How to Buy Real Estate without Cash or Credit

all right y'all my name is Phil Pugh style skiing I want to thank you for being here because I know you have a lot of there is where you could be when I was in school I know I had a lot of choices and it was a constant battle do I go to class or not but thank you for being here and I do reward action takers I believe that 90% of success is just showing up so because you showed up today you're all gonna get my book you don't have to go to Amazon you don't have to go buy to Barnes & Noble on your way out the door you can get a free book how about that and also thank you dr. Harris for giving me this opportunity to share this with y'all and my story is when I first got started I was just graduating from Vanderbilt University with a degree in mechanical engineering of all things and I did an internship as an engineer and I fell asleep at the desk and I said well this is this is not gonna be my life no way and so I start reading books on real estate and I got so inspired by it I said oh I'm gonna go out there and do it and I was a bit premature I should have probably had a job maybe a source of income because I ended up living out of my truck for a while before I got it all figured out and you'll read about it in my book just how I went from living on my truck to where I am today I live in Central Florida here I live in New Smyrna Beach my wife and I we got to the point economically where we could live anywhere in the world we wanted to so we we looked from San Diego Seattle New York where do we want to live and we chose New Smyrna Beach beachside so kind of living the dream now and it's a result for real estate okay so show of hands how many people here raise your hand if you own real estate okay great raise your hand if you would like to own real estate ok great raise your hand if you would like to learn how to buy real estate without having to go get a bank loan and without having to put down a down payment all right perfect cuz that's what I'm talking about today good this is going to be the subject of creative real estate finance ok this this training is it's coming mostly from the school of hard knocks but also there are publications on these particular subjects it's just not as much mainstream this is very creative it's outside the box but it can apply to just about everybody but you think about it think if you could own a piece of property right now you didn't have to go to a bank so you didn't have to worry about your income or your credit what if you could buy a property right now and maybe you lease it out a couple of the rooms to your friends and so you live rent-free or maybe you were like me in college and the biggest and most important thing was to be able to throw the biggest parties and the Landlord would have a problem with it so if I own my own property I wouldn't have that issue um when you have to qualify for a loan the first thing you need to deal with this good credit history you know if you're in college or you may not have had the time to build up a good credit history and even if you've had the time to build a good credit history a lot of people in this country don't have good credit for whatever reason another problem with qualifying for a loan is you need high income they want to see that you're making money when you go give your application to a banker they want to see how you're making money well if you're not making a lot of money it makes it tricky doesn't it you also have to have a low debt to income ratio so banks want you to have credit they want you to borrow money so you have good credit history but then they have this thing called debt to income and if you're paying too many debt payments student loans credit cards car loans versus how much income you're bringing and they won't give you a loan either and they usually want a big down payment to a lot of people don't like all this fun stuff so what what you're gonna learn here in the next hour or so is how to buy real estate without having to deal with any of this is that exciting by the way I'm gonna be asking checking questions to see if y'all are participating that way nobody falls asleep alright so what's in it for you I talked about you could own your own off-campus house you know maybe when you graduate you want to own your own home this is a way you can do that and also since you all have been talking about investments this is a way where you can start buying investment property so let me give you the story on my first deal I had just graduated from Vanderbilt and I was I had read a few books on this thing called real estate and so I I drove around this neighborhood near campus and there was a big for sale by owner sign you've seen those before so I'm all excited I'm gonna put this knowledge to some good work so I give the you know give this sign a call and person picks up the general construction company yeah I uh I called off a for sale by owner sign is this wrong number now you got the right number I'll be there in a minute excuse me you're at the house right yeah I'll be there well that's kind of pushy right so I didn't really know what I was doing I didn't know what house gonna buy this property I had no clue so he drives up it's an old guy like 75 years old he's just a fast talker he walks me around the property and and he says well how are you gonna buy this and I said well that's a mighty fine question he says what do you get of load I said oh there's no way I could qualify for a loan no no way he goes well I got some good advice reduces what night years from good good idea for you feel I'll finance the property so what do you mean I'll finance he was gonna offer since he owned the home with no loan on it he was gonna become the bank so he would lend me the money now at the time I thought it was the greatest thing since sliced bread now later I learned that he sold the property to meet for higher than it was really worth so it was a good deal for him to be the owner finance person so in other words what happened was he offered it to me for a hundred and fifty thousand 3-bedroom 2bath now now again that was a little higher than it should have been but I was gonna have to put down a down payment at all I just would start paying him each month that make sense so here's how it worked out no down payment no bank loan it was a 6% interest loan that I signed on but he never checked my credit he never asked how I was gonna make the payment he didn't even ask for a down payment that makes sense this was interest-only he was being he was being ultra nice to me because I told him I was like man I'm gonna have some trouble with this payment if you make it too high because I didn't know what I was doing and so he came back if it'll all make it interest only for you interest only it means it's gonna be a lower monthly payment cuz you're not paying any principal you're just playing the interest each day when you when you have a mortgage a part of it goes toward the principal part of it goes toward the interest okay so the total payment was eleven hundred now I gotta tell you this was a quaint little house just you know just south of Vanderbilt campus in Nashville and 3-bedroom 2bath like that would at the most rent for $1,000 a month but here this thing is I don't have to pay 1100 so here's what I did I rented each of the three bedrooms for 500 apiece and I brought in 1500 the best part is the parents co-signed now Here I am 22 years old no clue what I'm doing and one of these tenants was late on his rent I got a parent to call me and apologize I am so sorry the payments not do I think you know when it was due I'm overnight in you your rent I couldn't believe it I shouldn't even own this place never mind they got a parent you know bowing down to me is the landlord so I brought in four hundred bucks a month each month raise your hand if you want four hundred bucks a month coming in extra not all of you that's okay that's fine I understand y'all got bigger sites you'll be billionaires so I was bringing in $400 a month positive cash flow how come I was able to positive cash flow on this property when normally it rents for a thousand what did I do I