Capital is the limiting factor for all investors. Fortunately, there are ways to invest in real estate, and make significant returns, with little to no money. In fact, $10 can end up making you six figure payouts.

Returning guest Chris Prefontaine joins Adam Schroeder and Zach Lemaster to discuss the three different ways you can control real estate without putting your name on any titles or involving banks.

Chris is the bestselling author of Real Estate On Your Terms: Create Continuous Cash Flow Now, Without Using Your Cash Or Credit and the new book Sell with Authority for Real Estate Investors: Your Road Map to Defining It, Earning It, and Monetizing It! 

He’s also the founder of Smart Real Estate Coach, and has been involved in the construction of over 100+ single family homes (1990’s), and was owner/broker of a Realty Executives Franchise (Massachusetts 1994-2000) which eventually sold to Coldwell Banker in 2000.

Schedule Your Free 15-Minute Consultation with the Smart Real Estate Coach Team: www.SmartRealEstateCoach.com/retire

Watch the Video Version Here

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Transcript:

Adam
Hey, Rent To Retires, it’s Adam Schroeder here, and I am joined by the founder and CEO of Rent To Retirement, Zach Lemaster. And we have a returning guests. We had him on a little while back, and the response was pretty impressive. One of the most impressive responses we’ve had, so we said, You know what, we need to get them back. And that is Chris Prefontaine, he is the founder and CEO of Smart Real Estate Coach. He’s author of many of several books that have done very well. One of them. We talked about some last time, the real estate on your terms, Chris, thanks for re-joining us.

Chris
Well, I pleasure to be back guys. Hopefully, we’ll have a nice chat and spread some nuggets here.

Adam
Absolutely. So remind people, if they haven’t listened to, if they did listen to the first one, remind them, if they didn’t listen to the first one, shame on you all, go back and listen to it. But you know, tell them kind of who you are, and how you got started.

Chris
Sure, I so I’ll be, I’ll be brief. Because it’s 31 years this fall. And I don’t want to take an hour to do that. We can peel back any piece you guys want. I’ve been at this, like I said 31 years, when the crash happened. And oh wait, just to skip right to that. It caused me to do a whole bunch of reengineering and mainly reengineering. By the way, I get paid reengineering by the way, I by not using banks or my own cash or frankly, even investors and reengineering how the business is running so that I can get off the treadmill for years, you know, out of 31 years 18 of those I got paid once. And it’s okay. And it was very lucrative. But I felt like I was on a treadmill every January reached out in that. So we buy and sell that way now in New England area, myself, my son and my son-in-law, and then a great team around us. And then we go ahead and do the exact same stuff that we do in the trenches all around North America with students so that they learn interactively, as they go. And that’s a big missing gap right now in the industry.

Zach
Chris, I love that. And we’re super excited to have you back on I unfortunately didn’t make the first interview, and Adam immediately contacted me like, hey, this, this stuff is gold, you got to join the next interview. And we had so many people, this is the first time we’re you know, our vast majority of our communities reached out and said, you know, that was so valuable. There’s so much information covered, that they just they wanted to learn more and hear from you again, and actually dive deeper into a lot of the details. And so we’re super excited to go through some of those details today and talk about how to really scale your investing portfolio. Being a creative investor, I’ve always said this numerous times that your creativity is what’s going to allow you to be a successful investor networking with the right people approaching deals the right way. We’re all limited by capital. And you know, way we’re buying deals. So anytime that you can be creative to find new deals, and make really higher margins with less of your own capital, or possibly No, no money invested into these deals, I mean, the sky’s the limit, you just have to know how to do it. And you have to be working with the right people to do it. And really, you know, a lot of our community that comes to us to assist them with their real estate goals, has the idea at some point of retiring from their active career field and replacing that as an investor. But the fastest way to do that even more so than buying rental properties, even though we’re high proponents of doing that over time, but the fastest way to do that is to be an active investor, and be strategic and creative to grow your portfolio quicker. And that’s exactly what we’ve done. I mean, we stepped out of our career paths by you know, building this business and being creative investors actively acquiring properties over a short period of time, we’re able to replace your active income. So super excited to have you on here, Chris, let’s maybe talk just a little bit more in depth. I mean, again, if anyone hasn’t listened to the first podcast, please go back and do that. We’ll include a link to that in the show notes. But just talk to us about you know, really, if we can do kind of a high level overview of what what is your strategy all about in this creative financing and acquiring deals? I mean, for someone that really this is the first time they’re hearing about it, you know, can you do a quick overview of you know, your strategy?

Chris
Yeah, so three ways we buy and again, you guys can peel back any piece of this one is lease purchase, we can go into that we will go into that, but I say that first because as a new investor or newer investor or someone has literally zero cash. That’s a great start because our agreements are built with a tent, literally a $10 deposit, you control you don’t buy you control the property for $10 on a lease purchase contract, and you then turn around I’ll talk about exiting these deals and a little bit later. The second way is owner financing. But we niched within that niche meaning we look for Free and Clear properties, there’s no mortgages on them. Now people say, Oh, I wonder if they’re hard to find about a third of the properties United States are free and clear. And it’s a great pool to swim in, so to speak, because they’re usually in good shape. They’re not stressed out. And they usually open to doing something on terms or otherwise known as creative real estate. So that’s owner financing. And then the third option is subject to existing financing. All that means is, I buy Adam’s home, and he has a underlying mortgage on it right now that mortgage stays in his name, I don’t become a guarantor, I don’t assume I make the payments on his behalf bought, I own the property, I’m just control it, I own it. There’s one caveat, one disclosure in the state of Texas, right now. It’s the only state you cannot be in the middle of what we call sandwich lease. The other two methods you can and we have students doing that, and frankly, the more lucrative ones.

Adam
Well, then Chris, I hate to break it to you, but you can’t get my house. [laughs]

Zach
Maybe on your terms, Adam, it’s all about meeting the sellers needs, right, so.. [laughs]

Adam
Well you can’t use your third strategy with me.

[All laugh]

Zach
Let’s talk a little bit of and I should have clarified earlier, we had a lot of people that reached out that said they wanted to learn more. But we’ve already had a ton of our community that has signed up for your educational platform and join your community. Yeah. And immediately they’re like, Man, this is, you know, there’s a lot of different education platforms out there and a lot of different things that people can look into. But this is direct feedback from people in our community that reached out and been successful, and community talking about the knowledge just like that family oriented, tight knit group that you guys work within, and they’re just like, Man, this has just opened up my eyes, and they’re doing really cool things. And so, I mean, we’re excited to see more of that. And anytime we get that feedback, and this is why I love being in real estate and doing these type of podcasts as we get to, you know, dabble a little bit in a lot of different real estate avenues that help us be better investors. And when we get this kind of feedback, where it’s like, hey, there’s we’re seeing this firsthand case studies that people out there doing and accomplishing really creative things. And that means that there’s there’s definitely something there that we need to explore and, you know, talk more with our community. But can we before we dive through each one of those, because we will go through very specifics is like pros and cons and when you apply strategy and what that exactly means with a case study. But like what, what’s the benefit of using like high level? Why would you approach buying deals in this way? Is it a matter of having less money down? Is it just a creative way to have less risk in a deal to have higher margins? Can you explain like, what’s the why behind approaching strategies?

Chris
Literally everything in the discussion today, guys, you know, me, I’ll try to do it with live examples. So the whole reason behind terms and creative real estate was spawned what I alluded to earlier from the crash, I mean, I literally came out of the crash with my credit and toilet, no cash. I went from a two and a half acre property overlooking Newport Harbor, which is how to do into a one bedroom apartment, want to talk about humbling experience? So I had, I wanted to be in real estate still. So I had no I had nothing to get started with. So I started to just deal with that, and reengineer that, and I found that these creative real estate deals, they’re not new, like cells go to me, I’d never heard of this. They’d been around since the 1600s. If you’d pick up the new Vanderbilt story book, they talk about it in New York City. It’s crazy before banking. And so yes, the to your point, Zack no cash, again, little to no kind of $10 if you consider that cash in the deal, no risk, I don’t see no risk, minimal risk, because I’m not signing on loans, ever his and let me give you some real numbers. When I went to the crash, I had about 23 properties, mostly larger developments I was on personally and all those, all of them. So what do you think the bank comes when the market drops, they come to you, you signed on him. Now we control about 80 million in real estate. We are not on one single solitary loan and never will be. And I can tell you going to sleep at night is a little different now than it was in oh eight, knowing that I’m not tied to any of those loans personally. So so the cash, the bank issue, and then frankly, it’s up to the individual. But I personally my personality didn’t lend itself to go asking people for money to do deals. So that that’s how this was all spawned.

Zach
I love it just being creative to acquire more real estate. And as we mentioned before, what really clicks with me and in this type of creative, real estate investing and creative financing space, you’re not limited, right? You’re not limited by the bank’s telling you no you’re not limited by the cash that you have to put down. You know, we own a lot of real estate that we personally guarantee and use banks. And I mean, that’s that’s a great long term plan. But at some point, you hit that threshold where it’s like, you know, if you really want to scale and you want to retire sooner than you have to be creative and think outside the box and apply some of these strategies. Adam, what were you gonna say?

