by my living trust that you guys created, which was an incredible set up.
Anyway, long story short on that one, they came up with an agreement and we came up with an agreement and we agreed that I had another building that I was just going to sell that was cash. We didn’t have any loans on and they didn’t have anything to do with that building. They were looking for $200,000 out of this project to release the building. I ended up selling the building, getting $200,000, getting them out of my hair, they released all liens, and put me all back on track. I still have those buildings today.
Michael: The total net value, without having to give those properties back, what do you think you netted out of that?
Eddie: Well, I netted probably at least a little over $3 million.
Michael: $3 million. Wow. That brings a smile to my face right now.
Eddie: I would’ve lost them.
Michael: Yeah, you would lose them and also the future appreciation and also the income from those properties.
Eddie: My properties, too, yeah. I would’ve lost all three buildings and would lose all the income, which would have killed me, because that’s what I live on now, Michael. I don’t have an electrical business anymore, I sold it. I live strictly on my real estate. I would’ve lost all the income from those properties. I would’ve lost all the tax benefits. I would have nothing to go further. I ended up only to get rid of one building and I had a couple $100,000 left over in cash that I can reinvest somewhere else because I gave them $200,000 but I sold the building for $600,000.
Michael: Nice.
Eddie: I have $400,000 cash left over to reinvest somewhere else, and I got them totally out of my hair, and what I ended up doing was tasking some of that $400,000 and put into downpayment on each one of those buildings. In other words, I paid the notes for the next 24 months on those three buildings.
Michael: Nice. A lot of people think that with enough protection structure, you’ll never get sued, that’s not the case. Things happen but it’s a matter of getting a positive result which it sounds like you absolutely did with $3.5 million plus the income that you’ve generated since then and appreciation, that sounds like a win to me.
Eddie: It was a definite win. After that was over, the last deposition after the last time we sat and they signed off and freed me totally of everything, I tell you what, it was a great day.
Michael: Absolutely.
Eddie: It was a great day. I came back to the office and the next day, I spent all day in the office going through the structure. Again, to verify what we’ve done and just looked at the process and make myself real familiar with it. It just worked really well. I can see that it made it difficult for them, there’s no question. They were putting a lot of money, they were spending a lot of the bank’s money on all these attorney fees, and sending me notices, all the stuff they were doing.
Michael: It puts you on a level playing field with these out-of-control plaintiff attorneys and also it gives you some leverage against them to get through the structure like you found in the other lawsuits, too. It’s time, value of money. They don’t want to spend more money to go after something that they’re not sure of getting, going to Nevada unwinding, go to Wyoming where your holding company is and trying to get through there, where they just go ahead and settle it out to move on to their next case.
Eddie: I understand that and I think they made a wise decision. I made an incredibly wise decision and again I thank you and your company for doing it. I could not operate any other way I can tell you right now, that was a proven fact.
Michael: That’s awesome. So you got to get positive results. Tell me what the second lawsuit.
Eddie: Actually, the second one was the most fun. That is fun now because I knew what was coming. But this took it to another level and it really tested the boundaries. This one actually happened about three years later. I had a small community bank here again in my town, which was not the same bank, by the way. I went out and I took four loans out in the same bank. We knew the bank, I have been banking for for years. We had no problems, so they’ve given me four different loans on four different properties.
Michael: Like a personal banker that you knew?
Eddie: That’s correct. I had my money there, I had a lot of accounts there so there was no problem. I never had any problems. We went in and got four loans. I bought four pieces of property, investment properties. I renovated them. I got them all working and everything was really going well. The loans were renewed for every three years. That was the loan. All four of them were renewed at the same time. I had those loans for approximately 15 years. All of a sudden, my community bank failed.
Michael: You basically walk in and renew these loans every so often, huh?
Eddie: Yeah. They didn’t even tell me actually. The bank went bankrupt, foreclosed on the bank, and I would end up paying the FDIC. FDIC took the bank. I paid loans to the federal deposit for nine months. It was good so I kept everything going just the same like nothing’s changed, and then FDIC sold it to an investment company, and they were an LLC.