leased it out to two students didn't I student student Reynolds is some of the smartest rentals you'll ever do because the parents are gonna cosign and the students are gonna be back next year and next year the college ain't going nowhere whereas if you if you had a lot of rental property next to a big plant or factory that could go out of business right and y'all made no more than I do but I think that the state of Florida had me on on the business yet and UCF's doing just fine so student rentals is not only consistent not only is it good to have the parents cosign but also you can rent by the room so hopefully by the end of this you'll be inspired you may say you know what maybe I should go in my own rental maybe I should start to lease out some of the you know the other rooms and then I can live for free but there are three creative ways to buy real estate I just talked about the first one which is owner financing and by the way at the end of this you can ask me any questions you have because if I run too fast through some of this and you didn't quite get everything just just make some notes and then it will touch on the end so owner financing works when the owner owns the property outright what kind of property owners owned properties outright with no loans on them that's right he just said old people that's right older people retirees they they have been paying on that mortgage for 30 years they've paid it off that also means properties that are inherited by all people right so that's another example and so when people owned properties outright you have the ability to potentially negotiate an owner finance deal so that's one way in which you can buy a real estate without a loan pretty cool huh the next way is through a a subject to subject to means subject to the existing financing meaning there's already a loan on the property and you're literally just going to take over that loan and I'll go into that in just a minute a little more detail and the third way major way to do this is through a lease option which is kind of quasi I mean a lease option you don't own it you control it because you rent it with the option to buy it but we'll talk about each one of those as well and in detail all right so real estate 101 you all may already know all this but it sets up nicely for the next slide okay to own a home what really signifies ownership is that deed de Eadie and what happens is the the previous owner signs over the deed to you they sign a document it gets recorded where does it get recorded well I by the way to say bye now yeah the county recorders office the courthouse yes so that each county in America has a recorders office and that's where these deeds get recorded now the mortgage company wants to protect their interest right because they just shelled out 150 grand or however much it was a separate document is going to get recorded as well now I'm calling it a mortgage in the state of Florida it's called a deed of trust but it could also be called a mortgage in other states and so that's a separate document does it make sense so the owner is one document the money is another document you know when I speak in front of big crowds I'll do the whole spiel of if anybody's cell phone goes off they'll give $20 to their favorite charity we won't do that here today though okay so the anatomy of an owner finance deal is you become the owner right so this this seller of my specific example he deeded the property to me but he was the one I'm he was the one that was the mortgage person so I mean in other words he was the bank so that's how it auto finance deal works now how is that different from a subject - well a subject - is kind of crafty watch this the the seller is going to sign a deed over to you so now you're the owner but the loan doesn't change the loan stays exactly the same and what you do is you just send payments to the bank pretty creative admit now some people think well wait a minute is the bank going to accept your payments yes they don't care where the money comes from so long as it comes in so you're probably thinking well jeez well who's who's willing to do that who's willing to give their home to you but then they are their name and their credit stays on the line well let me give you a story all right so this was the the owner of this property guy named cauri he was a friend of somebody I knew and they said you know Phil I hear that you've been getting into real estate and by the way real estate a lot of it is you can generate business through referrals for talking to other people and let them know what you do and so I said yeah I'm in real estate said well I got this friend of mine Corey who needs to get rid of his house now I said okay I'll go meet with him so I go over to this property here and I'm talking to Cory and this sweetie tells me he says well Phil the property's worth about 105 and I owe about a hundred thousand he says I felt been trying to sell my property I'm just getting stuck why is Cory having trouble selling his home he owes about as much as it's worth he can't even pay the commissions and the closing cost when you sell a property there's expenses it's funny in real estate when a deal closes you wouldn't believe all the hands that come out ask him for money it's pretty funny so he can't sell his home well I I brought this up to him oh by the way his total payment was nine hundred I asked him I said well Cory what if I took over your payments I dealt with your 900 bucks a month that way cuz he was moving out that way you can move out and move on with your life he was like Oh that'd be amazing I said yeah now I can't pay off the whole 100 right now but maybe in a couple of years I'll be able to do it but in the meantime I'll just be able to deal with your payment and and Cory was happy to do it now is every sell are gonna be happy to do that no now this is a small fraction of the overall number of sellers out there in fact it's even more so it's even more reduced by the fact that typically we're dealing with people who want to sell their home that are not working with a real estate agent when you drive out off campus and you see real estate signs those are usually from people that are working with real estate agents when someone's working with a real estate agent rarely is that real-estate agent going to want this to occur because then they won't get their commission so this is a small fraction our studies have shown about 5% of the total seller market fits into this category where they're kind of stuck and they need to get rid of their property fast that make sense okay so I also toker I said well now look so now if I'm gonna take over your payment's I'm gonna take on your responsibility I'm gonna need some I'm gonna need to make sure that I've got complete control of this property would you mind if I became the owner and again I shoot these people straight you know you get a share with exactly what's going on and he said well I guess that's what I got to do Phil that's fine so he deeded the property to me so now I'm the owner but his name is on that loan and my responsibility is what make his payments now I wasn't moving into this property so who was gonna actually make these payments the tenants that's right so I moved it a tenant oh this this should be pretty interesting here I don't know how much y'all have talked about yet as far as loans but this loan was an FHA thirty-year 6.25% fixed-rate loan let me completely impact that FHA Federal Housing Administration that's a government-backed loan government backed loans typically have lower interest rates number two it's a 30-year mortgage which means it's got a lower monthly payment because it's cut you know the payments have been stretched out and then 6.25 when this property was purchased about ten years ago that was a good deal nowadays I mean four and five percents a good deal but real you know interest rates by the way you look at history on real estate they've gotten up to as much as 18% in the early eighties so 6.25 is kind of a slam dunk now here are some hidden benefits of this whole thing number one by the way the tenant pays about a thousand a month I still own that property