Adam
Oh, I was gonna ask one of the things that just automatically pops to mind is if your name is not on the loan anywhere, and you don’t have that risk, obviously that risk still exists. So why would you know, a seller allow you Do that and then keep the risk.

Chris
Yep, very good point. So you have let’s go opposite ends of the spectrum. When you buy a home subject to it usually is screaming, I need debt relief yesterday. Or I’ll give you an exact example, again, Cape Cod, the touristy area narrows, we met a couple that were divorcing, it was not amicable, and they were two months behind. That’s a typical, I need help now take my home, I don’t care how you do it, I just need this relief, that’s more of a subject to deal. Opposite of the spectrum is that that kind of pool I said, of individuals that have no debt, totally different, they’re gonna sit and they’re gonna go over the deal with you. And they’re gonna, no stress involved whatsoever. And so those are different techniques for different mindset and different avatar, you will be shocked at how many people need and want that immediate debt relief. We were doing a presentation today to a group of investors similar to your tribe, and they don’t know creative. And we said, well give us an example of what you guys are hearing that you don’t know how to do. Because if flippers, and that the guy gave us a deal that said this couple came to me and said I owe 120, I bought it a year or two ago, I have no equity, can you please buy my home, I don’t care if I make 10 cents, I just want to cover it sub two, subject to deal. So you know, and then obviously, on the spectrum, this building that I’m sitting in today is my office building into to Zach’s point about banks and all that. Can you imagine what you guys know, the underwriting criteria to go through a commercial mixed use building, it’s grueling, they have a microscope, and they look everywhere. I sat in this very office that I’m that I’m talking to you guys in, which is my office now and did a deal in about 20 minutes with a gentleman who read my book and said, I appreciate the math, I’m into my foot structure deal. I didn’t go to the bank, I didn’t come up with the cash, nothing owner financing free and clear. So these are just real deals, you just have to match the solution, or their goal they’re trying to accomplish that they can’t do conventionally. Long answer and But great question.

Zach
And I think you mentioned this previously. And, you know, I couldn’t this didn’t resonate. This resonated with me so much, that I’m gonna start quoting you on this, Chris. But I believe that you refer to this is a transaction engineer, you really need to be it’s all about solving people’s needs, right? This is not about you know, trying to be sneaky and try to you know, force people you are literally they have a problem. And sometimes it’s not a problem. It’s just offering a solution based on their needs, you’re solving a solution or solving a problem when there is a problem for them, where it’s a win win win for everyone involved. And I love that. And this is something that can be applied to single family, multifamily, it can be applied to commercial, it can be applied to, you know, really, really whatever outside of real estate even right?

Chris
Boats, cars, literally people buy planes on terms, no exaggeration. I know people that do it. So yes, 100% I love what you said.

Zach
Yeah, and this is this is where knowledge is extremely powerful. So and we want to talk about finding deals as well. I mean, that’s really about the system and like how you find deals, because at the end of the day, you got to know how to find the deal. And you need to know how to set up and coordinate and solve, you know the deal based on the situation that’s at hand. So we’ll go through all of that and talk about the lease option, the owner financing and the subject to in great detail. But just before we do that, Chris, I always want to ask for someone that’s had that life experience to go through the 2008 period, just in a kind of consolidated answer. Can you tell us about like, you know, what happened on how you were positioned to, you know, be in a bad financial position during 2008? Can you share that a little bit with us on how that happened?

Chris
Yeah, so picture now leading up to that I started in 91. So leading up to that it’s not like I was a newbie, but the problem was, I have as a conventional thought person back then. So I would either put my own cash in for the downpayment on projects, or I would bring in investor money for that downpayment. And then in my area and knowing when the market dropped in Providence city, their market dropped by two thirds. So I had a condominium development there were converting a six unit to condos there was selling like hotcakes. Literally, like a switch was thrown stuff I was selling for 172 I couldn’t give it away for 60 So where do you think the bank come I went upside down immediately. So the bank comes looking for MCs I’m signed on it personally. So everything was leverage, not when the things were going well and the ATM machines were going in the market was going this way. And I was naive, despite my years to think keep going.

Zach
So in that in that specific scenario. It sounds like I mean not not all of those were like stabilized rentals those were some of those were development some of those were your your your exit plan was to finish the development and sell them and then you could not sell them at what you anticipated. Right Yeah, ultimately right yeah. And then a domino effect.

Chris
Yeah, we and then we had like one commercial I remember is like a strict mini strip mall. And then when the economy hit my on a three or four businesses I had one left. So so like, all that stuff hit all in a way like literally February of Oh, eight I remember like it was yesterday, painfully. And it took me four years to dig out of that mess.

Adam
Does your system that you have now, you know, obviously we’ve had a great run up, we’re now seeing some slowdown, does your system work better during the slowdown periods when things are, you know, interest rates are higher? And people are, you know, it’s taking God forbid, three to four weeks to sell their home, as opposed to, you know, two days? Does it work better in a slowdown or downturn as opposed to a run up? Or does it not really matter at all?

Chris
Okay, a couple answers. It doesn’t matter. But what does matter what is affected is how many people I get to speak to to have a deal going to contract, right? So example, running up from say, 12, all the way till pre COVID, steady, right flat to steady incline, presumed rocket operating, you had some people that were selling quickly, others that weren’t pretty standard, when COVID hit people panicked, needed to have guidance, ideal count went through the roof in like two months. But then the market gets super hot, as you guys know. And instead of me taking I know the metrics, instead of me taking 17 sellers to speak to either speak to like 40, to put a deal under contract. So as long as you know that as an investor and go, okay, my numbers are my numbers, I can get a little better, I get a little more effective. But my numbers are the numbers. Now, I will tell you that the community is dumbfounded how positive their business is turning in just 90 days since interest rates did what they did. Because now you just took, I don’t know how many hundreds of 1000s but hundreds of 1000s of buyers and families that six months ago, maybe even four months ago thought, oh, I can buy this beautiful home, I can afford it. Now they can’t. They’re on the street now, so to speak, they will kick to the side of the buyer market, they can they can enter our program, they can buy a home eventually with us. So the demand now has been huge. And of course that’s affecting the sellers. And we can talk about the timing of creative in this economy and a little bit but the short answer Adam is it’s bobbing and weaving and you can thrive in any market longer understand the metrics. And back to Zach’s point, that it’s not like people say to me, Oh, I’m gonna wait in the convention people I’m gonna wait till it crashes i Okay. Don’t that’s what the media screams about, what you want to do is get really good at that being a transaction engineer and be able to structure deals in any market. That’s where the fortunes are created. And that’s what’s going on right now.

Zach
And that’s what allows you to be successful in any market cycle in knowledge is power, as we all know, being creative to accomplish, you know, still acquiring your portfolio. Regardless what the markets doing out there. It’s, you know, it’s interesting, some people we talked to, you’re talking about, you know, buying, right, you make your money when you buy, and then they’re like, use that as a justification to say, Oh, I’m going to wait until the market crashes. Well, you can buy right, at any point in time, if you know how to do if you know how to do it. Right?

Chris
If you have the right terms, in my in my world. You know?

Zach
Well, let’s definitely, as we’re heading into this, I mean, that’s kind of one of our questions is now is this strategy going to be more relevant and effective right now? And I think the short answer is, is yes, now is a crucial time to learn these things, because it’s going to be easier to find better deals, and there’s going to be more opportunities. And so it’s important that people consider looking to add some of these creative ideas. So let’s, let’s dive into the specifics. I know people would like to know, like, what, what exactly out of these three methods if we could kind of unpack each one individually and talk about what are the pros and cons, what it actually means with an example. And go through a case study or something like that. So let’s talk about lease purchase. Chris, if you could just explain that in layman’s terms, what that is when it applies and go through an example.

Chris
Okay, so lease purchase would be usually with some data on the property, not free and clear, usually with some equity. So let’s use some numbers. Let’s say that, Adam, we’re going to use your house again, even though you didn’t want to sell it to me earlier, we’re going to say you have debt of 250, it’s current, everything’s good. You on the market for 300, you may be a little higher price, but for whatever reason, the market didn’t respond to you didn’t get it. The 50 grand equity that you thought you’re gonna get. Now, of course, that’s gross. You didn’t do any, you didn’t pay a commission or anything yet, but I’m going to protect that. 50,000. And I’m gonna say to you, if you’re open to waiting on that 50,000, which is the question right at the beginning of the script out of my open, if I can get you to that 300 Protecting your 50? Are you open to doing that on some kind of a lease purchase to which you usually say What are you talking about? So what I say is I will stop making payments on your underlying mortgage, let’s say you mortgage at 250 is 15, no boxes, so we use round numbers. I find my buyer uninstall them in the home, we’ll talk about that later, I will then stop making payments on your behalf. So I’m paying you 1500 All payment. My agreement says I’m going to take your all your maintenance repairs are going to pay that underlying that in honor before let’s use 36 months on before 36 months, I’m going to do two things. I’m going to give you your 50,000 and we’re going to pay off the underlying debt that’s no longer 250, right, it’s a little less, that’s all guaranteed, we don’t talk sale price, we just say we’re going to protect your 50,000 period. So at the end of the lease purchase, we’re going to do that. Now, all the maintenance repairs, anything happens to the house, literally, we’re not landlords, the buyer who’s in that home who can’t qualify yet who are helping get mortgage ready handles all the repairs maintenance, just as if thereby they behave act like and pay for things like they’re a buyer, they just don’t have a loan yet. That’s the lease purchase, beginning of it.

