Creative Finance 101: How To Structure The Entry Fee

why do i have such a big whiteboard well because this video is such a big deal we're not going to take a ton of this whiteboard up but we are going to talk about the seven parts to an entry fee in this video check it out [Music] [Applause] hey guys welcome to my youtube channel my name is pace morby and i focus a lot of my time and energy on creative finance i love making youtube videos that bring value to you guys so if you like this video please like comment subscribe all of the things let's get into the video today we're going to be talking about the seven parts to an entry fee now what is an entry fee i have paid mentors i have been part of masterminds i have asked so many other creative finance investors how they look at this and nobody was ever able to give me an answer so through doing my own deals i came up with what is called the entry fee nobody else talks about this nobody ever jumps into it they make it super complicated but i'm going to simplify what it costs to buy a subject-to deal so when you ask yourself what will it take for me to buy this deal the entry fee is the answer to that question so let's get into it number one part of an entry fee guys who cares about my freaking handwriting all you care about is the value let's go so number one when you guys are working at a deal with a seller the first thing you want to ask that seller is how much cash does that seller need now it's kovid 2020 i'm in my home studio so guess what guys i'm the sub 2 guy i own this house subject to so the question was when i took over this mortgage subject to how much did i give the seller well i gave the seller exactly what they needed because i knew this property even if i didn't live in it i knew that i could make a thousand dollars a month renting it out or maybe a couple thousand dollars a month utilizing it as an airbnb but in this situation my wife and i fell in love with this property we ended up buying this subject to for our own purposes now in that situation i asked the seller what do you need in order for you to vacate the property move on to the next chapter in your life and the answer to his question was twenty five hundred dollars okay so that is cash to seller what happens a lot of times is that investors send me deals in my instagram my email my facebook group and they say hey pace i've got a great subject to deal and i say what's the entry fee they have no idea what an entry fee is unless they're one of my students in my sub 2 mentorship so the entry fee is what i use to calculate my cost for buying a subject to deal now this also works for seller finance but we're just going to stick to all creative finance deals have an entry fee i'm going to buy this property i'm going to close escrow and i'm going to renovate and hold this property myself what is going to be my cost to get into the deal now we'll do future videos on where this money comes from i actually have 10 places where this money comes from anywhere but my own pocket and we'll do that video in the future so the first thing i figure out is how much money does the seller need now this seller dave in this situation said you know what i wasn't able to sell the property without subject to i am so grateful for the opportunity to sell this home to you i would like to take 2500 so dave sold this property to me for twenty five hundred dollars i didn't use any of my own credit i didn't use any of my own credentials nobody ever verified my bank account i gave twenty five hundred dollars a day and this home which is about a half a million dollar home is mine for twenty five hundred dollars pretty epic now i gave the seller twenty five hundred dollars guys that's not the entry fee that's just part one of the entry fee part two of the entry fee is arrears liens or issues so guys a lot of people have no idea what arrears are sometimes when we're buying a property subject to from a homeowner they are behind on their payments so if the seller is behind on their payments the amount of money that they owe the bank in late payments is the arrear so you've got to add up the arrears any liens any issues with the irs anything like that and this comes up to the number two which i just call arrears on this particular property i had zero dollars dave did not have late payments he didn't owe the irs any money he didn't know his hoa any money he was caught up to speed he was on par with all his payments he was on time with everything okay now number three now number three is cost of acquisition so what did it cost me to buy this property well there's seven parts to the cost but what people don't realize is that your marketing spend your va's your text blasting by the way batch skip tracing or batch leads dot io is what we use so guys if you need a discount on skip tracing services go down below but at the end of the day i have a cost to get in front of that seller right there's marketing expenses to get in front of that seller i have to put that in my frame of mind now how did i get this deal locked up how did i buy this particular property that me and my family live in it was actually given to me as a referral from another wholesaler real estate agent who could not sell the property so i teach my students in subtoo.com how to go and get free leads and convert those free leads into sub two deals i actually paid the real estate agent who had this property listed before after six months of not being able to sell the property i paid this agent a referral fee of 2500 okay so so far my entry fee is already at five thousand dollars now what happens is i'm in contract i worked with the agent the agent negotiates with the seller and says hey we want to get this house sub two we work out the deal my total cost is five thousand dollars sorry guys it really isn't five thousand dollars because now i have to close escrow now in the great state of arizona we're pretty lucky the cost to close escrow on a 400 000 house is about three thousand dollars it's less than one percent we like to use title alliance of phoenix for all of our creative finance closes also wholesale also fix and flip whatever we are doing in the state of arizona we use