by the way I don't for a long long time every month that tenant is paying a little bit of that mortgage down isn't he because a part of that nine hundred bucks a month is kind of chipping now that that mortgaged the overall hundred thousand which is nice so that's building equity for for me next it's a low interest rate loan you're also probably going to discover as you investigate the world of getting a loan out there that believe it or not investors have to pay a higher interest rate than people who live in the home people that live in a home are called owner-occupants because they live there and banks I suppose assume that you're more likely to pay your own home mortgage bill than you would if you had an investor property so investors have to pay a higher interest rate but you see what's so creative about this subject to transaction you can get low interest rates even though you're an investor okay so you've got a low interest rate loan and you have the other aspect of this which is property appreciation what's appreciation price of the property goes up now what's happened the last seven years depreciation most statistics are proving that we are at rock-bottom right now now I am I'm not a prognosticator I'm not a market forecaster but as I'll talk about a little later there's a lot of indicators proving that now is the perfect time to buy a single-family home if you were gonna do it the next 20 years and you could all do it now is a wonderful time because most properties in places like Florida are actually it's cheaper it's cheaper to buy a property than it is for somebody actually building get the materials get the contractors out there buy the land and build a thing and that's a really special time because real estate in general this is kind of a fascinating statistic and you'll see it in the book as well residential real estate over the past hundred years has not appreciated on average a professor out of Yale put this together from like 1900 I'm sorry 1910 to like 2010 it actually just keeps pace with inflation now certain pockets of residential real estate go up above that that a that a flashing Airy number that's kind of interesting that means real estate doesn't really appreciate it just kind of stays with inflation but in a situation like now where Real Estate's gone way too far down now there's a little there's a little gap or an opportunity so in this particular case I've benefited from all three of these and I still own this property so I have a tenant in there right now paying the mortgage off giving me a little bit of money extra each month it's not a lot of money but then I'm building equity each and every month year after year now with the property when I bought this property prices are about at the same mark as they were when I bought this thing so it's not like I've appreciated much but I haven't lost anything and I'm looking better and better each and every month that's how you build wealth you build wealth by owning real estate and this is how you can do it without having to go get a bank loan oh great question property management property management in my opinion comes down to one thing tenant selection you choose your tenants wisely so I choose tenants I love nurses anybody in the medical field because they'll have a job tomorrow they'll be able to pay me plus nurses if they ever fall behind can pick up a couple of extra shifts and then what I do is I direct draft the payments right out of their bank account on the first comes out of their bank account if they if it if it over drafts I hit them again on the next day and then I try to hit their credit card and if that happens and I still got the money I sent it to my eviction attorney and he takes care of it and it doesn't matter which state you and if you have the right admission attorney they can be out in 30 days I make it very militant I'm not their buddy I'm not their friend this is business and if they're not paying the mortgage I got to pay the mortgage if I got to pay the mortgage that's less money for my wife to go shopping with and then I hear it I should say it's less money to build wealth but less money to give to charitable causes so here's a question I always get Phil why would anyone agree to leave their name on the loan and let you become the owner hey why would we say here Phil take my home oh by the way that's fine my loan will stay on my credit for the next ten years you just pay it each month he need to get rid of his home he was in a tight spot most people aren't in his situation but we're not dealing with most people are we we're dealing with a select few people they need to be motivated to get rid of their property and this is our little tip in business you may want to circle this in your ongoing notebook of life you are not always your customer have you ever looked at a retail store before and god I'd never go there I never buy anything there they're overpriced at it you are not their customer business is cater to certain customers and if you're not in that little that little box you may never understand what that business is even alive you all of us in this room college-educated we met and may never in our right minds let somebody just take our home and they and they just make payments to the mortgage but there's a lot of people that are in desperate situations and need to get out and sometimes this works out really well I give an example if somebody's actually falling behind on payments and you can catch them up now that would be a little bit of a down payment right maybe a couple of thousand to catch up the back payments you can actually help their credit which it's better for you to catch up the payments than for them to sell their home if they sell their home while they're behind it actually hurts their credit more so it actually can help them maybe some people let's say Phil I am NOT gonna just turn my house over to you just because you're gonna take over the payments that's fine that's dandy but I'm not gonna just give you my home in that case we go to a lease option that's the third way the lease option the owners still on the deed the owners still on the mortgage the owner still owns the home the difference is you get a lease and you get the option to buy RAZR get if you've signed a lease here okay great so you've been through that experience before with a landlord well it's basically a lease but then you also get an option to buy the property for maybe a couple of years or more and that option to buy what's nice about that is you're the only one who can buy it but you don't have to buy it okay let me give an example of a deal like that so this was a for rent sign so if you're driving around and you're looking for a for your next rental for maybe next semester where you live you may want to use this little technique here so I I saw this for rent sign and it was in front of this condo here and I I gave the owner a call and I said how much he asking for rent and let me see what my numbers are hold on I forgotten already all right yeah he said he said well I need at least eight hundred minimum eight hundred I really have to do 850 how wasn't a good negotiator sorry telling me it's a little bit right and I said oh I said I gotcha what's the situation so well just graduated from Vanderbilt nursing and I got a job in Atlanta and I'd like to to get moved out as quickly as possible and and I'm having trouble selling the home right now I've had it listed for a couple of months and nobody's buying that happens you know I mean here's what his problem was his problem was that his condo complex was being built it was still being built at the time what that means is he was competing with builders and so if somebody came into that condo complex to buy a condo that builder were just taking about a handout come on down here we're gonna get you some paint we'll get you whatever carpet color you want we'll get you a brand new building and who do you think they're gonna buy from the one that's two years old that they can't change the paint and carpet color or the brand new home you see so he was competing against this builder so he couldn't sell the property so I asked him same thing I asked