BiggerPockets Real Estate Podcast - 287: Putting Together Real Estate Deals Using Creativity Instead of Cash with Shiloh Lundahl

Episode Date: July 12, 2018

How much money does it take to invest in real estate? Is there really such a thing as “no- or low-money down?” After you hear today’s interview, you’ll know the truth! Today we sit down with Shiloh Lundahl, a real estate investor who specializes in putting together deals using a variety of different no- and low-money strategies in some pretty unique combinations. From utilizing business lines of credit, to bringing in partners, to hard money, to lease options and beyond, this episode will give you tons of ammunition for your own creative finance deals. And don’t miss the incredible strategy that Shiloh uses today to make 300 percent more per deal than if he were to flip the home. It’s pretty darn fantastic! In This Episode We Cover: How Shiloh started his real estate investing journey The book that helped him heal Details about his first property Office hacking and subleasing a sublease His first flipping deal — $30K turned to $195K How he bought his dream car Losing $5K on his first flip A hack with city inspectors The importance of needing an assistant The six different strategies he uses creatively Moving to a lease-option model Getting $800K in business lines of credit Lease options and how he uses them Selling properties 5–7 percent higher than the current ARV Explaining lease option through videos And SO much more! Links from the Show BiggerPockets Forums BiggerPockets Bookstore BiggerPockets Webinar BiggerPockets Landlord Forms BiggerPockets Pro Dave Ramsey BiggerPockets Podcast 275: Buying 300 Homes While Working a Full-Time Job with Attorney Rob Oliver Lease Option Video Books Mentioned in this Show Long Distance Real Estate Investing by David Greene Rich Dad, Poor Dad by Robert Kiyosaki Rich Dad’s CASHFLOW Quadrant by Robert Kiyosaki The Book on Investing with Low or No Money Down by Brandon Turner The Richest Man in Babylon by George S. Clason Shoe Dog by Phil Knight Fire Round Questions I’m a little confused between lease option, lease purchase, and subject to. Doesn’t the existing financing stay in place for all three? Have you ever done a lease option agreement with seller for 6 months and lease option the property to buyer for 3 months? Lease Option Contract vs Rental Agreement & separate Option Agreement Am I crazy for considering a lease option to get out from under a low performing property? When you are lease optioning homes to tenants/buyers, what percentage actually end up exercising the options? Tweetable Topics: “Frustration comes from unmet expectations.” (Tweet This!) “Each deal I learn quite a bit from it.” (Tweet This!) Connect with Shiloh Shiloh’s BiggerPockets Profile Shiloh’s Company Profile Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast show 287. You know, I didn't know the numbers very well at the time and I ended up losing about $5,000 on my first deal by myself. So again, there's still that learning curve. And so, you know, just to kind of give a brief overview, 2015, we do three flips. My net profit, mine was about $17,000. It wasn't a whole lot. But I was learning. Each deal I learned quite a bit from.

And then in 2016, we do six flips. We buy some rental properties out in Indianapolis. And then we also did this one seller finance deal. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets.com. your home for real estate investing online. What is going on, everyone?

This is Brandon Turner. Today's host of the Bigger Pockets podcast here with my partner in crime, Mr. David Green. How you doing, buddy? I'm doing great. I'm actually getting on a plane tonight as soon as we're done here to fly to Las Vegas. I got invited to speak on a panel of long-distance investors out there at a big conference that we're going to be having. That ended way more lame than I thought. I was thinking Vegas and going to go and throw some money away.

panels. No. I put all my money into real estate. I do not put it into gambling, casinos, roulette, none of that. I don't gamble. I only invest in Bitcoin. Yes. Anyway, no, I don't invest in Bitcoin. But anyway, that's cool. I'm going to talk about long distance investing. What makes you qualify to talk about that, Mr. David Green? Well, mostly my friendship with you, honestly, I just like work that to the bone as much as I can get out of it. And then I wrote this book called Long Distance Real Estate Investing. And I think that they just saw the title and assumed, oh, we should bring him. They didn't see how bad the book was because nobody read it.

I believe I read the other day that that book is the number three bestselling book on bigger pockets. Do you know what the number one is? I would imagine it would be the book on rental property investing. Oh, man, look at that. Always living in my shadow. And I actually don't know what number two is. Not only is the book on rental property investing the best selling bigger, bigger pockets. It's the best selling investing book in the world.

It oftentimes is, and it usually is on Amazon. Weird, but you know, it's not because it's a good book. It's probably horrible, but, you know, Bigger Pocket feels bad about me. And so they buy my book. So anyway, thank you guys all who have bought books from Bigger Pockets. You guys rock. In fact, today we talk a fair bit about books. Our guest today, Shiloh Lundal, super cool guy is incredibly creative with his financing.