Zach
So, and you touched on this a little bit, but who’s the right, the kind of the Avatar? Is there multiple kinds of settings? If someone’s simply that just, you know, they have a little bit of equity, and they’re trying to make a new acquisition? I mean, what typical sellers are you seeing in this situation?

Chris
Typically not, it’s better to say who it’s not, it’s not someone that has a need for that 50 to go buy another house for their family. And this is like, critical, right? We can’t help them as people that say, I’m gonna go rent, or relocating military’s big one for us, I’m relocating, I was gonna keep this anyway, in rented, I’d rather do what you guys are saying, I don’t have to worry about it. There are a lot of scenarios. But it’s typically someone with a little bit of equity, who’s in decent shape, and they just want it covered, they just want closure, and they can wait for their equity.

Zach
Okay, ease of ease of transaction is important in this, and also getting the value that they feel they should write a purchase price. Yep, and some of that, so you go, they just just, they can wait, and they’re stuck on the number period. And we can get it as long as they have time. So I feel like we’re going to start seeing this scenario more. So as the market does slow down a little bit where things aren’t. So I mean, sellers just demand whatever random price they want, and have a potential of getting it. And so they still have that mindset. So this might be a more of an opportunity now where, you know, this, this could be applicable of these three strategies. You know, with lease purchase, what percentage would you say roughly that you encounter with this?

Chris
Okay, so this is by choice. This is a good question. So when we first started, when I not start in real estate, started doing laser focus terms deals back in like 12 ish. This was my strategy, the lease, new people coming in the community before they understand what we’re going to talk about next. Go that way. So it is that it’s the easiest, most seamless, you don’t take ownership, so that that is the easiest thing to do. So it’s gonna vary from person to person, Zach, but right now for us. It’s on the lower side, you’ll see why we talked about the other deals like maybe 20% of our deals. Whereas if you go to a new student, Brian in Chicago comes to mind. He did his first 11 deals like this, and amassed over a million bucks. And he was an elevator salesman. No, no exaggeration, what do you think I did? And so now he goes on, man, I get it. Because when we talk to these other deals, you’re gonna see how much more lucrative and how much more control you have.

Zach
Okay, so just to review bullet points lease lease purchase, you’re saying an option here? Is it? Is it a lease option? Or I know they call them different things?

Chris
Yeah, they’re interchangeable. It’s a lease purchase contract with a definitive honor before closed date. Now our contracts are written very flexible for us to renegotiate or give back if we had to, but it is a lease purchase versus versus an option.

Zach
Okay, so they’re staying, they’re still operating the seller still operating as, as they typically would. The idea here is to pay off the debt and give them the equity, the equity that they feel is in the house. And then what’s the exit strategy with this one?

Chris
The exit strategy and all of these without getting advanced is going to be the rental model. And this is big, we talked about other people in the industry a little bit earlier, indirectly. You can go on today on YouTube or podcast and you can hear mentors and educators say, oh, in the rental model, I’ll put a buyer in my home. And I don’t care if they cash out, because they default. I’ll get them out and do it again to collect another check. When you hear about the paydays? Well, it might be okay for them legally, but it’s just morally and ethically stinks. So my son, Nick is our buyer specialist. And we have a very strenuous program so that we don’t attract a renter with some dream that has a credit problem of 30 years, we attract a buyer who truly deserves it who had a life event or needs time, you know, they’re going into their new business, maybe they need time. And they are who we put it into the homes rent to own.

Zach
Okay, so you get a tied up with, you know, based on the terms you negotiate, and then you find someone else that’s going to do at least own or rent own in this scenario. And are their typical terms with that. I mean, I don’t want to again, go to high level here. But of course, it sounds like within a short amount of time, they’re making payments, which then will make the payments for the seller in this case. And then they’re going to exit it by at some point in time at some set purchase price with a down payment essentially, right?

Chris
Yeah, here’s how it works. So they come in, they get qualified by Nick. That means some credit screening some criminal we’re going to see the whole picture like how did you get here if it’s a life event or a credit issue, and then they’re going to have a mortgage ready plan. Let’s say the mortgage ready plan comes back and says this client can be mortgage ready in 18 to 24 months. We build a little buffer and we say, okay, they’re probably gonna need 30 life happens, delays happen. And then we fit that to our deal alongside deals a longer term than that, because again, we want to buffer for wiggle room. So the 36 months usually works great for most tenant buyers that we get screened.

Zach
And how are you profiting in that? Where’s your margin coming from?

Chris
Yep, perfect. So this is where the three paydays comes in. So picture now that buyer mentality says I couldn’t get bank financing yet, but I’m a buyer. So they have a down payment. It’s typically 10%. When you get to the jumbo, we want 20 Because we want to set them up to get along in the right way. So let’s say 10%. The deal we talked about today with it with this group I was talking about use that number. They said, the house, we’re gonna get it for 120 It’s worth 150. They said to me and Zach, my son in law, how much would we sell for? We said 170. Okay, 10%, that’s 17 grand, at number 117 1000 piti. Number two, in the case of Adam’s home where I was paying that annoying debt of 1500, let’s say I’m getting 2000 From my tenant buyer, pity number two is $5 a month. So I got my now money, which is cool. I got my monthly ongoing money. And then payday three is remember that 250 loan, Adam adds less now it’s probably whatever it is 240. So I have that pay down of 10 grand, and I mocked his home up, let’s say 20 or 30 grand, we can typically get a slight premium, not obnoxious, because we’re offering terms and we’re providing them a, frankly, a path they can’t get anywhere else. And they’re just thrilled to death. And that begs one more thing, Zack, so these homes that couldn’t sell, let’s say Adams home, it might have had like a small thing like a functionality issue. Might have been the wrong street, right? So the conventional biking be picky. Our buyers aren’t the threat of death. So that’s why a market opens way up.

Zach
And that’s why they’re willing to Yeah, I mean, no one else is offering a solution for them. It’s the solution for the seller and the buyer that are putting into that house. And it’s a win win win for everyone. Well, I love that. So the three paydays in this scenario is going to be you know, the the delta between the rent, or the mortgage payment and the rent that the end buyer is paying on a monthly basis, the loan being paid down over the period of that time there that term, and probably by then it’s going to be significant because you’re further along into the loan and have higher principal reduction. And then also on top of that, it’s the difference between, you know what, what buyer or seller is getting, and what the buyers paying. Is that correct?

Chris
That’s 100%. Correct. And we won’t go we won’t go advanced today. But just so people know, because they always ask me well, so all these deals is short term. Can I keep some? Yes, there’s plenty of pivots to turn that very deal I just said into a 1015 and 20 year deal. That’s for another day probably.

Adam
So what happens if you talked about let’s say you have your initial thing at 36 months, your buyer that you screened, you had a 30 month deal with? If something else happens to them, and suddenly now they need 48 months? Yeah. What do you do? I mean, that seems like a risk that you run into? What do you do in that situation?

Chris
It’s happened every scenario you can imagine like death, divorce COVID, it’s happened. So a couple a couple things. In no particular priority order one, our agreements is set up, and we haven’t had to do this, I think twice out of 700 deals, the agreements is set up that I can say to you, Adam, oh, I need an extension, this buyer needs a little more time, we don’t want to kick them on the street. And you say, Nope, not hold my ground, I don’t care about the buyer, you know, you just don’t care. Okay, I can give those back out. And you can take it with the person in it. That’s our agreement calls for that I can assign the house right back to you. Most sellers want nothing to do with that. So they’ll cooperate with us during COVID, I had to extend two deals not bad. We had like 60 We carried so we can extend it. We can if if they’re not behaving well and they didn’t qualify. And we have that buffer built into our our back end with our seller, we can sell it conventionally. We do one of those during COVID. Or if there’s more term left, we can install another tenant buyer, we’ve done that as well. The default rates like two to 5%. Not too bad, like government loans aren’t enough or that are that good. But all kinds of ways to pivot to make that happen no matter what now, you say well, what if it’s last minute, right? Usually, we have access to the portal to say how their plans going. So if they drop off the service, or they stopped paying them or something happened, we go and we get in there and we’d be proactive. That’s there’s all kinds of checkpoints in there. So they can’t be off last minute and surprise everybody.

Zach
But it sounds like you have a you have an efficient system to monitor and track obviously, you have the experience of how to navigate these avenues when they come up in these what ifs but also is is the tracking throughout this process. And that’s why it’s so fundamentally important to you know, maybe have his guys on this. What were you going to say, Adam?

Adam
So, in that situation, let’s pretend that you know you, you have the option and suddenly you know They’re term comes up, and they decide, oh, well, this home is now, you know, we agreed on 250. But now, you know, markets downturn, it’s only worth 150. And you, you can’t get anybody to do the 250. What happens in that scenario.