Corey I said would would it work for you if I you know I can't buy this property for what what you're asking right now and just pay the loan off but what if I just took over the payments so you could move to Atlanta you get to your new job and get moving and then I could you know I deal with it from there and then at some point in the future I could sell it hopefully you know be in a couple of years I have to wait builder to finish building but then after that happens you know I can I can get rid of it then and he was all about it so I set the paperwork over to him well his mom was a twenty-year real estate agent in Atlanta and she said whoa don't just turn that house over to this old boy sorry I'm from Tennessee these are some Tennessee phrases he said instead do a lease with option so that's what we did so in other words a lease with option is kind of a fallback plan if the seller won't do is subject to and what happens is I put together the deal together for six years eight hundred bucks a month with the option to purchase it for 120 and so in this particular case I moved somebody in a tenant and I gave the tenant the option to buy it well for more than 120 it was more like 130 and so I sold it to the tenant a few years later so that's the other way to do it now this would be pretty simple for any of y'all in the room here to ask if you were looking to rent something around here you could say hey I see you got this place for rent um have you ever considered selling it a lot of landlords consider selling their properties for all sorts of reasons and so what you can do is you could do a lease and then you just have the option to buy it now you don't have to buy it but you'd have the option to buy it now in this scenario I guess you're probably thinking well Phil how am I gonna buy it you know a couple years from now well yeah you'd have to get a regular loan that's kind of the that's why with lease options we use that more for investing that makes sense because with investing we're gonna have somebody else in there and we're gonna get them to buy it and so the other nice thing about these is there's no real estate agents involved so we save on the Commission's so even if the deal doesn't have a lot of room we can still make a couple of bucks and a little tidbit on this particular deal this was kind of a because dr. Harris had asked me to give you some of the negatives as well as the positives this guy had a loan that had an adjustable rate and that became a problem when it started to go up and all of a sudden his 800 payment turned into 900 that ended up where I basically broke even with the rent so a little tidbit if you're gonna agree to start paying payments in the future for somebody make sure it's a fixed-rate loan because if it's variable you may wake up one one Thursday morning and realize that you're no longer making any money on your deal that's no fun all right so which one of these versions is better will really owner financing is kind of your only option for properties that have no loans on them so it's it's kind of like having a couple of different arrows in your quiver you can bring out one if it you know if it suits best to bring out another to pay on the situation the subject two is nice because you become the owner there's a real problem with lease options and that is that if you're not the owner that person could get liens against them and let me tell you a war story okay this brings out some pain so if I get emotional here shortly you'll understand why I had done a lease option and I had this tenant buyer in the property and they were gonna buy it and I was gonna make $45,000 cash was gonna go into my bank account I could almost see the money I mean I was already dancing I mean this was the greatest thing since sliced bread well guess what happened right before closing the title company found out that the sellers wife had never paid her student loan debt student loan debt never goes away y'all unless you pay it you can't file bankruptcy to get rid of it it just it's like glue it just sticks to you well apparently she didn't tell her husband when they got married that this had happened in fact they got married after I'd own the property but in the state of Tennessee as soon as you get married to somebody you both own the property so she had seventy thousand dollars in student loan debt now if I would have done a subject to I would have owned the property and her student loan debt would not have mattered but instead I didn't property in the Tennessee if you've got any judgments filed against you at the courthouse those have to be paid before something sold $45,000 did not go into my bank account that day in fact it never did on that property I had to give it back to him that's the thing about the lease options you can give the property back to him because you're leasing it from them your question yeah well if they if they take over the property they take over your lien now it's their problem now technically it'll still be in your name the lien or but but if they ever want to sell that property they got to deal with it yeah because what will happen is the way the recorders office works is when you record a deed that doesn't necessarily disappear who the loans are because another separate documents so yeah those whatever lanes are there will stick around and I don't know that it works like that in Florida because I haven't dealt with it but in Tennessee the bankruptcy and in collections attorneys of Tennessee they all got together one day and figured out how to make sure they can get paid more money with doing no work it's called making it a law that you've got to pay all the loans off before you can sell real estate they do they attachments all right yeah they just they stay there yeah I would have done the subject to where I became the owner I would have just said you am out of said look if I'm gonna promise to make your payments every single month so you don't have to worry about that problem anymore I'm gonna have to be the owner we're gonna have to put this property you have to deed the property to me I don't want to do a lease option because if I do a lease option I had that sort of threat now the other thing you could do but you could record a second mortgage to protect your interest but then you'd have to show that that actual money was transferred so if you had an extra 30 grand in your bank account you could say you lent the money to yourself but if you don't have that money you really can't do that so really the best way to do it is just do a subject to or a lease option is kind of your last case resort but then you'd want to do a title search and make sure the person wasn't full of liens hey kind of a funny little side note if the owner said to you they said well I if you're gonna become the owner I still have to have some control here there's one other thing you can do has anybody ever heard of a trust a land trust this is a really cool tidbit Florida is one of the best states in America for doing creative real estate the exact opposite would be Washington Washington's like Russia it's like communist whereas here here's flexible you can do all sorts of stuff it's capitalist right we've lost a lot of money in Washington for deals that didn't go through because they changed laws so on what happens is in the state of Florida you can you can buy real estate in the name on the deed can be a trust UCF trust you can name anything you want to Superman trust whatever you want to name it and then the trust then has these beneficiaries but here's the beauty nobody knows who the real owners are all they see is the name of the trust they have no idea cos that there's no other documentation showing who the trust owners are so you can have complete anonymity now guess when the legislation was passed in Florida for the land trust you're in Orlando what is one of the biggest things in Orlando when when Disney was buying up all that land he didn't want anybody to know because if if all the other owners of the love of the land saw he was buying the other stuff they would go oh my stuff's more valuable and they charge him more so before the day before he bought