And so we go deep into that. In fact, one of his strategies, he talks about, like, this is later on. on the show, but make sure you guys listen to it. He talks about like this hodgepodge collection of six different strategies. He combines together to do his real estate deals pretty much with no money out of pocket. So he's using a combination of hard money, lease options, burr, business lines, partnerships, and there was one more in there. I don't remember what it was, but all wrapped together into like this perfect thing.

Anyway, you guys are going to love it. But he talks about that. He talks about business lines of credit. In fact, he talks how he went up to eight, he has $800,000 in business lines of credit that he can fund his deals with. He talks about losing $5,000 on his first flip, which is a really interesting topic, something that kind of hits home. And then he talks about a certain book. You guys will hear that, a certain book that really helped him heal. And that'll make a lot more sense as you hear it. So listen up for all those stuff today. You guys are going to love

this show. But before we get into that, let's get to today's quick tip. All right. So you might have got this email already if you're a bigger pockets member. If you're not a bigger pockets member, what are you doing, listen to this show and not being a member? Come on. Sign up. It's free. But anyway, you might have got the email and found this out, but landlord forms. We sell on bigger pockets, landlord forms. The actual price of them was like $200. And you get state specific that have been reviewed by attorneys in your state and you get like a ton of forms. Anyway, we decided that our pro members are so awesome on bigger pockets that we're just going to include landlord forms for all of our pro members.

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David, anything you want to say before we get on with it? Too bad. Let's get onto the show. All right. Yeah, you guys are going to love this show. So I grab some paper and pencil because you're going to want to take some notes. Here we go. What's going on, Shiloh? Welcome to the Bigger Pockets podcast, good to have you here. Thank you. I'm glad to be here. Yeah, so let's let's jump right into your story. I know very little about it, except for that. I heard you do lease options, which I'm always fascinated by because I've done a few of them and I really like them. So did you start with that lease option or how did you begin your real estate investing journey? So we didn't start with the lease options. Back in 2010, just like a lot of other investors, I was reading the book, Rich Dad,

I talked with my wife and I said, you know, I'd like to get a rental. And so we found a property, well, a house close to our house down in Arizona. And we decided we would purchase that property. And then we got a family to move in there. And so that's kind of where we started. We just started with one rental back in 2010. And then it wasn't until years later, then we switched over to the lease options. Okay.

So tell me about that very first property. Like what did you pay for? Do you remember how did you finance it? I do. So we had a lot of equity in our home. And so we got a home equity line of credit. And then there was a family that we knew of that wanted to move into our neighborhood. And so we showed them this house that was on the MLS.

And we asked them, hey, if we bought this house, would you want to rent it from us? And they said yes. And so we bought the house for $93,000 at the time. And this was back when the market was really depressed. And so it was a five-bedroom three-bathroom house. It was on, you know, it backed up to a golf course. We bought it for 93,000. And then we put about 10,000 into materials to fix it up.

And then the family that moved in there, they actually did the flooring and painted the house. And then we gave them a discount on rent for doing that. Pretty cool. Pretty cool. So you said something quickly there that I think is fantastic. And I want to make sure we don't gloss over it. You used a line of credit from your house to buy that. Can you go in a little more detail?

Because I think that's a fantastic strategy. and something that today, especially now that a lot of people have equity, could take advantage of. Can you talk about that? Yeah. So, but again, this was back in 2010. And so they weren't giving out big lines of credit on homes. And so I think our line was maybe between 20 and 40. I don't really remember.

But so we went to the bank. We had to go through this entire process. And it was a very long, difficult process at the time to get an equity line of credit. And then we were able to take about, I think it was about 20,000. at that time to put a down payment on the house. And that's how we got it. Yeah, that's great. Yeah.

So if you have like a little equity in your house, you can get a home equity line of credit, use that not even for the whole purchase like you did for a down payment and essentially do real estate without any money down. Like, technically, I did that once on a triplex. It's fantastic. So anyway, super cool. Okay, Shiloh, so you bought a rental and it worked out well.

What was the next move that you made in real estate investing? So I actually didn't do anything else with real estate for the next four years. So after getting that rental, my wife and I, we were listening a lot to Dave Ramsey. And so we worked just on getting out of debt. And so we worked really hard. We paid off all of our remaining school loans, any credit card debt, anything like that. And then in 2014, let me back up a little bit. So I'm a child and family therapist.

