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Transcript:
I have a special guest with me today and it’s captain Richard. Now captain Richard wants to talk to us because he just finished a seller financing deal that our love for him to explain to talk about, because most people aren’t familiar with seller financing and basically buying real estate investment property without using the bank is extremely powerful and rich. Thanks so much for joining us today. And we are so looking forward to hearing your story.
Good morning, Mike. Thanks for having me on. I appreciate it.
All right, rich. Well, can you explain to the fellow pilot investors…
What is seller financing?
Yeah, so basically in simple terms, it, alls it is seller financing as a real estate agreement in which the seller handles the mortgage process instead of a financial institution. So basically instead of applying for a conventional bank mortgage, the buyer signs a mortgage with the seller.
Ah, that’s, you know, most people haven’t thought that other people in this regards, the seller can act as the bank it’s completely foreign to most people. But as we go on with this interview, I’m so interested to hear how you’ve used seller financing to increase your profits for your investment property. So, you know, myself, when I deal with sellers and I try to talk to them about the benefits of seller financing, and there are a lot, a lot of them are still stuck in the mindset of bank, bank, bank. I want all cash. So in your instance…
How did you find a seller who understand and appreciated the benefits of seller financing to both parties?
Sure. Uh, so the Pistol’s house number seven in my portfolio, um, in route to 15 to 20. So the one thing that I do is I will always go through the property tax information because I want to see is that a game changer, a deal breaker or somewhere in between, um, now in doing so I noticed the name of the person on the deed, who I’ve known for almost 30 years. It was just ironic that I did. Um, the problem, really the biggest problem for me was trying to hunt her down because she’s not on social media. So through a lot of hunting and searching, I was able to get a contact with her and through a series of meetings, probably two or three, we were able to strike the deal. But, uh, for understanding the seller, she, she has a big portfolio herself. So she understood the process.
Wow, that’s fantastic. So you brought up two important points. Number one, if you’re interested in a property, the owner is in public record, as you mentioned. So if you look at their tax appraiser for your particular County, if your city, you can easily find the owner and wow. So in your instance, the owner happened to be somebody you knew in the past life, and thankfully they under, already understood the benefits of seller financing.
Sure. And it’s, and it’s good that kind of, when you get that initial meeting, going to, first of all, you need to establish the relationship. Now, fortunately, obviously I have already established one over a 30 year period, even though I haven’t seen her for that long. It had materialized obviously before that. Um, so in the course of talking with her, we were able to strike up the conversation of, of a seller financing deals, the benefits. Um, course we both know the cons. Now, if you’re doing someone that, um, that you don’t know or don’t have an established relationship with that, you’re going to have to establish one that there’s, there’s no doubt about that.
Absolutely. Yeah. If you run up to Joe Schmo seller, they’re just chased all cash or for you to go to the bank and get a mortgage. Absolutely. So the fact that your seller was already in tune with seller finance, I’m not sure if they’ve done one in the past or perhaps they’ve spoken to their CPA, which a good CPA, if they take installment payments, their tax savings is tremendous.
Absolutely. Yeah. And that was one of, that was one of the deals that she was more in tune with as far as the tax and geez, I can’t even say it implications. And for me it was the speed at which this was going to take place. Um, because when you go between the two parties, you cut out the middleman. And when we cut out the middle man, you cloud, uh, a big chunk of time. And as real estate investors understand time is money. So all I have to do is come up with a contract, which doesn’t take a long time, um, come up with a down payment and then we hit with the transaction at that time.
Yeah, absolutely. You are a hundred percent correct. I mean, especially in today’s market where I know here in Colorado house, just down the street, there were 50 offers. But if you come in, you have the relationship with the seller and you can close within a week versus at least 30 days the bank that’s huge power, like you mentioned.
Yeah, absolutely. Plus they’re going to do background checks, credit checks now, not to say they won’t do a credit check in a seller finance deal, but a lot of the red tape that is, um, encountered within a traditional mortgage is not necessarily, or, uh, often found in a seller, uh, uh, purchase deal because you guys get to set the terms, um, what, you know, what’s going to go on right now, not through the bank and everything else.