his first property in Central Florida the the Land Trust legislation was passed in the state of Florida and Disney was a big part of it so we can think Walt Disney all real estate investors in Florida can thank him so that's a really creative strategy as far as making sure nobody knows who the real owner is and there's some real value in that at times because if you build a portfolio of 200 homes all it takes is one tenant to say ooh here's mr. rich man and we'll sue him so if every property is in a different name it'd be really hard to search and figure out all your properties and also what they could do is if somebody like you neptr particular situation if we move it into a trust I could still let that guy his name was or cinta or sit to say I get your check how can you forget losing $45,000 right I could have had or sent to be to be the beneficiary of that trust but that would have still worked because then I wouldn't have had to deal with the with the student loans the problem is is when you leave it in their name long term you can you could potentially not be able to sell it down the line are you all going to good times is fine okay and again the lease option is is kind of a fallback plan all right so what are some wrong drawbacks all right in the real world everything is not rosy right first thing is you got to have a motivated person now I see it so often where someone you know hears about these strategies and they go out there and they try it like well it didn't work well it didn't work as you were talking to somebody wasn't interested this may be a bad analogy but it'd be kind of like a guy who is just in love with a girl who just absolutely was not at all interested you know and they go to class and you know she starts kind of going a different route I don't really want to see this guy and he's like yeah I haven't seen her in a while yeah the point is is they're not interested and that's the same thing here you're not looking for the majority of sellers out here that would look at this and go I'm not gonna just let you take my home or I'm not gonna be the bank if I if I own my home outright for $100,000 I want a hundred grand cash in my in my hand when I sell it now we're looking for that group of people that is desperate there's a lot of ways to find those people you heard some stories about just like examples here where I just like called up on a sign and whatnot that can sometimes be the most productive at times if you've got some time on your hands a little bit of gas in the vehicle because if you can just drive around and see some for rent and for sale signs that works for sale by owner signs excuse me but then once you get all fancy like the investors that that we work with then you start running advertisements and all sorts of stuff but you can do this simply by looking for some signs going on Craigslist there's a lot of junk on Craigslist but never so often you'll find a gym the next thing is you have to have the right paperwork and that's really where an attorney comes in you really want to use a real estate attorney and if you've been to the local real estate club around here they have attorneys that'll help you with this you just tell them what you want to do say I want to do a subject - can you send me a contract that'll do that here in the state of Florida so I get any trouble some of these properties may need a little bit of fix up but would that be okay if you didn't have to go get a loan you can become a homeowner if you had to be a little bit of paint and carpet would that be okay so some of these any you got a a this becomes all clear when you're actually out there doing it because think about it some people are going to want to sell their home they're not going to deal with a real estate agent y'all seen HGTV you know when the real estate agent walks in they're like oh yeah you're gonna need to change this and knock out that wall yeah we don't new kitchen definitely summers don't want to hear that I mean when they're tired and they're stressed out and the kids are screaming and they want to sell their home so they can move on with life and they get a real estate agent walking in there with the high heels and telling them all about what needs to be done sometimes they get turned off and if you can just walk up and say oh now leave the house a mess no worries the dirtier the better I'll be over there in a minute sometimes they're just like oh they just want to sign they want to get rid of the property and they don't want to deal with the hassles that's why sometimes these creative deals a little too cosmetic you know cosmetic is gonna be you know paint simple stuff I'm not talking about major things like plumbing or anything if you have problems like that yeah then you have to consider do you have the money to pay a contractor to go fix those things and then all of a sudden there's money out-of-pocket here's an important drawback you're usually not going to get as low of a price as if you paid all cash or you had a loan why is that yeah because you're paying for the convenience of not getting a loan see if you got a bunch of cash in your hand you usually can buy things for cheaper can't you if you're on the car lot or you're you know you're buying an appliance TV or whatnot in fact that's a good way to go buy a TV at Best Buy in other places you can negotiate those things just take out the $100 bills and just start kind of fingering them so I'm looking for a TV today sir can you help me so if you got cash you can negotiate lower prices so you're not necessarily gonna get the lowest price but is that always bad no sometimes it's okay to pay full price so long as you didn't have to go get a loan and it may require a down payment there are gonna be times where the seller says okay I'll let you take over my property but I'm gonna need at least five grand for move out expenses and I've got a good example that we had a somebody I teach out in South Dakota of all places it was a duplex and it was rented on both sides for 900 1800 all together and is there a marker okay don't worry about it so 1800 month was coming in and this owner owed a hundred thousand and the total payment was like yes somewhere around eleven hundred bring it in 18 out of a month and only has to pay eleven hundred that's good money in seven hundred bucks a month just whether you wake up or not it shows up seven hundred bucks well that owner needed ten grand some gambling debt or something guess there's some casinos out South Dakota because of all the American Indians so gambling debt problem needs to get 10 G's fast and I student had some had a little bit of money in a retirement account paid 10 grand of the person and the person gave him the deed and so now my students got a property that's bringing in 700 bucks a month and had to put up ten grand you see how that worked so now there's a little bit of an enticement to get him to go ahead and turn over the property but my students pump 700 bucks a month these were long-term tenants it's so far the last year it's gone perfectly well they're gonna get their 10,000 back in a couple of years right and then it's all gravy and then here's the best part that property was worth 160 and they only owe 100 that looks good on the balance sheet to an extra 60 grand looks good but with much comes much responsibility I've given you kind of the proverbial keys to the kingdom here y'all you could use this for evil or you could use it for good okay let me give you an example of using these techniques for evil there was a fella I guess is the nicest way to say it in Nashville and here's what he did he would go up to sellers of properties he would target the people that had bought homes and new subdivisions who were trying to sell him to sell their property because remember we talked about if you're competing with the Builder it's a lot harder to get rid of your property and they go up to him and he'd say oh I'll take over your payment's yeah it'll all be good you just move out everything will be fine and then he wouldn't start making the payments instead he'd move a tenant in there and just collect the rent just the rent each month until the house went