title alliance of phoenix if you guys need a good title company danielle pendergrass is amazing i don't make any money actually saying that i just love the title company they are epic so we got to close escrow i've got to take this down to a title company i've got to take my documents and let them know hey guys i'm buying this house subject too dang i i just went from 2500 5000 now i'm at 8 000 all ready for my entry fee now for this particular property guess what guys we still have three more things people don't take into consideration number one i own the property now let's say hypothetically i decided that i was going to rent this property out which originally was my exit strategy the problem is i brought my wife over here for a construction walkthrough and my wife says babe i want to move into this house so we took it off the rental block and we moved into this property ourselves but we planned on doing a renovation because now i own the property i need to renovate it and i need to make it rent ready okay so if the renovation is in here we actually because they had taken care of the property we were only planning on spending about a thousand dollars cleaning up the landscape cleaning the property and then renting this property out that's really all it was going to take now number six and seven are the most commonly missed or overlooked items on the entry fee what happens i get investors all over the country call me and they go oh my gosh pace i put this money together i thought this thing was gonna be this much money for an entry fee and it ended up being a lot more and i go i already know why because number one you didn't take into consideration your cost of the marketing and that money is now still out of pocket you didn't take that into consideration and then you didn't even know about these two and when i say them out loud they will be so common sense that you'll be like oh well yeah duh but some people have an epiphany some people will realize that this is super critically important so my total cost is not just my cash to the seller if there's any arrears or late payments it's not just my referral fee for somebody bringing the deal to me it's not just the escrow fees for me to actually close it and become the owner of the property i also have to renovate that so now once i've renovated this property what do i then have to do well guess what guys i just bought this property subject to which means i took over somebody's mortgage guess what i have i have mortgage payments is a renter going to move into this property the second i finish the renovation no that is typically not how it works this property will end up being vacant for 30 to 45 days while i look for a tenant so what we do is we call this the maintenance so i need to maintain this property i need to maintain the mortgage payment the utilities the landscape the the pest control guys we're in arizona there's scorpions like hella scorpions up in arizona okay so you have to pay 60 to 80 a month for all of your pest control here in arizona so just because your house is vacant doesn't mean scorpions don't want to hang out you need to be paying for this and that is what i call maintenance so what we do is we take this is very important how do i determine the maintenance fee how do i determine the maintenance fee where it comes from is i take the mortgage payment the utilities power water sewer gas all of those things the hoa and any landscape or exterior maintenance of that property that i need to do this property was 2500 for mortgage utilities hoa main maintenance on the landscape and pest control is 2 500 i take that number and i multiply it by 2. why do i multiply it by two well because i'm going to have a vacant property for two months i need to make sure i have twenty five hundred dollars two months in a row so i'm not hemorrhaging like all these investors that call me and go peace oh my gosh i i have an empty property and now i got a mortgage payment that's due in two weeks and i don't have a tenant my tenant's not moving in for four weeks that's because you didn't take the maintenance into consideration and put together a five thousand dollar amount of money that will protect you for two months of an empty property now number seven this is also common sense when i said this on the maintenance side people go oh yeah that makes sense but they weren't considering it they very rarely actually put into play number seven is marketing i usually put a flat fee in here for a thousand dollars now my total entry fee is six thousand seven thousand ten thousand fifteen thousand dollars on a property fifteen thousand dollars on a property that originally the seller only wanted twenty five hundred dollars that's a lot of money so you guys see why the entry fee is so critically important you need to consider all of these things when buying a sub two a seller finance etc you absolutely should never send me a deal unless all seven of these items are filled out because i'm going to ask you hey freddy whoever let's say freddy's sending me a deal i go hey freddie what's the entry fee do you know what every investor ever says to me on an entry fee answer this right here every single time they go seller wants 2500 okay but what about your fee okay now if you're going to wholesale a subject to that goes right here because i'm buying this property from freddie that's a cost of my acquisition so if freddy says well i want a ten thousand dollar assignment fee guess what just happened my entry fee just went up seventy five hundred dollars so now i have a twenty two thousand five hundred dollar entry fee based on freddie wanting to make ten thousand dollars the cost of acquisition is critically important i need to know as the buyer because i need to bring this kind of money to the escrow table i need to know i need to cover all of these expenses and i'm going to tell you why because i want to be zero dollars of my own money in every single deal i own and how do i do that well because this money comes from one of ten places outside of my own pocket one of those being a private lender so let's say i go get a private lender somebody who's investing in me and my buy and hold strategy i'm