There were nine more payments left on the notes before the three months was up. They started sending me notices to send my payments there. I sent my payments there. After nine months, after they won’t talk to renew again, I sent them a letter, too, because I told them I was ready to renew again, because I was going to renew every three years. They never gave me an answer. It went on for several months. I never got an answer. Then I had a knock on the door telling me they’re foreclosing on all four of them and they were suing me. There we go again.
Michael: Even though you’ve been through it once, getting that lawsuit is never a fun day, huh?
Eddie: It wasn’t fun at all. It was still scary. I hate it. I don’t like it today. I’m so glad of what I have to relieve the pain. It’s still not fun regardless of who you are because it’s a headache, but it’s good to be able to know that you have the means to take care of it. After that, I hired my attorneys and we went back and forth for a long, long time.
What was really disappointing was, every month, they sent me a statement on all four of these with the loan value and the interest in attorney fees every month. I was getting stacks and stacks of papers, and lawsuits. I have a lawsuit separate for each one, court dates for each one, and my attorney took care of it going back and forth. Then they subpoenaed all of my bank accounts to see what was in my bank account at the banks, no less.
The banks have been sending me notices saying that they subpoenaed my bank accounts on all banks. They were looking at all the LLCs, and then we still we’re going back and forth, and it was getting actually really kind of scary on that point because it was getting pretty deep. This went, Michael, for 38 months. The process, my attorneys got […] property. I was still collecting rents. I was still doing my job like the attorneys said, do my job. I was taking care of the properties diligently. We put all the money in the escrows, an escrow account, we took care of the insurances and taxes just the same, but we weren’t paying any mortgage payment. He told me to stop paying mortgage payments. They were also adding the mortgage payments to this whole pile.
Michael: Yeah, […] keep on growing, huh?
Eddie: Every day, the balances was growing and growing on four properties. It was still really, really nerve wracking.
Michael: Were you underwater with these properties or did you have…
Eddie: No, not underwater at all. It was very good, profitable properties. They finally came back up a little bit they said that, “We don’t want to foreclose, we don’t want the properties, we want you to sell them and we want the cash.” I said, “I ain’t giving you cash, I don’t have the cash.” First of all, they wanted $463,000 now. I said, “Look, I’ll be glad to get rid of the property. You need to give me some time to sell them,” I went back to the attorneys, this was me and the attorneys. They went back, we submitted legal letters and all that stuff saying that, “Please, give us some time so we can get ahead and sell them,” and then pay them off.
We were doing everything we could to try to sell them so we can raise the funds, but they refused. They did not want the houses. They weren’t going to foreclose. They stopped foreclosing, they were not going to foreclose. They didn’t do it. We went back to forth forever. I didn’t sell the properties, it was taking too long. We didn’t raise up enough money. After all the stuff, after the 38 months, the attorney said they wanted to have a big pow-wow. After them doing everything they needed to do, after all the discovery, after 36 months, letters back and forth, blah, blah, blah. Anyway, I was really worried that day.
Michael: I remember that day. Yeah, I remember you going in and […] is closed. Do I show them this, do I show them that. We went through everything. I remember that for sure.
Eddie: Right. You and I spoke quite a bit about what I needed to show them, what I need to present. Between you and my attorneys, they want the proper cost. There’s no question. Anyway, we were sitting there. Now, they’re asking for $463,000 and the houses haven’t been sold and there’s also $63,000 in escrow. We all got sitting down there freestyle and I was sweating it. Then the attorney come out and the first thing he said…
Michael: How many attorneys were out there? How many were sitting around that table?
Eddie: I had two and they had three.
Michael: Five attorneys. That reminds me of a joke, a good start, huh?
Eddie: I don’t know, but I was scared to death. I was just praying that the boat was going to float, stay afloat. I know I’ve been through this once before, but this one was a real pressure cooker for me because they went way out of their way to debate. They did everything. They checked my credits and had everything. I could tell you right now, they spent a ton of money.
Michael: You guys were sitting there at the table and the first attorney came out and said what?
Eddie: He came out, he didn’t say anything to the attorneys, he looked at me, he asked me if I’m Mr. Russell, and I said, “Yes, I’m Mr. Russell.” He said, “Mr. Russell? We see that you have created quite a web for yourself.” I didn’t know how to answer that, but I was glad he said it. I said to myself, I didn’t create it, Michael Bowman created it.