to foreclosure now the thing is believe it or not houses can take a year or more to go to foreclosure a year and a half two years so this guy was just collecting rent and letting people's credit be destroyed now he did end up going to jail the point is you can use it for evil and that's not what this is about with much knowledge come as much responsibility so if you are going to do these creative deals you need to make sure you follow through those commitments so what that means that you're gonna take over someone else's house and you're gonna pay their mortgage payment you better pay it or don't jump into it or or just don't get in the business but you don't want to be in a situation where you did what that guy did question no the only reason why he got legally penalized had to do with the fact that he he was literally lying and he had a paperwork that said he was gonna pay so if he wouldn't have done that actually from a legal standpoint he would never got any legal trouble he just would have made a lot of people mad and just been a jerk yeah oh yeah I mean didn't you can he just this is another thing about crooks you'll learn is they eventually get caught because they're just not smart enough they always leave a couple of holes and that's what he did but it's technically possible that you could you know if you didn't use any other paperwork but just had them sign the deed over there'd be no paperwork to prove that you promised to pay you could do them well the people have the mortgage their credits getting destroyed [Music] right go back to the credit bureaus good question you can't go back to the credit bureaus and go look you're not gonna believe this this slick-talking short guy from New Smyrna came rolling in told me some good ideas and yeah I'm in a bit of hot water kid is there any way we could reverse life then they won't do it they'll just it'll to be destroyed and so you can get your credit repaired that's a whole nother industry so that helps people in certain cases but yeah it's one of those things once it happens it there's no really way to erase it but after seven years usually yeah yeah that's a whole nother that's a fun little story I'm eight I forget a little more time about the HOA game but what he was also mentioning is the idea that let's say somebody has not made a mortgage payment in a year they even live in for free for a year they're worried it's gonna go to foreclosure they move out now that property sitting vacant grasses growing tall what some people are doing what he's saying is they'll go in they'll contact that owner they'll find out the address they'll do like a skip trace or hire a private investigator find who that person is talk to him and say look your house is vacant would you mind if I moved a tenant in there on like a two three month lease kind of thing and just collect a little bit of quick money and then I'll give you half they're like yeah and you can do that now remember the person's credits already destroyed so they don't really care if they continue to not make payments and it actually works pretty well but again there's a the issue of course is you have to find a tenant who wants to move all their furniture in there for a month or two because you can't keep that lease going very long yeah that's right I've heard that as well that the bank has to honor it you know yeah if it's right you know in in West Palm and in other parts of this the state as well there's lots of foreclosures that are there being inhabited by homeless people and the banks are happy to have it because I'd rather have somebody in there than nobody so there is some of that that's that's definitely going in a fun direction but I I could talk about that for a long long time about all these different angles you can take in the foreclosure game and it's it's all because there's so many foreclosures the bank can't get it all taken care of plus Florida as a judicial state they have to go in front of a judge and that just takes forever you've seen government employees they show up at nine they end it to take a big lunch I can't get through all those foreclosures amen brother that's right okay so what are some common pitfalls the first is trying to convince an ordinary seller to do a creative deal we're not selling people here you're looking for people that are already motivated if you try to convince somebody to do something like this even if you're a great salesperson you convince them at the point at which they sign a contract with you they can still change their mind you know this is not like selling stereos out of the back of a pickup you know in the Walmart parking lot and once the exchange is made no refunds no returns it's over now this is long term you saw the contract it could be at least 30 days before they do something and think about this you know if it's not a good deal for them and they think that you're gonna take advantage of them they're don't call their mom or their sister or their brothers like I say this is a good deal and they're gonna go no it's a terrible idea so in other words you have to make sure you're working with people that already want to do this so you're not convinced him of anything we've worked with people that have a great sales background and they actually run into problems because they do such a good job of selling people on these things that the people end up you know going back and said I don't want to do this anymore so work with people who want to do this that way when they're at a cocktail party they say oh yeah I had to get rid of my house I just let somebody just take over the payment you did really oh I had no other option I had to now the person will support their decision and that's what you need you need people that want to support their own decisions don't take over variable interest rate loans subject to already told you that because what happens the payment could go up could the payment go down sure but it usually doesn't doing a bad creative financing deal just because you can you're gonna be able to take over some people's properties but you really shouldn't just because they'll let you do it doesn't mean it's a good idea either a it's got to be a property to live in so you'll make the payments or be it's a property that at least is gonna make some money you know if you're not gonna at least make a couple hundred bucks a month or have some equity in the deal you might as well pass on it just because it's cool and it's it's it's attainable doesn't mean it's a good idea does that make sense and then giving up before you succeed that's probably so cliche you've probably heard it a hundred million times I gotta tell you in life if you never give up it's amazing what you can accomplish I was living out of my truck in Nashville Tennessee I was I was homeless and ten years later I'm a public speaker an author and I teach people how to invest in real estate all across the country the Caribbean and in Canada it's good I ever gave up but this doesn't just relates to real estate but whatever you want to do stick with it most people don't but when you do it's amazing what you can accomplish in life all right so hopefully you've been listening we're gonna challenge those brains of yours all right so here we go I'm gonna give you the details this is a for rent sign that you saw you're driving around you give it a call person's asking $1,000 a month the owners are moving that's why they're selling now they've been trying to sell it for like 125 but they've had no offers they're blaming a bad economy and this that the other now they owe about a hundred and ten thousand and the issue is when they move they've got another rent payment coming up in Tampa where they're moving to and they simply can't make double house payments what kind of deal is this it could be a subject to why yeah they can't make double house payments they're gonna have to do something either they're gonna stop making payments on this house when they move or there ain't moving and when people have a job transfer and sometimes they've got to move there is no option now what if they don't agree to a subject - you can do that lease option and then you can check the