Exactly. That is so powerful. Now you can work with the seller for terms that benefit both you and the seller. And that’s something that most people aren’t used to. It they’re used to going to the bank. The bank tells them what the terms are. Okay. So
Exactly, exactly.
Yeah. So if you wouldn’t mind, so in your instance, what interest rate in term the seller agree to?
We agreed to a five-year balloon, um, and a mortgage amortized over 30 years. Okay. So basically it’s the cost of the house. You amortize it just like a 30 year conventional loan, right? So there you get your monthly payment, but the balloon payment or your final payment comes in five years. Uh, now in my case, there was some issues with the roof that prompted me to get in contact with her. And probably I told her, we’re probably gonna have to renew this, which she was open to that. And that was fine because I’m going to have to drop another eight to nine grand on a roof, no big deal. You know, it, it happens, um, you have to be cognizant or have to have those reserves for that. Uh, but at least this is, again, this is a good example. I’m able to just call her and say, Hey, I have an issue. Are you open to renewing this contract? Even though it’s barely in its infancy yet at this point. And she said, yes, because I need to show cashflow at some point.
Exactly. Yeah. And that’s, if you were to do that with a bank, it would take them weeks or months to go through the bureaucratic process to give out approvals.
Yeah. And just to get the answer of no, we’re not going to,
Yeah, it would take weeks if you got an answer. Wow. That’s, that’s fantastic. And, and rich mentioned the balloon. So for those who are curious, how would he pay a balloon payment? Well, if you, if you were to get a new mortgage versus refinancing a property that you already own, the refinancing is a much, much easier and in most cases, much cheaper. So his to get his five-year balloon, he can simply finance refinance with a note investor, uh, another potential, uh, investor who’s interested in taking that, that interest or do traditional, uh, financing with the bank refinancing. That is so, uh, rich, can you describe more about how you obtained the seller financing contract? Because most people they’re used to the boiler plate contract that gift from a realtor, which doesn’t really mold itself very well to this creative and seller financing deal. Um, can you tell us more about how you got that contract?
Yeah. It’s so it kind of the contract itself, I mean, their contracts are contracts, right? Just step it all as it is, it was one big stipulation. Um, so when I purchased my house, number six, that was a quasi seller finance, and that was a contract for deed. Now, the good thing is that those people, I had already established a relationship because they’re friends with the family and the good thing is they’re both attorneys. Um, so when we did the contract for deed on house number six, and then this property came on, I said, Hey, can you draw me up pretty much the same contract here are the terms. Um, and, but I want it so that I’m going to get the deed, right? So it’s not a contract be, it’s just a straight up, uh, seller financing, uh, deal. So they were able to draw it up, given the parameters that I gave them. Um, and it, it follows pretty much the same cause you’re going to have some of the same elements. Uh, you’re going to have the, like the radon test. You’re going to have the property disclosure statement. You’re going to have all those, all that other stuff. But you’re on the driver’s seat as far as what are the terms, what’s the interest rate, um, because that’s already been agreed upon between you and the seller and they’re able to just fashion that into a contract.
That’s amazing. So from a prior sale, you already had a relationship with an attorney who was familiar with setting up those contracts.
Absolutely. Yeah. It was pretty easy.
Wow. Yeah, that’s what I noticed too. The whole, if you want to get serious with real estate investing, it’s all about creating a team and more importantly, creating a team of people that you can work with. Oh, he happened to network with a potential attorney before, Hey, now he can use that resource. So that, that is I think one of the biggest hurdles and the biggest things that if you can overcome working alone, instead of forming a team and relationships like you did rich, the potential is tremendous.
Absolutely. And kind of like you said, the team was important and I have my own team placed between property manager, maintenance manager, but the one guy that I was able to cut out, which, you know, it is what it is, is I was able to cut out the realtor portion of it. And on the seller side, sole was she, so she saved money by not paying the, uh, agents fees and I’m not paying my realtor, uh, as well. Not that it’s a bad thing or good thing. It’s, it’s, it’s neither here or there. What is this? It’s a savings and it’s a significant savings. And that, that savings goes into each person’s pocket at the end of the day.