Chris
You can tell this is all we get for questions that good. So that their agreements, the buyers are not contingent upon appraisals, never. And they never, we’ve never even questioned on it. So they have a couple of choices. as do we, we can say, look, picture this, let me back up a little bit. Picture this Adam. my conversation with them when they buy is when they go in our home relah Hey, I’m your buyer, you buying this home yourself and mortgage yet. So when you buy a home, the market can go up or down, right and they go right, so we educate because some never bought before. So if the market goes up good for you, your price is locked, Mike goes down, you might have to wait to sell just like everybody else. So there’s, there’s a couple things they can do. They can extend the period with us. And if we need the access from the seller, and we don’t already have off to go do that. Or they can come up with more cash or they can walk those are their three choices on the buyer side.

Adam
And that’s one things if they walk you just you have the option and yours to just hand it back to the seller, right? So you could just they walk from you, you hand it back to the seller?

Chris
But in that scenario picture at Do you really think the seller wants that back now if it went down that much? No. So what would we do? Turn around and rent it. Cover it.

Zach
There’s there’s 1000 What ifs and these are good ones out of I think they’re just super applicable. And but but the main thing is that there’s always a solution on it, knowing what that solution is, and just being being creative and strategic. And so right now, again, this isn’t a central time because we’re likely to see both scenarios, right, more more sellers that are wanting to take this path and more buyers that can’t qualify. So just naturally, this is a fit for I think more people for more deals to make sense like this.

Chris
Most of our stuff, Zach was because of that and and we’re pushing the community very aggressively to get longer terms like my buildings, 20 years, I don’t care the market does. I really don’t you guys know that. So if when you push for longer terms, it takes a lot of that stress out of it. And we say to if we say to sellers, look, we’re conservative investors. That’s our script, we say we’re conservative. So I’m going to ask for this term, and we may not need it. I may cash out in three years. But I don’t want to come back to the table with you. And we just very open and honest upfront with them about that.

Adam
So when you’re talking about the three options, you mentioned before deals were like one out of every 40 calls then became one of the 17. And this one, what’s the typical range? Is this one of the easier ones yet? Or one of the harder ones..?

Chris
Lease purchase in general or this market? Yeah, one of the easier ones. Yeah, it’s most powerful, because it palatable, excuse me, because they’re not giving up a deed. So when you compare that to a sub two picture, they have to give up the deed on their house and keep the loan in their name. So they’ve got to be pretty stressed out lease purchase can kind of touch upon everyone, because every scenario could go through these purchases more are staring if we want to go ahead and own the deal instead of leasing it.

Zach
Yeah, that and also was was more beneficial, right? What’s more applicable for that situation? Yep. Beneficial for the seller. Because this and I’m glad that you you said ethically and morally because this is something that yeah, we’ve seen a lot of people in the industry that that maybe haven’t operated, you know, ethically and morally with this. But this is, this is one of the scenarios where I mean, real estate’s rewarding. Everyone wants to make money, everyone wants to be successful. But it’s a hell of a lot more rewarding when you’re doing that ethically and morally, and you’re actually helping people. That’s the stuff that resonates with us is helping people solve their problems, because those are going to be the sellers and the buyers that didn’t have any other options. Correct. And they’re going to be sending you Christmas cards, how cool is it to develop a business model where you you get that kind of relationship with people versus them feeling like they’re walking away just you know, with with no, no money or like, you know that they did this because they had no option and there’s no benefit for them. So I think that’s important to point out. And that’s a way to build a sustainable business model. And just, frankly, feel good about what what you’re doing. So I love this type of stuff. Let’s move on to owner financing. Chris? Yeah, and, you know, same thing, let’s so we’re transitioning from the first one, which was lease purchase, which we kind of I think went through that one in great detail, anyone can obviously rewind and listen to that. That was maybe 20% An option, you know, but let’s go on to owner financing is a second option. So let’s, let’s talk about that.

Chris
Okay, this is wonderful for a lot of reasons. And we did get a lot of the exit out of the way so we don’t you know, I mean, these are all exiting the same way, at least at this level. So owner financing is really cool because remember, I said we’re gonna do this on free and clear property. So the big difference is, as I said earlier, they’re not stressed out so I have this type of discussion with them. I say look in in this deal, where you’re going to be the bank, Mr. Seller. There are a few variables here. And I usually call it a quadrant. And as I haven’t write it down this price, obviously, this term, there’s the monthly I like to stop there to not encourage any discussion of interest or down. But so I’ll try to stick with those three variables and say I can’t give you all three. So what’s the most important two, most of them say price, they’re free and clear that didn’t need the money, presumably they would have refined taken it out. So price is usually the biggest issue that this building, same exact thing happened here. So we give them that price if they’ll go with our term, and here’s why I’ll even go sometimes a premium. The reason we like the free and clear is we structure on 90 Gosh, 98% of my deals few exceptions, we structure principle only monthly payments. So just like I was paying that 1500 On Adams and knowing that we’re paying the seller principal only, this is the best recession resistant little technique that protects you and produces some serious profits. And that’s what I do in this building. So picture it every month. Unlike your regular conventional mortgage, it has a teeny bit of principal, it’s all principal, that’s a big difference in the components here.

Adam
So do you just basically, if you’re doing a 30 year with them, you you don’t do it where you slowly pay them more over time you just straight up divided by 360 and start your payments, then?

Chris
Good question, no, what we’ll do is we’ll make sure the monthly payment because now we have to go out and put someone in this that that can justify a tenant buyer justifying what would be close to a mortgage, right? So we’re gonna look at, let’s say, it’s, let me think of a deal. This, this place, we’re gonna look at, this is not a house, not a good example, single family house worth two and a quarter, we structured payments of $900. On it, I remember this specific deal. Why because at that time with the current rates, they were they were a mortgage is going to be around 1112, maybe a little push it up there. And so we need to create a spread. So we need to be below that. And we have that open discussion with a seller. They say, Well, I can rent it for x, well, if you want to be a landlord, you can rent it. But if we’re going to take over everything, and you have no responsibilities, and you’re the bank, I need to create a spread, we just very open with them, my tenant buyer is going to come looking at this saying, Well, my mortgage is going to be x. And so we have to be in that range. And therefore we have to be lower. And that’s how we calculate our payment to the seller. And it’s always going to be that number with some kind of a balloon at them. It could be four or 510. And this building 20 years, where there’s a balloon with the balance left.

Zach
Okay, and I think that, and again, all these all these deals that you’re structuring, you’re not you’re not actually putting any of your own money into the deal. You’re just putting nothing, nothing down. You’re you’re finding the solution and coordinating, you know, all the steps and just us need to have those systems and knowledge of how to do that, of course, but I think when would a seller for a seller finance or owner financed type of deal? When would that make sense to the seller, I mean, one thing that comes to my mind is someone that, you know, they have a freaking third property, they don’t need the money. And frankly, they maybe they don’t, they don’t want to sell because that’s a huge tax event right now, versus getting paid over time. That’s maybe one scenario. But when would a seller sign up for this type of scenario?

Chris
The big one is the tax planning and estate planning. Sad example, the gentleman sold me this I didn’t know at the time, like literally told relatives and people and had a sign on a major thing saying, owner financing, I don’t want to be cashed out and come to find out he passed away like nine months ago. And his logic was because his wife and son now received the check. I don’t want them to inherit a building that they have a headache on. I just want them to collect checks. And that’s why you structured in hindsight now we all know that. So estate planning and tax and getting their price because as you said they don’t need the money.

Zach
That individual, if he sold that building, and then he would have had a huge capital gains that he would have. Like he’s not going to roll that over, because then he’s going to leave that on to you know, his beneficiaries. But I mean, he’s giving away a ton of profit versus helping them create that’s like a retirement picture for them to take care of his family, right?

Chris
Yeah, I consider it at one point when he was alive a refi, which I second guessed myself. And he he went nuts because he forgot to put a prepaid in the in the note, he said, No, no, I don’t want to be prepaid. I want to be paid off. So I honored it when he passed and we still pay his wife. And it’s just you wouldn’t believe people’s motivations with this. And because people say, Well, how do you convince them? You said earlier? You don’t? It’s the same reason people go to attorneys and accountants and dentists. You’re just trying to fix whatever they’re going through.

Zach
I love it. Any other scenarios on why someone would do the owner finance?

Chris
Yeah, the deal I gave you earlier I said, about two and a quarter property and when I heard all payments, the that was an interesting one. So there was an estate because the dad died and had several properties. And my son Nick and I met him and they didn’t want to for obvious reasons. They want to closure on the estate. I get that. He remembered us six months later call back and said hey, you might remember me and I did. We sold all this prop Please, conventionally, I’m leaving Monday, this was a Thursday, I’m leaving Monday to South Carolina, I have one property left, can you come do that owner financing thing, literally. So we did that deal on his front porch, he left we did the rest through remote closing. And his motivation was I got all that done, I’m retiring, I want closure here, I don’t need the money right away, send me the checks.