And so I have a practice in Mesa, Arizona. And I was practicing out of a building at that time. And then the building owner actually passes away. and then they're about ready to sell the building. And I liked the location and I wanted to remain staying there. And so I talked with the selling realtor and I put in an offer and I actually purchased this building that I have my practice out of. And then we built out the other side and then we added six more offices.

And so right now I have a building in Mesa, Arizona that has 12 offices that I rent out to other therapists. And so that's my next move in real estate was to go. into this commercial deal. So you're basically like office hacking. Yeah. Yes. That's awesome.

Yes, I am. It is considered an owner occupied because because of all of the hallways and all of the other things, I do technically have 51% of the space I'm occupying or using to one degree or another. Nice. Very cool. So did that get you a better loan when you bought the property? It does. It does get me a better loan when I buy the property.

All right. And then how do you, I've always been. been curious, how do you know what you should raise the rents every time a lease expires in a commercial building? Is there a rentometer for commercial stuff that you can check out? You know, that's a great question. I don't know exactly. This is the way that I do it. So when I was in there, there was, I was sub leasing from somebody else who had a sub lease. So I was subleasing a sub lease. And so I was paying about 600 a month. And then when I purchased the building. I kept all of the rents about the same for a year. And then I increased them about $50.

Some people left. Other people came in. And as other people came in, I was steadily increasing the rent. And so now I usually have people on two-year options. I'm sorry, two-year leases. And then they, I usually increased the rent about maybe two or three percent a year. Did you? Okay. Did you say you were, I just got to dive into this. You were subleasing a sub-lease and then you bought the property. Does that mean that they were sub-leasing from you and you were sub-leasing from them. It was like that perfect circle. Yes, they were. So it was kind of an interesting deal at the time.

There was some conflicts between me and the person that owned the sub-lease. And I was kind of nervous as to kind of being booted out of the group. And so I bought the building and then my anxiety went way down. Yeah. That's the funniest thing. Like, yeah. Anyway, that cracks me up. So, all right.

So what came next then after the commercial building? You had the rental that thing's going fine. I'm assuming like you're learning how to be a landlord. Were you managing it yourself then? Did you have a property manager? Yeah. I was and I still am managing the property. Okay.

So the thing that came next is my wife and I at the time, you know, we had a new baby at the time. And so we're up late and we're watching HGTV and things like that. And we're seeing these people flip houses. And we say, hey, you know what? We should try that. we should go and see if we can do something like that. And so when I purchased the building, this desire to do real estate came back up.

You know, we had that one rental back in 2010. And then we decided, well, why don't we try some more? And so I found my rich dad, poor dad CD again. And as I'm listening to that, I thought to myself, why did I stop doing this? Why did I stop listening to this? I missed out on like four great years of buying real estate. And so after listening to that CD, I thought, hmm, I wonder if there are other like books out there, like this. So I look up Robert Kiyosaki and it turns out he actually has a lot of other books.

I don't know if you guys knew this. He does. But yeah, he has a lot of other books. And so I listened to my next book was Cashflow Quadrant. And that book, one of my favorite books had changed my life. I, okay, the first time I read Cashwell Quadrant, I didn't get it. Like I didn't get into it. I didn't. It was fine. It was like, okay, whatever. And that was when I was like 21. Then I reread it a couple years ago. I was like, this is the best book I have ever read. Like, and I realized that that book subtly influenced everything I have done since then, but I didn't know it at the time. Like, I wasn't ready for the truth of Cashful Quadrant at the time. Yeah. Anyway, well, and to go even deeper than that, that book was actually very healing for me. And that sounds kind of weird because, you know, it's just a

book about, you know, how people earn money. But what happened was, I am not a really great employee. And so when I would get jobs, I would oftentimes in the job think, you know what, I know that my boss wants me to do it this way, but this other way is more effective. Why don't I just do it this other way? And so I would go and do it the way that I thought was effective. And my bosses didn't like my creativity or my thought process. And so I would tend to get in trouble doing it that way. And so when I read the cash flow quadrant and I realized that there's a different mindset from an employee, from a self-employed individual and a big business owner and an investor, I realized everybody in my family, my parents, my aunts, uncles, my grandparents, everybody in my family owns their own business. They're all entrepreneurs. And so I grew up with the mindset of a small business owner. And so when I went into the field of being an employee, I didn't do very well. And then as soon as I switched over to owning my own business, my own therapy practice,

I started to do very, very well. And so it helped me release all these feelings of shame that there was something wrong with me because I'm getting all of this negative feedback from my employers. It just turned out the way that I thought was differently than an employee. And so it released all of these feelings that I had of shame that I was that there was something wrong with me. That's fascinating. I'm thinking back to my own life now. Like my mom always had her own business to daycare in her house. But like she was an entrepreneur in that way.