That’s right. Again, it wouldn’t win deal for the seller and for you. And that’s that, that’s how deals are made when both people are happy.
Absolutely. Absolutely. And it seems that the more people that get into this business, um, house after house, after house, those relationships are being built with people that you don’t know. Or what I like to say is somebody knows somebody that knows somebody. So you may know somebody that knows somebody else that’s stolen a house. Well, okay. You have a little bit of a relationship there, you start taking it further. Uh, and those are the deals that, uh, you really want to have because especially in the market right now, the, the housing market’s crazy, there’s no inventory. So you really have to get down and dirty into the weeds and start finding these deals.
Yeah. Yeah. That’s huge. And to add on to what you’re saying, so many people are used to going on Zillow and being stuck with the computer to find their deals. But as in Richard’s case, being outside, talking to people, build these relationships with professional people, that’s how you profit. Would you agree?
Absolutely. Absolutely. And because when you get down to it, if you get down to the human aspect and you ask them, what do they want, what is it that you want out of this? And you can really formulate some, some good deals. Now, again, I’m just a neophyte at this, but I was able to ask that one question, what is it that you want? And she told me, she said, I want to get rid of my properties. She wants to turn over a new leaf and start a new chapter in her book. And I said, great, I’m here to help you facilitate that.
Wow. You know, and when I talk with sellers, that answer is the hardest one to get out of them. What are you going to do with the money? What do you want in the end? What do you want at this transaction? So the fact that she was open to that, that’s fantastic. Opened the door to tremendous opportunity.
And I was still like, well, I’ll have to say that your, your friend, uh, Larry Hart bolt when I was listening to a number of his podcasts that, that was done previous to this, this purchase. So it certainly certainly helped me with that question.
Oh yeah. Larry has been flipping my mind upside down too, to realize that potential of like thinking completely outside of this box.
Absolutely. And that’s, that’s in these days, that’s what it takes. People are going to have to think outside the box because there is no inventory.
Exactly. And if you’re just going to play by the rules that everyone’s played for, you’re going to be in the line of 50 offers and just crossing your fingers. Yeah.
Yeah. Well, not only you’re going to be in the line of 50 offers, but you’re also going to be up in that price because everybody wants that at the same property. So you’re going to be, everybody’s going to try to outbid each other. So that price of that property, maybe not out of your reach, so go somewhere where nobody else is.
Yeah. I, I absolutely, and it’s, uh, it’s a lot easier than people think, you know, if you stay off the MLS, if you just walk the streets, if you talk to people in bars and whatnot and you, you can hear, Oh, look a breweries opening up in town. Okay. Well maybe I should look for property around that potential, uh, where that site’s going to be and yeah. Keeping your ears and eyes open, look at alternative options rather than the MLS like you’re talking about. Yeah, absolutely. This is the lazy
Man’s way, but it works. It works, but it’s the lazy man’s way at the end of the day.
I agree. You kind of hinted to this at the beginning. So when you, when you had the, you sat down with a title company and you had to pay the closing costs,
Did you see a difference in closing costs when you did this seller financing deal versus if you were to do a traditional mortgage with the bank?
Well, absolutely. So I was able to average kind of the closing costs out of my first five, it’s roughly around $1,600. Uh, so the cost to me under a seller finance agreement, it was 500 to my attorney to drop the contract. Right. They they’re gonna get theirs. That’s fine that they did me a service, uh, $45. That was for the title transfer. And I think 25 was for the, uh, title insurance fee. So at the end of the day, it’s seven 50. Uh, was it? Yeah. Uh, five 70 out of pocket versus $1,600.
Wow. Wow. And, but people
That’s real, that’s real dollars. That’s that’s dollars back in my pocket, back in her pocket too. Uh, so it’s, it’s not that something that’s ingrained within this big mortgage or whatever that, that the bank normally takes care of. It’s it’s actual dollars back in our pocket.