Zach
Love it. All of it. And so same exit strategy with this one. Let’s just review that briefly. Again. So this is just a different way of structuring for the seller, free and clear property, where basically they are receiving you’re, you’re basically they’re going to be the bank, right, and you’re gonna be paying principal only over a set period of time with some balloon. And then this just different way to structure the front end back end of same thing, put someone in there that would qualify for the house, I mean, in a go through just bullet point the the exit again, one more time, Chris.

Chris
Sure, so we’re going to attract that same buyer who needs time. And I should have defined that a little bit earlier. I said credit, I kept saying credit with post COVID, you’ve got a major depending on who you listen to, goes to Michael Dell’s new book talks about like a 200,000% increase in entrepreneurship. Well, all those people have presumably great salaries from J, OB. And they want to go into entrepreneurship, and they go to the bank. And the bank says Well, no, and I need two years of what they call seasoning to see that you’re you’re producing the W two income or your own entrepreneur income. So that’s a huge, huge buyer. So now this buyer comes in and either way credit or that, and they’re going to qualify through the buyer process that we set up pre qual process, then they’re gonna put down that downpayment in the house of the 225 would be about 20 to 25 grand, and then they’re gonna go ahead and pay us monthly, we paid on that one, nine, I think it was a little more than 923 I think it was, and we charged them 1500, that’s payday to spread. And then the back end is where it’s huge. I’m gonna give you some metric here in a second. The back end is huge, because picture nine on at all is 923. In this case, over 48 months was that term, every month that coming down, it’s a lot of money, it’s 40 something $1,000 In principle pay down. So here’s three metrics for you. When you structure a owner financing deal, it’s free and clear. When the price is 199. And above, when your monthly payment principal only is at least $900 and above. And you structure at least a 48 month term, a four year term. You have six figures, all three paydays every time this deal, that little deal I just told you about we bought for 183 sold for 225. Our profit was 120 527 grand, all three paydays. Now, some people go well, how can you do that? It’s because of the three Payday system.

Zach
Right, some of that you’re receiving immediately some of it, it’s over time, and then some of it’s on the back end. Cumulatively, that’s that’s how it’s shaken out. It’s just being created. destructured. I mean, that’s and I think you wrote in your book about, like an ER, we’re talking about some stats and averages of your your typical deal that you work with some of your students on I mean, can you talk about those numbers? Yeah, we’ve got profit margins and things.

Chris
Yep. We’re on our metrics. So our family team runs for between 75 and 78 grand and that’s been for last several years. At the beginning, it was less we’ve become better at kind of eking out the different profits, but we’re about settled at 75 to 70,000 per deal. Alvie paydays, students range from a low of like, I picture Macedon, Arizona, it’s on the outskirts real low end. And she’s at Claudia hits around 45 grand and do all three paydays. And then we go to about 250. The range is 45 to 250,000. You know, Miami, I’m thinking in markets. We’re in New York City. Some of the higher ends of like DC Maryland area. So those are nice paydays. Because those those payday ones are big, the principal paydowns, big. There’s some some game changers in there.

Adam
Why wouldn’t, if you got deals of 45 and 250? Why wouldn’t everybody just go into the 250 markets?

Chris
We teach everyone I know there’s different niches that teach people to go to certain markets or time certain markets, I teach everybody to stay in your backyard 50 mile radius, with very few exceptions, unless it’s like desert, like where this woman was in Arizona 50 mile radius, and don’t be going crazy. It’s hot enough, in my opinion, to start up a business Adam, right as an entrepreneur, and then to start going into markets that are foreign to especially with COVID. Gosh, so I teach him to stay local now, and there’s not too many people that would go, Hey, my median price range kind of is this and like us, and we’re in the 75 or 78 grand rocket, I’d rather do that low hanging fruit right now. Then try to go out and venture off into other markets. Me personally.

Zach
Yeah. And, you know, for turnkey, that’s one way you can entry into you know, the conventional way using your own money into some of these other markets and build a foundation that maybe you can learn the market more but I think the reality probably too and you would maybe agree Chris that you know something like this once you really learn the process and the systems and you have the established you can though make this applicable to other locations, right. It’s Just kind of a plug and play because you have the systems. But yes, starting point, backyard when you have all these working parts, and you’re familiar with the legislation, because you’re an active investor in those areas, that’s probably a good place to start.

Chris
You can yes, you can do it anywhere. We have a student that lived in New York City, in during COVID, her parents in Jacksonville, Florida, she went there for a little bit and came back to New York. But she did her very first deal remotely in Jacksonville, Florida, because she she grew up there. And she said, That’ll give me a reason to go there. Like my parents are my client. I said recently, if I grab one, I have more reasons to come down, and I can write it up. So yeah, you can do them anyway. I just want to get people up and running as quickly as possible, you know?

Zach
Yeah, you shared a metric of like, time to first deal or something like that. It’s so so central. And someone’s starting out, because, like, you know, you’re working hard. You’re learning stuff. I mean, you’re burning in a new business venture, but it’s like, yeah, you gotta get something done, you got to see some return on your investment. And so that’s why that’s so essential. Let’s, um, let’s move on to subject two is a lot. Well, actually, before we go to that, what percentage is owner financing? I think you said roughly 20% Is the lease purchase.

Chris
Our business personally, we’re splitting the two, it’s probably 5050. Now, so 40, and 40. To make up the difference, because we’re pointedly looking for them, we want to own them. Now, we want to not just control because like with the lease purchase, picture this, at the end of that term, 36 months, let’s call it, I have to now have Adam if that was his home, in that example, I have to have him sign that deed not me because he owns the house. So it’s a little bit of going back to the cellar in when that happens. I we’ve had people pass away, I’ve had all kinds of things, we do uncover the home. So it’s not gonna be a problem. But I gotta go find and that’s one of the cons of a lease purchase and having to get involved in the deal again, whereas the other two I own.

Zach
So these are all beneficial strategies to have in your arsenal. And it sounds like you know, the owner financing subject to are probably more common. So we went through that. Adam, do you have any other questions on the owner finance to go through?

Adam
Nope, I think it’s time to move on.

Zach
Okay, let’s do subject two, Chris.

Chris
Sub twos. This is what’s interesting about sub twos right now, because we’re buying a home, leaving the mortgage in the seller’s name, right now, right, the second, like the deal, we spoke to that group about this morning, these rates that we’re going to buy these sub twos that are somewhere in the three and four range. Already. That’s an enormous advantage in this market where rates are already way above that. And sadly, I’ll give you some stats in a second. But sadly, the big run up of nine years or so people’s equity, some of those people just can’t hang on to the homes now. They kicked the can down the road with forbearance, or they got sick, you know, they lost a job. So we’re getting those calls now more than ever, and everybody I talked to even on my podcast, different investors are saying, Yeah, we, the demand for sub two deals is huge right now, sadly, because people get pushed out of their home. Now, if somebody sells us a home subject to the existing loan, versus letting a bank foreclose picture, we’re gonna start making that mortgage payment, let’s say they are behind, we’re gonna start making a mortgage payment very soon. And so after six months or so that credit starts to repair itself organically. If they let that get foreclosed, they’d like some mess for three to seven years. It really is. And so we are again, helping people we did one in Michigan with one of our students. Sadly, this woman had a first and a second. Very low. I think that they turned like high 70s. She couldn’t cure the arrays for like, I think was 2700 bucks. That’s all it was. But she had no means to do it. And when she heard how we put buyers in and help them to your earlier point, Zack, that’s what made her go with us because she was getting all these low balls and short sales that would hurt her credit. And we said, No, we’ll pay the arrears and we’ll take over the two loans. Now that house was worth the day, we walked in 141 50. And we sold it for 179 on rent on it last year was 70 something we did help her in her credits better now. But sadly, she would have been foreclosed on and eaten up and take advantage of.

Zach
And then as you mentioned that, you know, just foreclosure stays on you. I don’t what five year four or five years, maybe six years.

Chris
I think some can go as long as seven. So I gave that range. It’s awful. So it kind of follows you as you try to get a job where you try to anything apartment.

Zach
All right. So subject to this is subject to the existing financing. This is someone who is in need, right? They’re behind on payments or something like this, we can define this seller avatar, more specifically, but basically the strategy is you’re taking over the payments for the bank. They are signing the title over to you and I think the biggest question Adams going to bring his what ifs and then this one is probably got a few of them about where are the banks, you know, what are they do is it you know, with this due on sale clause is this issues, you know, and I’ve done subject to in multiple situations before where sometimes banks just don’t care at all. Some in one occasion, we had to have a conversation with a bank and that’s fine. They’re still getting paid. But let’s talk about what I mean what is the bank Look at in what what are kind of some what if scenarios here?