And my dad, he worked a job, but he was every week. He had a new idea. I'm going to get a food truck and start selling, you know, barbecue beef to whatever, the miners or the loggers or whatever at the time that was popular. Anyway, like, so, I mean, it makes sense that a lot of our entrepreneurial stuff is, it comes from the upbringing that we have. And it just, we don't quite fit. And we can tell there's something wrong. I remember that's what I always tell people about when I read Rich Dad, Poor Dad, it put words to this feeling that I knew in my heart was true. And I couldn't verbalize it.

And I read the book and I was like, that's it. Like, that's what I'm trying to, that's what I, like, my soul is groaning to say. And that's why everyone in size Richard Daportad was, like, the book that changed their life is because I think that's true for a lot of us. That book put words to our, our groaning. You know, my son right now, he's 11. He's reading that book right now. And he's really liking it. Nice.

That's awesome. That's awesome. So tell me about the flipping. I mean, how did that go? What was your first flip like? So after I got the commercial building, I call it my buddy, Jason. He's the realtor. He's my partner in most of our deals.

And so this was the very end of 2014. I said, hey, Jason, I want to do a deal with you. And he said, well, I have a deal that's coming up. And you can be the hard money lender on it. And so when I went to buy the building, I opened up a large line of credit on my home in order to be able to flow anything that I needed to with the building in case people, you know, there was a mass exodus and everybody left. Or I had to, you know, something big, you know, went wrong with the building.

I'd have enough money in order to, you know, to fix anything I needed to. So I had this like $200,000 line of credit, this he lock on my home. And so I called up my buddy and I said, hey, I wanna do this deal with you. He said, well, you can be the hard money lender on this deal. And so I say, okay.

And then we go and we, this was a really interesting deal. So he was just kind of going around, trying to solicit people to sell their houses as a realtor. And after he would ask him to if they were interested in selling, he would say, well, do you know anybody else that's interested in selling? neighborhood and they somebody said yeah the people on the corner they're interested in selling so he goes and he approaches them now just to be honest i think this was a drug house so he goes over he knocks on the door and they were going to be foreclosed on in about 30 days both by the HOA because they were

thousands i think just thousands of dollars in back payments to the HOA and also back taxes and so they had 30 days to sell this and so he went and he he he had offered to buy the house for about 120 okay and they were going to also carry back a 40,000 dollar note for when we finished the rehab and sold it and then we would pay that note off and so that way it helped with some of the costs of getting into the property. So I come in with about 83 or so to buy the property and then we rehabbed it for about 23 more and then they started calling us up actually what was funny is my buddy and I actually had to go and camp there because people kept breaking back into the house because they were just used to hanging out there and sleeping there. And so he and I, we go in.

And so we set up camp in this house. And it was a great time. Anyway, so we go in there, we do that. And we get the property rehab. And then they were, you know, really antsy to get their, their 40,000. And they're saying, well, you know, hey, have you sold the house yet? Like, you know, it's only been a month. We haven't sold the house yet. They come back like a week later. Oh, is the house under contract who sold yet. No, it's still, it's still not. And then, um, so then my buddy said, well, I wonder if they would be willing to sell their $40,000 note for 10 for 30,000. And so he calls them up and he says, hey, you know what? I have the investor on this property who's willing to buy your $40,000 note for $30,000. And then you get that money right away. And then you don't have to wait for

your, uh, for your money. And so they said no at first and they call back a week later and say, yeah, we'll do that. Wow. So then we were able to buy this $40,000, carryback note for 30,000. And then like a month or two later, the house goes under contract and we sell it for about 195. And so I was the hard money lender on that property. I made, you know, 8,000 in hard money. And then that $10,000 extra deal we did, I made five of that. And so I ended up making about 13 on the deal. And my buddy made about 40. So he obviously made a lot more. But I was just a hard money lender. But I got to be a part of the entire process. And I learned a ton from that process. And that has actually really influenced what we do today as we partner with other people and show them how to flip like we're doing. That's awesome.

And I love that you use that like, again, a creative, like you're all at creative finance. It sounds like, like you're really good at this stuff. Like you figured out, I'm going to use a home equity line of credit again, this time to fund a flip that I'm going to make 13 grand on. I can now dump into, you know, go on vacation or reinvest it again. Plus, you'd learn. I bought my dream car. There you go. I brought my dream car. What's your dream car?

So, what was it? It is a, it was 2012, uh, Toyota Prius, Cglass Pearl, tinted windows. Nice. David was expected like a Ferrari, right? Yeah. I see that look on your face, David. Yeah, I was, that Prius came out of left field. I was not expecting that at all for a, right.