Yeah. So you didn’t have to pay any bank, origination fees, uh, paperwork fees for the bank that people don’t realize the bank makes the money on all those fees at closing. And then after you close the next week, they sell the mortgage because they already
Yeah, exactly. Yeah. That’s and that’s their business on that and that’s fine. Um, and we’re just, we’re just doing a different type of business and we’re cutting out the middleman and everybody likes to cut out the middleman.
Wow. So th that is tremendous. And so when people think of seller financing deals, well, you know, I can go to a bank and get like a two and a half, 3% mortgage. Why would I pay the seller a higher percentage? Well, if you look at the total amount now rich spent very little money at closing compared to what he would have if he went through the bank. So you have to look at the total amount of money, not just the percentage that the bank puts in front of you, would you agree? Rich?
Absolutely. So in my, in my case, I, I’m still putting 20% down because that’s kind of what the seller wants to get and that, and that’s fine, but I’m not putting down. Um, what would I normally do still in my case homes, one through five, I’m usually buying all in cash. Okay. And so my, my system is I buy three bedroom, one bath at a minimum thousand square feet as a minimum and in a, uh, C neighbor as a minimum. Right. But when I’m buying all cash, I’m dropping 30,000. Oh, I’m sorry. Now I need to be 50,000 all in. Obviously we can’t do that where I live, I can do that. Okay. So, but at the end of the day, then I’m out $50,000 out of pocket this way. I’m only out my down payment, right. A little bit in my, the contract for you to be attorneys a little bit to the title company that you’re still going to go do that’s all the same as any other, uh, uh, purchase agreement. Um, but I’m not out the big chunk of money that I normally would be. So I can take that money and then roll some of it into the rehabs, which I’ve had to do. And I take the rest of it and I go, hold on to home number eight.
Yeah. And best of all, you know, before we were talking about relationships, that seller is on your team. I’m sure. So now, if something else comes up on your end or, or the seller’s end, we have another one that went off that we’ll be thinking of you most likely wouldn’t you go great.
Well, a hundred percent, because that was part of our discussion. She, uh, the one benefit or amongst the many, the seller finance deals, they don’t have to get these homes prepared. They don’t have to do a lot of upgrade it’s to get it onto the market where they are going to get a potential buyer. I know what to expect. Right. So they don’t have to drop a lot of money into it because I’ll probably do that. Right. Because with the understanding that I’m going to be putting some money in rehabs anyways, to get it to rent ready, um, to my specifications. So it’s a win for her. She doesn’t have to drop a lot of money. It’s a win to me because I’m not paying overinflated market prices. And we, you know, get that deal done quickly. And then, you know, she gets to move on with her life and do whatever it is she wants to do.
That is fantastic. And so, I mean, who knows what the future may hold rich might be flying his plane, he lands, and he gets a phone call from the same seller saying, Hey, I’ve got two more properties. Do you want them? And that is, that is the dream when the seller contact. Yeah.
That was the home run. I will admit that when she said, because she has another, I think six or seven properties, uh, pretty, and they all fit within my scope of, of my, my system. So I’m like, all right, whenever you are ready to offload anymore, let me know. And that was part of the agreement she will. Uh, the only thing is that she’s, she will not sell until the tenants move out. So as they move out, she will put them, uh, you know, uh, for me for sale. And we’ll go from there.
Amazing. Wow. I hope, and I’m sure it will. This will get to your goal of, I think you said 15 to 20 properties, a lot faster and with a lot less stress than going through the MLS and fighting.
Oh, absolutely. Especially in this market right now. I, I’m not even looking, um, on the market. I know there, there’s just, there’s nothing out there as far as on the MLS and if, and if there is, it’s, it’s, it’s over, it’s over priced.
Yeah. It’s definitely a weird time. So I know this happened fairly recently, but so far, can you see, or can you detect that you’re going to be profiting more with the seller financing deal than you would have if you, uh, if you worked with the bank?