Chris
Yep, there’s a bunch this is the biggest question we get so we do some things and just obviously a real simple disclosure I I’m not an attorney, I rely on the people that tell me to do it but we’ve never been at this 31 years never had a foreclosure or doing sale called now why we pay the bill. You know, if you don’t pay the bill and some vendors have abused this then you asking for a headache. So number one, pay the bill number two, how you title it, how you take title to it, I think matters again, our opinion how we operate is all I can work on and how we title it is. We do put it in Atlanta trust and we title it the the address of the street in the person’s last name, why an ad to the guy St. Guymon St. Germain act. Let people Trent lets people transfer people property for family planning reasons. So it’s just another layer, nother thing we can do, because local banks, sometimes attorneys will get sketchy because they have relationships with them. We had a student Don and Pa Pennsylvania and he was going to about to do two sub two deals. And his attorney said, Don, I’ll do them. I’ve done them before. But I heard this local bank is kind of looking out for these here in this town. Now I never heard of that. But he said to Don, let’s just do this on a land contract where the deed sits in escrow doesn’t get recorded. So there’s all kinds of ways to pivot if you’re concerned to your point, even if you did get called. You can change ownership, you can put in a beneficial interest rate, there’s all kinds of things you can do. The answer is you can pivot.

Zach
Most of our clients are putting out like same thing as buying a rental property put the deed into an LLC. We’ve never never seen do on sale, you know, and the banks, I mean, almost anticipate that. But if they were I mean, he just yeah, just quickly and data back to the I mean in the rental scenario, but that’s one thing I’ve never heard of is keeping the deed in escrow. And that’s brilliant. I’ve heard of people using even like, what you do on sale insurance or something like this is one thing out there. But you know that it’s all about knowing what the options are.

Chris
And having a good attorney, frankly, that I won’t say they’re easy to find we recently struck relationship, they’ll be out there, they’ll be at one of our upcoming events where they’re in 32 states, I finally cracked the nut on that and said, Okay, this now they can serve us our whole community. And they’re adding states as we grow with them, and they’re super aggressive. And they do every type of deal with talking about that is huge to have an attorney knows how to do it.

Adam
Yeah. So you mentioned with the the other ones, you know, your three paydays? How much you’re making on those? Is this the same ballpark of profit during the subject to or is it more? Is it less?

Chris
It’s more here’s why. Give you a specific example. Remember that example I gave you earlier, Adam, I said that we’re near a tourist area, Cape Cod, and a couple got a divorce, it was an amicable. Okay, so we put a woman in there who beat up her credit go into law school. And we still have this deal. And we said we put it through the pre qual and it said she’d be mortgage ready in 29 months. Now remember, sub two there’s no clock ticking, there’s no term for us, we own it for as long as we want. So we said to her 28 months they qualified you, we’ll give you 36 But after we accepted her and after she mentally thought, Okay, I gotta get my credit fixed, I gotta go to the bank, I gotta get through law school. We said to her right here in this building the conference room, listen, if you can keep your payments current for the first year, and you can take that deposit that we just agreed on of 10% and get that up to 20% So we know you have more skin in the game we’re gonna want to finance you or turn around owner finance to get you out of the rent to own you’ll never go to bank if you unless you want to and will own a finance you she was in tears. Because just going to a bank scares so many people. So now that third payday with all that principle pay down just grew dramatically. We’re still in this deal. And so a deal that might have been 82 or 84 grand can easily go up into the six figures fast.

Zach
Be in the bank is always the best position. I mean, that’s, that’s outstanding. Are you are you telling you know, when you’re explaining some of your business model in your strategy to sellers, do you talk about your vetting process and you know, that you you take the buyers through and the renters?

Chris
If they have a concern Zach with and some do, especially if you’re less experienced and the scripts aren’t too smooth yet they’re going to sense that right? They’re gonna ask you things are gonna say well, how do I know you’re gonna pay the mortgage? And how do I know you’re gonna cash me out? And what if what if, what if? So, yes, we have to sometimes go into depth saying this is not a renter, and I’m your buyer. But if you’re asking here’s what I do behind the scenes with my buyer, you know, we do tell them so people say this sounds too good to be true. How do you make money we tell him I make us for every month I make I get all your principal pay down because you’re walking away. You know, we tell them.

Adam
The benefit of everybody winning. They usually make money too.

Zach
Alright, subject to just bullet point review, this is something that where the financing stays in place. The seller is actually in a, you know, probably bad position who’s more motivated? You know, the house has equity in it more than likely, or I guess, does that matter so much, you need to have some equity right?

Chris
No, usually they don’t, or does a teeny bit that they’re willing to walk away from, if you can just fix it tomorrow. So these deals, the only con if you’re new is two things. One, these deals sometimes when the money because remember, they’re walking away, you might have to pay the transfer tax small, but you have to pay that. And in this case, I gave you those $4,100 in arrears. Now we collected 41,000 for payday one, but there was a bridge of about a month before that came in.

Zach
Okay, so you got to bring the bank up to speed and are you paying the bank directly? You guys are is not obviously going to the seller, right?

Chris
No, so good question. Even on the lease purchase, Zack because I say to myself, even on these purchases, I’m paying your bank directly. And they say why? Because I have 50 or 60 buyers in homes, and I can’t worry that you’re going to make the payment and my buyer has been pushed down the street if you don’t, so I’m going to pay it you can go the online you can get a receipt from us, but we’re gonna pay it directly.

Zach
Okay, and is do you contact the bank? And you I mean, you just take over? How do you actually I mean, logistically set up paying that mortgage?

Chris
Yep. So we have a checklist when the when the seller envoys with us, but if they have an online account, we get all that information. So we both can login, they can check us anytime. And if it’s not, and it’s just a paper statement, we change the address, and they perceive us as like a management company, no big deal. Those are the two main things that we do as far as the onboarding a seller.

Adam
It’s amazing how little places care when they continue to get paid.

Chris
Well, listen, my first sandwich lease deal for I still own this property, this because that’s another strategy. But I did it back in like 2012. And the bank was here in town. So I’m going okay, it’s my first one, they’re going to know that I that I’m doing this deal. And my attorney said, I worked for this bank, you know, he’s all concerned, this bank knows who we are now, like, we pay the bill, like, it doesn’t matter. They literally on this island where I live.

Zach
I mean, the banks, they don’t want this property in reality, right? They want their money, they want to get paid. So this is a benefit to them. You know, to bring something back up, it’s actually they’re more concerned about their internal books, and having something that they’re not not getting paid on and like the what if if they take that property back, that is a negative balance for them. Yeah. So anything they can do to keep it off the books and they’re willing to play ball. In this, yeah, you’re not doing anything illegal here. This is, you know, this, this is structured 1000s and 1000s of people are doing this on a written, this is just how the game is played. So all about being creative. So let’s just do because these are, these are kind of high level stuff, Chris. And obviously, like, this is why you have this educational platform in this community to help people really fully understand this. But let’s just run through these one more time, just bullet points. Okay, lease purchase, I’ll let you define it.

Chris
So lease purchase, we’re going to control not own the property with a simple agreement that allows you to do so with a $10 deposit. And then you’re going to turn around and put a wrench home buyer in that you’re not going to stop payments until such time you get that buyer agreements are built to do that great owner finance, when a financing can be done in any house. But we’re going to focus on free and clear with the goal of structuring principal only payments in the goal using those metrics I gave earlier, of getting a six figure deal every time as long as you’re in that deal for about four years, the exit doesn’t change, it just becomes more lucrative because of the principal pay down.

Zach
And those do have a balloon at some point, right? The typically Yes, the buyer is going to actually buy the house at some point. And then subject two.

Chris
Subject two. You simply buying the house like everyone is probably used to buying if they bought their own, the only difference is on the settlement statement instead of a new loan showing up it says existing loan and gives you the remaining balance. And that’s how the balance happens on a settlement sheet, you do the exact same exit. Typically you don’t have the luxury of having contingent upon a buyer, especially if they’re in trouble. But you’re gonna have the same setup as the other two.

Zach
And I know I’m being purposely redundant here. But as with any one of these strategies, it’s the same exit right? With with a buyer. So just talk about potential different exits for that that end buyer.

Chris
Yep. So all of them start with us, all of them start with the rent to own with a qualification process to make sure that that buyer can in fact be mortgage ready inside of a date that fits inside of your date with your seller, super critical that we’re setting these people up to win and succeed on some of the deals that are longer terms owner financing, but certainly subject to that doesn’t have a term, we can turn around and do an advanced strategy and owner finance to that person become the bank.

Adam
So is this where you have some lenders that you work with, that you consistently take people to, and say like, oh, here meet, meet Adam. This is his, you know, give him Adam, give me your financials. And then Mr. Lender tell us, you know what all he needs to do.

Chris
Okay, so two levels of that, yes, at the very beginning, we have both a registered loan officer and a credit enhancement specialist who used to be a loan officer, work with that buyer and give us that report so we know they’re gonna be mortgage ready. On the back end Adams even tougher. So to your question, we have just to get one a good attorney, we have good loan officers in our markets that understand the lease purchase and how to cash out our payday threes because they’re not normal conventional deals, they look and smell like a closing at the end, but it’s a lease purchase. So there’s different nuances and those mortgage loan options are super super valuable when when you get those in place and we haven’t been a lot of markets now.

Zach
Let’s review one more time because we talked about this but it was in the midst of everything else. You know, really the benefit of doing this you’ve structured and you trademark this three page a kind of system on how and that’s really about how you’re structuring deals so can you talk about exactly what those are again.