title to make sure there's no liens and then you could actually file a second mortgage if you had some cash in the bank to prove was a real second mortgage question yeah well what you would do is you'd actually check the title because in that case that her debt was against the title to the property which is at the recorders office there are some programs that you can pay for that'll do it like a search of all of the liens against a property the the courthouse also some courthouses actually have it all blind you could search it for free or you could actually just go down there and you could you could ask the person there hey could you pull up any liens against this property and then there's this thing called a title search which a closing company or a title company does and they officially look up the title so the other way you could do it is pay a hundred bucks to a title searcher and they would go do it and there's a million title companies in the city you just search anyone and they do it for you good question so their total payment was nine seventy five and so you could do a subject to now what if this property only ran for nine hundred right you're losing money is that a good idea I know that sounds like such a simple question it's like no-brainer telling you I've met people they're like oh my first subject too and I only lose a hundred bucks a month yeah you don't want to do that now in this particular case if it was say a three-bedroom two-bath how could you maybe rent for more money you know some students now the great thing about y'all is you know this campus or at least this part of campus so you know where people are walking in and out you know where to stick some billboard a little you know a little tear offs you know how to potentially send out messages I don't know if they allow like emailing between groups but you know how to access the student body here better than a typical landlord who's never been to school here's that make sense so you have better access to students to be able to rent too I got a friend of mine up in Pennsylvania that this is all he ever did was student housing he sell his whole portfolio for like four point five million I was talking to me today about ten years out of school honeybat four and a half large okay so here's challenge number two for sale by owners sign to give it a call persons asking a hundred thousand they've inherited the property they got no loans on it but it may need some work because they inherited it it's been vacant for a little while they they haven't dealt with the property it was their mother who lived there and she hadn't really kept it up all that well doesn't want to deal with a real estate agent doesn't want some agent to walk in that property and tell them how much work needs to be done to it owner lives in Tampa what kind of deal is this owner financing that's right now sometimes when you deal with somebody who's inherited a property they want the cash now so you can do it one of two ways you could off from say hey I'll give you 50 today or I'll give you a hundred over time but would you rather have seen I'm saying some people may want the fifty today and if that's the case you can get it under contract and called wholesaling or flipping you could flip it to another investor for sixty and make 10 grand real quick but if they if it's a if you give them an option the nice thing is you're your owner financing deal looks a little better now my first deal that one with Marion that was just so lucky that guy knew about owner financing I didn't know anything about it it worked out okay because I sold it a few years later and I bought it when the real estate market was going up so even though he thinks he overcharged me and thought he was a genius I actually made out okay on that deal but with with these owner finance deals you also to make sure your payments are low this is really cool you could just set the payment however once you wanted you don't have to have a standard interest rate you could say look I'll pay you 100 grand over time seven hundred bucks a month how's that let's say okay and literally just seven hundred a month until you pay off 100 grand no interest interest free loan we do it all the time it works if you're if you're working with somebody who would just wants to get out of a property another thing to consider the reason why they do this tax implications that Marion guy the reason why he sold it to me a ton owner finance was cuz he was a builder and he had just closed out a huge subdivision he said he built over 20,000 homes in his life this guy was a home builder had the jet had the economy guy was loaded and he didn't want to get hit with the big fat tax that year based on his tax bracket and what was going on so he would rather sell it to me over time he'd have to pay all the tax all at once kind of interesting right so sometimes the owner finance deal is what the seller wants to do anyways ha so you get to be a homeowner you didn't have to get along what you do is you have an attorney create a mortgage it's how they have an attorney do it just say hey here's the deal and you just you just tell them the term say look here's what I worked out this guy's gonna be the bank I'm gonna pay him seven hundred bucks a month till I pay off a hundred thousand set up the paperwork let's close this or a title company can do it too and they'll don't write it up that's the good news about this you can get somebody else do the actual paperwork yep how long they're going to wait that's a good question well I tell you what you do you stretch it out as long as you can right you say look it's gonna take me at least 90 days Paul it's gonna take some time and sometimes they're ok with that now sometimes they're not and they give you only like 30 days and then you just get on it you hustle I'll tell you one of the best tips about how to find an investor is get you a to get you one of those if you see those little white coroplast signs and get a big old like magnum 44 marker like to go on the Space Shuttle kind of markers and just put you know for sale 100k house for 50k and a phone number the phone will ring off the hook and off the hook now don't put out too many of those signs we tell you I did one time I I had a bunch of signs out there and I kept getting a phone call take down these signs man you know it's Tennessee I mean it's just it's like you know that that show about the guys that had those those distilleries where they're making the moonshine yeah that's Tennessee take these things down man so I was like I hadn't found a buyer yet and I'm like man I can't take these things down now if it was like a cop or something I'd go take him down it's just some normal citizen and he called one night and he said if I don't see these things gone by tomorrow I'm gonna rip them all up I'm gonna turn him around I'm gonna write free pitbull puppies in a phone number I'm gonna stick him in the ghetto I couldn't leave how creative it was I was like who's gonna do that he did it 200 phone calls a day I had to get rid of the phone number I don't know where he put all the signs the phone just kept going off the hook if you were to ruin someone's cell phone number get that down that'll work for you okay that was that was a bonus I'm not gonna charge you for that one all right dr. Harris if I'm stretching into a wrong direction you let me know you reel me back in sir for sale by owner sign you see it and it's the see this home it's a nicer home they're asking 150 for it they owe 130 on it they're buying a new built home so some home builder just wooed them into a beautiful new home new subdivision where you know they got the the pretty entrance and they've got the water coming out of the lake and they need to sell the property so they can pay off the mortgage so they can freed up their credit so they can buy the new home kind of deals this yeah it's none of the ones I've talked about is it these people need to pay off their mortgage to get rid of their home so they can buy the new one you're gonna run into this out there and you can't do a creative finance deal now you could try to you could try to like flip it if they owe 130 