Michael: The important thing is […] before the harms occurred. You can’t do things after the fact, you got to do it beforehand. Did you get a favorable settlement?
Eddie: Yeah. Sort of what I look like right now. We sat down and we had the deals already set out for us. Our deal was, I was going to turn over the escrow which was $63,000 to them and then I was going to sign over all the houses right there in the quit claim deed so they can have all four of them with no hassle and be theirs and I’m walking, but I wanted total credit repair on my side. A total credit repair, they had to remove all liens on any properties, or any other things that they had on any of my problems or notes, they have to release of subpoenas on all the banks, I didn’t want to pay any attorney fees—my attorney fees are $315,000 by the way—and I want a letter of guarantee. I want all of that at a letter at closing to release me totally of everything that we spoke about above.
Michael: And you got to keep all your other properties.
Eddie: Yeah. They couldn’t go back and touch any of my other properties, or any of my other real estate, or anything I had personally or in a company name.
Michael: Including that $3.5 million in commercial, too, huh?
Eddie: That’s correct. They could not come back with me for anything. This deal was just these four and that was it. We kept this in a little internal circle, just the four of them. Blah, blah, blah, they talked, they talked, they talked, and then I also said that I wanted a 1099-C. If anybody doesn’t know what a 1099-C is, that’s a relief from debt from them. It’s like the cancellation of my debt. I wanted four 1099-Cs and I wasn’t even close until they could good sign that they said that they were going to give it to me. I want a mortgage forgiveness also on those debts, obviously. They talked for 20 minutes, blah, blah, blah, and they agreed with everything, Michael. I was the most ecstatic person that you’ve ever seen in your life.
They did not want to deal with that structure anymore. My attorney told me that they went through all LLCs and then when they found out that my LLCs were owned by a holding company which was in Nevada, they balked a little bit, but they did check up on that. But then, when the attorneys came back and checked up on the holding company, they said that the holding company is owned by a living trust. The Russell Living Trust. I think they just gave up on the fees, Michael. It was too much of a chase.
Michael: And for no guarantee to get anything back.
Eddie: No guarantee to get anything back and I think they probably figured out that they could have went after easier clients. That’s terrible to say, but that’s the way it works.
Michael: That’s fantastic. Why go after the two in the bush, just go ahead and take the four properties at issue and give it global release and everything else, that’s fantastic. I love that story. That always makes me smile, makes me happy. Especially because you were able to keep going, and build, and build, and build, and I’ve seen you grow over the years, and pretty fantastic operation you put together.
Eddie: We’re still building, we’re still going to town, we’re still doing about 12-13 houses a year.
Michael: When you say 12-13 houses a year, what are you doing?
Eddie: We’re flipping 12-13 houses a year and some of those I hold for myself, for my retirement.
Michael: Perfect. I love it. It kept your business alive. I love that story. I love that we were able to protect your assets and protect your future, too, and your family’s future. You’re kind of one of the examples of why I do what I do. It’s a very rewarding profession. It keeps families alive. It keeps some growing and flourishing. Someone like you who came from nothing and was able to save, sacrifice, build, and then when a lawsuit came forward, you were able to preserve your assets and build up on top of that. That’s just fantastic. I love that story, Eddie.
Eddie: There is no question, Michael, that between both of those and it helped me maintain to keep almost everything I’ve had and didn’t make it easier for the opposition, that’s for sure. You cannot put a price on it. There’s just no way. There’s just no way you could do it. I’m a client for life, brother. After I go, my daughter is going to take over, though your name will be working with it.
Michael: She’s awesome. She’s fantastic and you’ve taught her right. Hey Eddie, I really want to tell you, thank you and I appreciate you taking the time out of your busy schedule to talk with me and talk to all the listeners out there. I think you’re just one of those are great examples of protecting your assets for the future and protecting your hard earned money and your sacrifice, too. I really appreciate you taking the time and we’ll talk to you soon Eddie.
Eddie: Thank you again, Michael. I’m glad I can help.
Michael: All right. Thanks. Bye.