Um, most likely because again, the profits, you know, I’m looking at the, you know, the total money out of my pocket. So with the seller finance and I get to keep more of that money. So more of that money stays in my bank, uh, with me, or I get to take that money and roll it into another house, which gives me more income. So at the end of the day, both at the end of the day, yes, it’s going to produce more income for me. Um, on the, on the cashflow side, it’s, it all equates kind of the same, uh, between, you know, just the straight line exp you know, normal, monthly expenses, but in the overall theme of things, um, it’s gonna generate more profits for me because I can get more homes quicker. Yeah.
That’s yeah. Getting to your goal much faster. So as we finish up rich, now there’s a lot of pilot investors out there. Like how, how can I do the same thing? That’s Richard.
So would you give any recommendations to anybody else as far as if they want to get into seller financing and profit more than they could have with a realtor?
Uh, sure. So in my case, definitely you’re going to have to have those relationships now, did they have to be direct? No. Again, somebody knows somebody that knows somebody, uh, definitely reach out. However that’s done, obviously live, it’s done social media, great, whatever way that that can be done. Uh, and then you can use your contact to make the other, you know, the other, the seller contact and get together and just talk, what is it you guys want, you know, what are your dreams and aspirations to do you see yourself so sewing to so many times too? And what can I do for you? Uh, kind of thing. Um, my, um, caveat to that though, is you’re definitely gonna want an attorney though, to drop these contracts there. Now, there are some online, I wouldn’t suggest it will it because there’s certain nuances in these contracts.
You want to be familiar with. You want to go over with your attorney because at the end of the day, these contracts are tailored between you and the seller, not so much boiler plate. So, uh, definitely use that. Um, but the relationship aspect that that’s going to be key. And I’ll just give one example because I’ve been, uh, seeing it recently is that I’ve been having a rash of guys, come up to my door and say, Hey, uh, I work for XYZ roofing. Can I go on your roof? Well, no, you know, I’m taking the liability. If you fall off and be, Oh, I never contacted you. So I have never established a relationship. So kind of go into it with that mindset that you, you, you really need to break that ground of establishing a relationship and kind of, um, maturing it from there first, you know, cultivating it or is, is probably a better word.
Uh, but just coming out cold call and Hey, I want to buy your house. You know, do you want to do a seller finance deal? They may not know anything about a seller finance deal, and now you got to educate them, but they don’t know who you are. So the chances are, you’re probably doing it is probably slim to none. Or if they do know about it, they’re going to ask you, okay, what’s in it for me. And you better know what it’s all about. So yeah, there’s a lot. There’s the learning curve is steep. I’m still learning myself. It’s definitely reachable. If I can do it, anybody can do it. Um, it’s certainly a better way, uh, than the traditional bank route, because you save the money and the time, which is a real dollars. Uh, and it’s a win-win for the seller and the buyer for, uh, money out of pocket and tax implications. Yeah,
That is, I agree. That’s, that’s huge. One of Larry’s favorite stories that he tells is if you sit down and talk with the seller, what do they want? If you can solve that problem, you’ve got it. And one of his funny examples is he sat down with somebody and what they really want was to sell their house, buy an RV and travel the country. So he found out the exact model RV they wanted. He called up his buddy who happened to work at an RV dealership, got the RV at a discount and traded it for the house.
Absolutely. And that’s the best thing. The possibilities are limitless, whereas a traditional bank financing, there’s only one way. So I, I, I thoroughly encourage solar finance with the caveats of, you know, have your ducks in a row, have a good contract. Um, but outside of that, you know, there’s, there are all kinds of possibilities of what you and the seller, uh, decide how you’re going to execute this contract.
Awesome. Rich, thanks so much for taking the time and sharing your story and educating everybody on here or the pilot investors who were so curious about how you’re getting to your goal so quickly. And now that you’re venturing into seller financing, how it looks like you’re even accelerating your way to financial freedom into your goals. So thanks so much for joining us. Rich.