going to raise twenty two thousand five hundred dollars what if freddie told me that the renovation was one thousand and it ends up being ten thousand well guess what guys i just borrowed nine thousand dollars too little in order to get this deal done you need to be able to know the entry fee so you know where to get the money from now this is on the buy and hold strategy if i'm buying and holding this property i need to know the entry fee if i'm not buying and holding and let's say i'm just going to wholesale it then the entry fee is also critically important because you know what your buyer is going to need to bring to the table therefore it will help you determine how much money you can make now let's take this into consideration what happens if my renovation is no longer a thousand let's say my renovation is a hundred thousand dollars do you think it's appropriate for me to make ten thousand dollars on a property that needs a hundred thousand dollar renovation guys i don't think so so the entry fee helps you navigate what to charge and also if the seller is asking you for too much money sometimes the seller says i want 25 grand down okay well that's going to put my buyer in a situation where my buyer can't afford that i already know i can't afford that so understanding the entry fee will get you into a position where you understand where to negotiate where you're too high how much money you can make on an assignment and also how much money you need to raise in order to put a deal like this together so the last part which i didn't cover is marketing what does that mean because i talked about marketing right here on cost of acquisition this marketing is before i close escrow remember that guys this is chronological so seller gets their cash first i pay off the liens the person who brought me the deal gets paid once everybody's happy i then close escrow and i own the property once i own the property i then market i'm sorry i then renovate the property once i renovate it i have to have maintenance and owing you know monthly payments and all those things but now when the house is completely renovated i need to market for a renter i need to put ads out i need to pay somebody maybe to bring a tenant to the table and pay them a commission a renter agent somebody who represents renters would need to get paid i truly raise every penny i need in order to acquire all of these properties and i'm going to do more videos on raising private capital i would love to know what questions you guys have about the entry fee and if you want me to deep dive and make more and more videos about the entry fee depending on what type of exit strategy because we've got so many strategies that the entry fee will help you with so in conclusion the seven parts to an entry fee are what does the seller get in their pocket right because i'm taking over their debt what do they get in their pocket real cash does the seller have any arrears liens or issues on the property that i need to take care of before we close escrow what's the cost of acquisition meaning if i'm buying the deal am i paying an assignment fee for it did i pay for marketing did i pay for batch leads and ultimately it cost me money to get in front of that seller do i have a podio do i have an acquisition team that i have to pay a commission to i do so guys my entry fee is very important i need to know my cost of acquisition then i close escrow again title alliance of phoenix knows how to do all creative finance deals so check them out renovation super important if i'm holding the property i need to know that maintenance on the property means my mortgage my utilities my hoa my exterior landscape pest control maintenance all of those things times two months while the property is vacant finally finding that tenant filling the space is money that i need to pay money out of my pocket so if you're trying to accomplish this business with zero dollars out of pocket you need to know your entry fee so you know how much money to raise how to put together etc now what's amazing is this property check this out here's what my entry fee actually was my cost of acquisition was 2500 that's a horrible one my renovation let's say a thousand dollars and what was my bottom fee it was 15 000. so what we're talking about here is i put fifteen thousand dollars up on a property none of my own money to acquire property using none of my own credit so that i could cash flow one thousand dollars per month pretty epic this business is unbelievably powerful i would never go back to traditional financing creative financing is the way the truth and the light as far as i'm concerned so if you guys got value from this please make a comment i want to know i want to know what questions you have the challenge with a youtube video is that i can't have live feedback okay so the feedback i need from you so i know what videos to make in the future is questions relating to the entry fee make me some questions down below freddie and i will go make more and more videos in the future that's number one number two please let me know that we did a good job give us some feedback tell us our lighting sucks tell us our audio sucks give me some feedback we want to get so good at this you guys are coming back here over and over and over for creative finance related items and then number three do the stuff right the stuff subscribe like share and more importantly hit the notification bell so you guys can see those videos coming across your email i appreciate you thank you for coming to my youtube channel and this is the entry fee to create a finance you

Channel: Pace Morby

Views: 42,744

Keywords: real estate investing, real estate wholesaling, real estate, real estate 2021, wholesaling houses 101, pace morby subject to, pace morby creative financing, wholesaling real estate for beginners, wholesaling real estate, wholesaling, creative financing real estate, creative financing, creative financing wholesaling real estate, entry fee real estate, wholesale real estate, subject to, seller finance, deal structuring, private money lending, creative finance, investing

Id: 9DVRKUqGWg8

Length: 20min 13sec (1213 seconds)

Published: Wed Jan 13 2021