Chris
Yeah so the first payday is going to be that downpayment from the buyer because remember their buyer mentality not renter mentality and I don’t mean to you know, I had a rent when I went through my my crap so I’m not stepping on the on the renters, but they have to be in buyer mentality mode. So they put a down payment down pay day one. It’s non refundable. Pay Day two is the delta between what I’m paying the seller or the underlying debt on that property to a bank. And what I’m collecting from my tenant buyer while they’re getting mortgage ready, they need to the Pay Day Three is all the principal pay down that accrues throughout the term of the deal could be 2, 3, 5, 10, 20 years. In any mock up that we did on that property day one.

Zach
That’s when this that’s when the buyer takes it takes you out of it right and it ends up actually buying it and then when there was pity number one, is that’s being paid upfront. Is that a difference? Is that is that that like the down payment, essentially.

Chris
So down payment, they get full credit for the systems to use to make sure they do but it’s just like, if Adam, you went today and you went to qualify for a loan and you were putting 20 grand down, the bank wants to source that, right? They don’t know where you got it. And so the same exact thing has to happen with us. It’s just that the time period is over two or three years, so they just have to keep records, that’s all.

Zach
Okay, and because you’re you’re typically structuring most of these with no real like downpayment necessarily to the seller though, right?

Chris
Correct. 100% Correct. So that guy told you about Brian, he’s he’s very, very much an icon in our in our community now. And before COVID He wasn’t even here. He was selling elevators. He did the $10 deposits on every one of those deals that I said the 11 deals and create over a million all three paydays, he coaches now for us because his story is amazing. But just picture that, like, I don’t want to say out of thin air because he had a work but $10 on all 11 deals. And it was over a million dollars in those deals. On his average pace. It’s crazy.

Zach
And how long did it take him to do that?

Chris
Brian got out of his job in nine months. I think he’s been with us since now. November of 19. Right before COVID.

Zach
I love that those are awesome stories. And that’s how you can expedite your success on that. Let’s um, Adam, do you have a question for him?

Adam
How big a nightmare your taxes whenever you do this? Does your CPA hate or love you?

Chris
Income tax wise? I mean, yeah. Okay, here’s an interesting thing that would, would, I hope make people happy. Your payday ones that you receive all this year. Like I showed him presentation last week. In a course of a 12 month look back we created like a little under 600 grand and payday ones just on our family deals. Those are not taxable. Until and unless the option is exercised, ie they cash out or they default. Unless you want to claim it. The IRS doesn’t give you claim ahead of time, right? They wouldn’t they wouldn’t hit you. But you don’t have to claim until the guy was cashed out or defaulted. Picture that use of money. As far as tax issues because I’m not an accountant, I will tell you this, there are a lot of advantages to the owner financing and the sub to versus on the lease purchase because it’s more like self employment tax depends on a lot of things like your LLC and all kinds of things. I don’t wanna get to detail your accountant will do that. But good news. We have our CPA personally who works everybody in the community if they want to. Because the street pay days, you know, there’s a certain chart of accounts of certain things you do so that Adam you can maximize what you’re doing with your taxes. That’s why I like ownership you can depreciate you have better tax advantages et cetera.

Zach
I love and that’s so essential, because now that 600,000 is I mean, it’s subject to tax Yes, at some point in time, but really, it’s it would be the equivalent of maybe like over a million dollars, right?

Chris
Oh, easy. If you’re aggressive. Yeah, easy.

Zach
And that just money that you can go in and reinvest today in earning income on so And then also, I guess another question is, what about licensing? I mean, are you are you in theory? does this differ from state to state? Are you acting as a lender? You know, do you need to have licensing in place for some of this stuff?

Chris
Not lender. And of course, my disclosure, as always, I’m not a licensing authority. But here’s, here’s that give me give me a couple of stories. So not lender license more. So people are saying, well, don’t you have to be licensed as a realtor? I was years ago, I’m not. And the answer is this. And again, I’m not this is not advice to what we do in any, in any state you see for sale by owners, right. Okay, so when you control or own the property, you can sell it. That’s how our agreements is set up. Now. You I had a realtor in this area I can I even know who probably most likely was, who when we started doing deals, start sorrows instead of referral source, which we really are really good reciprocal referral source as a threat, and called the licensing authority. And they checked all our agreements. This has happened about three or four times in our community, and said, Okay, I’ll set because you’re controlling owning the property? Of course, you can sell it, you don’t have to be licensed.

Zach
Yep. I’m glad you brought that up. That was another question. And this could be a 10 hour. Question and Answer, but just kind of bullet point, Chris. How are you? I mean, probably a lot of people listening to this like, Okay, this sounds awesome. And, you know, they’re very intrigued by this. How are you finding deals and buyers? How do you find the sellers? And how do you find the buyers?

Chris
I’ll keep it simple, because it causes as always, they’re advanced things. But there’s three main sources. And I’ll tell you where you get them. There’s expired listings, I don’t care how hot the market got, some homes don’t sell with relatives, I don’t, there’s all kinds of reasons. So good source, better source right now than it was six months ago, for sale by owners. Again, better source now than it was six months ago. They’re not popping like they were in for rent by owner is a really cool one. Because you have some beat up landlords after COVID. And they’ve just done.

Zach
I think Adam needs to have a discussion with you about selling some of his properties to you.

Chris
Do you know there’s a list, the the lead source is called My plaza I’ll tell you the source it’s it’s free on our on our site, so anyone can use it. All of associates use it all the students. But there’s a there’s actually in one of our CRM databases. There’s a new category, tired landlord, and there’s another one COVID relate, I forget what they called it COVID stress or something like that in a way that they get that list. But that’s crazy. You can buy a list of anything these days.

Zach
Yeah, unfortunately, we’ve all kind of been there where I’m glad you brought that up, because while owning investment property, I mean, there’s obviously many advantages to it. But there’s we’ve heard so many stories of people that, you know, they’ve just had terrible tenants terrible properties, or they’ve been self managing, and it hasn’t gone well. And you know, that the house is in disarray, they don’t want to sell it for half of what they paid for it, or take a huge loss on it. So this is an exit for many landlords, especially out of state owners. I mean, this is, you know, I see where this is very applicable.

Chris
You know, I say to the landlords or to the investor, how would you like to have the same income as you would normally get from a renter, but never get a call from a as a landlord? And in most cases, your house is better when they go to cash out than when you gave it to him? How would you like that? How can they say no to that?

Zach
I mean, you’re solving all the issues for him, I mean, 100%, and they don’t have an option, either, they can’t go and just sell it. And let’s say you don’t want someone to just make them a lowball offer on it. So Chris, let’s kind of transition to talk about how your your guys’s program how you’re helping people, you know, learn these different strategies and coaching them through I know you have a lot of you have a lot of different free resources, ebooks, you have a special for our community that you’re going to give away. But, you know, let’s talk a little bit about kind of your program and the steps you take investors through. And if you have a few success stories, you’ve already shared some, that’d be great. But again, just to reiterate, we wanted to have you back on on the show, because our community has reached out and seeing you know, as we dive deeper into this, like, you know, people you guys are out there offering tremendous value actually doing deals, you have metrics to follow in a process to assist people in learning this. So this is just, you know, amazing stuff that we want to dive deep into that we’ve already received positive feedback on but to share a little bit more about your program.

Chris
Yeah, so I’ll preface it by saying this. I don’t think I know there’s a big challenge in the industry right now. It’s not, it’s not like it’s new. And I caught sort of a gap. And our goal is to bridge that gap. And the gap is the time for when someone takes a course or goes to a seminar. At the time they do a deal. There’s a lot of reasons mismanaged expectations, you know, aggressive marketing, but the bottom line is, I get too many calls and people said, I invested x and I haven’t done a deal and that’s awful. So our program is very interactive. It starts with a bunch of free stuff, like you said, because I’m big on free. I want to know that you touch the niche. You want to help people and this is a fit for you. After that there’s an online platform that I definitely wouldn’t call it a core For us, our highest level students use it as a resource every day and they go back to this 11 module. So they’ll go back to the owner financing module or back to the sub two module, because they actually got to be on they’re like, oh, wow, now I get to know more. So it’s an online living, breathing, changing, forever changing thing, because we’re in the trenches. So that’s an online course, some people take that and run with it, then they’re, they’re shopping events, once twice a year and go, I got these seven deals, this is great. And we never hear from others who say, look, I want to get more aggressive, A, B, I want you on my shoulder, we have more hands on programs, it ranges from group coaching to very, very intense one on one coaching, even me coaching some of the highest level students personally. So the goal is always transactions, some companies want to sell X amount, we want to do deals with people in the field, that’s our main goal on all these programs.