you could try to do that we call it a retail wholesale we talked about at my book but sometimes that can be a little rough because there's not much room left in the deal when you have to flip a property and there's real estate agents involved in closing costs that stuff really adds up so yeah this is this is not a creative finance deal so it's kind of a trick here this is an example of where it doesn't work even if the person is as motivated as all get-out if they're begging you they're on their knees take my home it doesn't work because they need to get they need to pay off their current mortgage it's thinking about the new one make sense all right cool just I figured I'd leave it open for some more questions and they coming to mind and what I've talked about here then yeah go ahead yeah now what he's talking about is in a lot of mortgages they write in their a sentence that basically says if you change the deed we have the right to foreclose it's called the due on sale clause and when you're doing the subject to where you get the deed the deed is just change you do trigger that clause so he's asking do we ever have any problems with that well I've never heard of it seen it I've never been a part of it it's it's a lot more rare than seeing Bigfoot yeah the bank's just happy to get their money is it possible that a bank could look at the title and go huh you change the deed up we're gonna foreclose that's true that could happen we've never seen it happen in in 10 years and tens of thousands of properties it is possible and where we think it's most possible would be if you didn't pay the mortgage if you didn't pay it they'd eventually look at the title when they're going to the foreclosure process and they go wait a minute the borrower's not the same name as the owner oh they changed the deed lets foreclose but that would be because you hadn't paid them for eight months or longer but yeah so we haven't we haven't had that to be a problem and then here's the thing to think about there if that ever was to happen you know just your luck you get struck by lightning right just your luck that happens to you well you could always just sell the property at that point and just try to get rid of it because you get rid of it before they'd ever do their foreclosure but yeah they're getting their payments they're as happy as can be in fact I mean literally as far as paying these banks even though your name's not on the loan I mean you literally can set up direct draft you could they'll take the money how every way they can get it so yeah you can definitely do it that way a good question all that's great question go ahead a great question they would if they were not motivated to get rid of their property Oh they'd have a real problem with that but if they're desperate they're moving away they got to get rid of something they get to the point where they just don't care and it's it's an interesting situation because you may never be through it in your entire life you may never go through that situation but once you meet just one of these people who tells you Phil just take my home I don't care just take it I'm so tired of it maybe it's a divorce that's an interesting situation because in a divorce typically one party is the one on the loan and so what happens is that party is the one that's most freaked out about not being able to make their payments and sometimes they're just like look I'm going through a divorce I don't want to deal with this I hate this home or you're dealing with an absolute crazy person funny story so the nicest part of Tennessee is a place called Brentwood is one of the nicer parts of Orlando and Windermere those kind of areas okay so I want you to picture like the nicest part of Orlando and a buddy of mine told me the story cuz he owns the home right now and he was he was thumbing through the newspaper this was this was in the year 1999 he's thumbing through the newspaper he sees an ad or somebody selling the property for like a third of what they should be selling it for I mean super super cheap he's like that's strange he calls the guy up guy goes yeah no 230 grand that's what I'm offering and my friend was like isn't it worth like seven hundred thousand or it is this house like a you know like a crater what's going on guy goes nah house is in great shape wonderful shape guys like well alright are you hiding something guy says no this the guy that owned the property who was getting rid of it was worried that in the year 2000 the world was going to blow up this guy invented the noodle the noodle that you see in those pools he was a multi multimillionaire he didn't really need the money he thought the world was gonna end so he sold this thing for 230 it was worth seven hundred thousand my buddy buys it and he can't believe it the guy helped him move in you know anything I can do for you dr. Campbell you've done enough sir good enough well you know the end of the world didn't happen apparently the guy who this Stefan not funny his wife left him it took the kids with her he went bankrupt and so I guess to him the world did end but self-fulfilling prophecy but yeah we do people just do nuts stuff oh yeah oh yeah we got a new opportunity thank you sir yeah December 21st maybe you just run a couple ads in Craigslist I'll buy your home before the world ends that's exactly what his point was Oh Oh because his plan was he okay he's that's a various student right well he was thinking kind of like Mad Max the Thunderdome he was thinking he'd be like a knight he bought a camper like a so he and he went on to the wood he went out to the high mountains I mean I was thinking you know like I'm you know I don't know if there's some shows about it we're basically the whole world has ended but a couple of people are left you know and he was thinking he was gonna be the person to keep the keep the population going wish it you know it's kind of scary he probably procreated right all right scene pool dadgummit yes question oh that's a great question I am gonna argue the best way to get tenants is not only to do Craigslist and what not to put out some signs as well and then if you're if you're doing student housing get the word out get to get the word out in any way you can I mean just do an all-out attack tell people you know I like to put signs out in front of hospitals because they all got jobs at a hospital I mean the hospital is just at you know just surrounded by my side it's a it's a state of Tennessee a bunch of collection attorneys are so much smarter about creating laws and they didn't want to go hire a bunch of paralegals through their work form so they made it a state law that anytime anytime a judgement against a property was recorded that it had to get paid even if it wasn't against the property was just recorded in that county to have to get paid off that's what happens when when you let the attorneys write all the laws if there's any attorneys in the room I apologize but it's true yeah what I like to do is I like to what I let you always let one person in the house handle utilities and of course he hates his two friends after a couple months because they're not paying him but it always happens but yeah so what I like to do also is every single parents on the lease they're all on the lease I mean so the signature on that lease is just you know you get all the parents you got the and you get the the actual students yeah oh well I like to do it at the same time yeah I don't know I mean you'd have to have separate entrances or something because I don't know how many people want to just go live with two random folks I mean maybe maybe when you're a freshman you get thrown in a dorm but you know by sophomore you've already negotiated who you're living with next year I'll worry about wrapped up we're out of time all right this is a perfect time y'all there's a lot of big players in the world right now buying single-family homes for the first time in history

Channel: Phil Pustejovsky

Views: 2,702,151

Rating: 4.7536802 out of 5

Keywords: real estate investing, ucf, phil pustejovsky, freedom mentor

Id: lSXGxOiRp7A

Length: 70min 46sec (4246 seconds)

Published: Sun Nov 25 2012