Zach
No, that’s so important. And it’s like, you know, we say this all the time. But this is the reality is the network that you build, and the people that you surround yourself with are going to determine your success more so than any specific real estate deal. You know, and same thing with our community, that’s the value we bring, you know, we we sell turnkey investment properties, but with the true value that we bring to people is connecting with you and opening up their eyes to other investment strategies. And, you know, talking with the right real estate attorney and CPAs, and learning about new markets and different things that allow them to be more successful, it’s really the community in your network, is turns into your net worth. And so that’s important and tapping into an immediate network and a system is so fundamentally important. And it sounds like you have a different, you know, different tiers for different people on based on their goals, which is good to see it’s not, there’s obviously not a one size fits all. And as we’ve mentioned, we’ve heard a lot from our community of being being immediately successful in your community with the knowledge that they gain and being motivated to go out and find deals. I mean, it takes time it takes work, right. But I mean, if you’re looking for, as we mentioned the beginning, if you’re looking for a way to replace your active income, quicker than you know, waiting for 10 years to buy rental properties, being an active investor is a way to do that, and really learn the ins and outs of real estate to expedite your success.

Chris
Yeah, and I can tell you, emphatically, that is sort of like I’m gonna date myself here. But in the 80s, when rates were high, there was high demand for creative real estate is done like a full circle. And the percentage of deals being done outside of banks creatively is on the rise big time. And so to your point, I’m not saying it’s easy, you’re gonna work your butt off. But if you’re willing to do that, for the next year, there’ll be people in that community that worked as hard for the next year, given the timing right now couldn’t be better, and create a decade of income. That’s pretty neat. And in your community, you could take any one of your community during the turnkey could take what PD one or PD two, and I called stacking and just shuffle that towards the turnkey. So you’re doing both at the same time. It’s a great combination.

Zach
I love that. Yeah. Because you got to take your active income and put it somewhere, right. I mean, that’s that 100% That was was all about. That’s exactly what we do with our business. Yep. You know, that’s how we amass a large portfolio rather quickly. Being active investors being creative investors and growing your portfolio. What do you think, Adam?

Adam
You talked about busting for, you know, a year or so? What is your definition of like really working hard, he talking like 40 hours a week, 50 hours a week? 10 hours a week? What uh, what do you consider bustin it for a year year to really get this thing going?

Chris
Yeah, not ours. But realistic alcohol it activities to match their goals. Because facetious example, someone comes in and says, let’s say Brian, he was selling elevators. He was traveling every weekend, every other week on a plane missing his sons. What was his why? If he he said to me, I want to be full time in 24 months, similar to a lot of people, I’ll be your best student. A lot of them tell me that sent me a video tell me that. But what I wanted to hear was, what do you want to do while you’re in the plane in between flights at the hotel? Are you willing to put in at least that seven to 10 hours I needed the beginning. If it’s yes, I can build something really cool with you. If you’re telling me what to go full time, replace a multiple six figure income and you have two hours a week on Saturday, it’s not gonna work. So one of these things gotta change, that’s all. So this varies, it’s not the hours it’s the coach ability and being super efficient and listening to us 100% Or he says a listen, but really listen and execute what we say then it doesn’t become ours, it becomes efficiency.

Zach
I mean, that’s, that’s what it’s about you got to make it you got to make the active choice, right? You got to put in the time you got to surround yourself with the right people. But you got to do it and the people that are going to take action are the ones that are going to be successful. And and I know that you guys you know, have an application process and you want to make sure you’re you don’t just open this up to everybody. You got to make sure that it’s a match for them. We’ve we’re all familiar with, you know, the education space where yeah, it’s just you know, bring it have a three day seminar and sell as many people as you can and those are the be successful, great. Those who will which is a small, you know, are actually those that won’t be successful as majority because they, you know, people are just selling them, you know, stuff. I’m your situation, you know, and that is frustrating. And that’s the same thing. Same thing with a turnkey industry, there’s a lot of people that would just rather, you know, now be it, there’s always issues with houses from time to time, but sell someone a house that, you know, they could care less how it how it operates long term and what that investors going to do. I mean, so that and that’s with any business, it’s, you know, there’s, there’s right operators in the space. And obviously, Chris, we do our best to network with the people that are the right operators. And we obviously see that integrity. And we’ve already seen that feedback from our community. So the that’s an awesome thing. As far as Do you have any other success stories? You’ve shared a few examples. I mean, any other success stories that you want to share some some case studies, I mean, it’d be cool to kind of hear like, average time to first deal what a typical, you know, how many people deals you’re seeing, on average, you know, or even people that have been wildly successful. I love those stories, too.

Chris
I have I have both ends of the spectrum on the time to first deal so that for us, so and this will get people thinking, I have people, Jeff Redman comes to mind who did a deal on 32 days, I have people who have literally taken three and 65. So let’s go through 65. Chad took 365 days. Why? Because remember, I said earlier, it’s not just the skill set. Like there’s other things you guys know, as foreigners, this baggage is okay. So this gentleman had lost his wife and he had to transfer, you know, his home, like there’s a lot of stuff that was going on there, but he fought through it. And in the last literally in the 12th. Month did three of those owner financing deals we talked about earlier to where over six figures, one was almost six, three, that set him up quite nicely. And not to mention the confidence boost after grinding out for you. So why is that if I teach the same skill set a time to first deal, why is it very, all the mindset and all the other pieces that people don’t think are important is super important. So we teach the genius model skill set systems and, and mindset and they’re all important mindset, probably the most. So that’s time to first deal berries literally from 30 days to 365. Mike comes to mind, just because I know a lot of people working and in a lot of people like not to especially postcode. Mike was in Cal he came in and 17 and I flew out to see him at some of my levels. I get on a plane and I go to their market or Zach does. And that’s the gentleman who said I want to be done in 24 months. He was commuting and a little more than an hour each way. And he talked about being willing he did call as well as brother drove him because they both worked at and he calls to and from. And he’s the one and 26 Months went full time. Now he has an office next to his garage, he walks out his front door and he’s there. He has a newborn for that process like his life’s totally different just by making that change. But he grounded out for that for that 26 months, it wasn’t easy to do calls on his downtime and take his SAT and go get a house. But now he has a super lifestyle. I think you actually run half days a week. So that’s a really, and he’s in Cal and I tried to give you different markets. So California, we have a few people to link in North Carolina came from car salesman then on a medical company very successful with his wife. And when they got separated one do his own thing. And he said about 23 of these deals 23 And he’s just I use toy now like he he’s not even full time either. Because once you get that down after two or three years, you’ve got payday threes come in, you’ve got your skill set rolling, you’re rolling. But the markets don’t matter.

Zach
I mean, that’s huge. Why you can set it up with a three paydays you can get paid immediately over time. And then then you can create this for like residual income this way as well. Yeah, right. And so you can stack that with each new deal. I think that’s important. Mike’s story, it resonated with me that I heard you talk a little bit because I was thinking back to my Air Force days, when I was an optometrist, I’m still practicing and in between patients. And so and I had about a 45 minute commute in North Dakota. So sometimes that was, you know, driving through three feet of snow. Still, I had a headset, you know, as making investor calls, you know, to and from our, in between patients making calls, you know, doing deals at lunch, instead of socializing with everyone in the lunch room, you know, and I’m a social person. I’m not, I’m an extrovert, but I you know, the grind, you gotta grind, you got to do it, and be willing to put in that extra time. Yeah, 100% I love it, Chris, any any last minute kind of pieces of advice. I mean, we’re going to share some more testimonials and some more free information that you made available to our community. And again, we can’t appreciate that enough of when we hear success stories, and when people come back, and they’re like, hey, we want to hear more about this. And these are creative things that really are going to be like helping people go to the next level beyond what they’re already doing. We just love this stuff. So we appreciate everything you’ve done for the people that have already come into your community for Mars, and just the education you’re giving out. But any last minute pieces of advice you want to share for anyone that’s like, Hey, this is interesting. I want to look into this more. How do they contact you and what are the next steps?

Chris
Well, let’s give them a simple link for your tribe only and that’s the smartrealestatecoach.com/retire The other just piece of advice I’d give him is three steps. Because I’m not naive, so naive to think everyone’s going to, you know, be an accurate in your your community, we both know that. But if everyone would just pick a niche that they can attach to and get passionate about, and then find, secondly, someone morally, ethically and lifestyle wise that you can attach to who’s been through cycles, super important, Ben through cycles been through at least one. And then third, put the blinders on for three years, you’ll have success. If you do those three steps. I know the third one can be tough. But if you do that you’ll have success in any niche. There’s too many shiny objects. Be careful that our niches happened to meld and weld together quite nicely, and create wealth, but not all niches do that. And that’s why we’re together and doing some great things.

Zach
I love it. Thank you so much for all the education Chris, this is outstanding. Adam, we’ll make sure all these links are posted below for anyone that wants to find out more about you wants access to some of the free some of the free materials that you’ve made available. Adam, let’s sign us off here.

Adam
Yeah, well, Chris, thank you so much. And for those of you who heard the the accent there, remember it’s a smart with an RT. There, the smart real estate coach.com/retire. Really appreciate you joining us again, Chris is the founder and CEO of smart real estate coach, you can find us at renttoretirement.com That’s renttoretirement.com once you make all your first pay day with Chris, you can come and buy all the passive income with with us that you can possibly have it and you can again that’s rent to retirement.com you can see it schedule a call to talk with us. Really appreciate you listening. Don’t forget to leave a review on whatever podcast platform you’re using. And we’ll talk to you on the next episode.