Have you driven a Prius? You have a very practical dream. So I love my Prius. I do. I love my Prius. It's great because I can. Well, so right now, as we'll probably get into later, I live in California and I live in Arizona. And so I'm traveling back and forth. And so my workday on Friday night ends about 10 o'clock at night.

And then I get in my Prius and then I start driving on the 10. I drive for a couple of hours. I pull over. I have one of those IKEA mattresses that, you know, you roll up. You just have it, you know, flat in the back of my Prius. And I sleep there for about six hours. And then I wake up and I drive home, get home by about 10 o'clock in the morning on Saturday morning. So that's hilarious because two years ago or no, no, three years ago now. My wife and I did a road trip all around the country and we took our little Prius and we went all around. And I mean, I'm six foot five and a half. So like I'm a tall guy, right? And like she's a tall lady.

Like she's like, what, five, ten I think? Anyway, we both slept just fine in the back of our Prius all around the country. And it's fantastic. It was like, it's like six foot six from like toe. So like I fit just fine. We had a sleeping bag. We had a little mattress. Yeah, a little memory foam.

It was amazing. You just pull over at a rest up and sleep. So that's funny. Yep. I loved it. Was your head pushing into the windshield? Like Brandon is a tree. He needs a trius.

No, I, no, it's a, there's a lot of room back there. You'd be surprised. Actually, I made a video. I found it on my, I'll see if I can find the video and put it on the show notes for the show, which is at BiggerPockets.com. So I show 287. But I have a video of me actually preparing the back for a bed and then

turning off the light. It was like a time lapse video my wife and I made. Anyway, all right, back to your story. You're sleeping in. That's why it's a dream car because you have dreams in the car. There you go. Okay. There you go.

So tell us, Shiloh, you learned a lot on this deal and it sounds like you kind of got, you know, like the juice is flowing on how creativity works. I think that note idea is brilliant. I've honestly never even thought of that. Like, you know that the house is going to sell. So the note holder who doesn't know that, you go to him and you shave another $10,000 onto this deal. you have a very similar strategy with your lease options that you guys are doing now. And from what I understand of it, you often have zero money of your own into the deal. And yet you're still able to cash flow and then see a big windfall of profit.

Tell us how you have this structured and how all the different creative things you put together have allowed you to invest in real estate with none of your money. Okay. Well, I can tell you that. But really, it took a while to build up to that. So it took a while to gain credibility. it took a while to understand real estate before I could actually get to that point. So a lot of times on the podcast, it's talked about how to do real estate with, you know,

none of your own money. And my buddy and I, we really do a lot of real estate with very little of our own money left in deals. However, it took a while to build up to that. So like right after that deal that I did with my buddy and you say that, you know, it was creative, to be honest, I didn't know how to do that, but my buddy did. So, you know, I encourage people to definitely partner up with somebody who knows what they're doing. And that's what I did. I partnered up with my buddy.

He knew what he was doing. And right after that deal, I actually go into another flip where I was all excited to do this flip. But then I, you know, I didn't know the numbers very well at the time. And I ended up losing about $5,000 on my first deal by myself. So, again, there's still that learning curve. And so, you know, just to kind of give a brief overview, 2015, We do three flips. My net profit, mine was about 17,000. It wasn't a whole lot, but I was learning. Each deal I learned quite a bit from. And then in 2016, we do six flips. We buy some rental

properties out in Indianapolis. And then we also did this one seller finance deal. And so we were doing quite a few things. But with the six flips, my buddy and I each made about $95,000. Wow. Each of us on those six flips. That's fantastic. So take us back to the one that you lost money on. What did you do wrong and they caused you to lose the $5,000? So I was excited about the property.

I was looking for a property. I talked with this guy that was buying properties at auction. And, you know, this property came up for sale for about 103. I thought, oh, this is great. You know, in the area they're selling, I could probably sell this for maybe $145,150. And so we buy it. And then there's like this auction fee on top of it. So we have to pay him another, you know, two or three thousand to go and do the bidding for us.

And then our contractor comes. And then we, you know, he's going and fixing everything. The rehab turns out to be like 35 when we didn't think it was be that much. But we're new at this. We wanted to make it really cute. So we did. But it cost 35,000. And then after that, there was also an unpermitted addition.

So what they had done is they'd put this extra room and they left a garage front. And so when we bought it, there was this room that had a garage front door. You know, when you looked from the street, you just saw a garage door. And so, but it didn't make sense because it wasn't a garage. It was a door. So we removed the garage. And then, you know, after it's been on the market, we get this code compliance from the city of Mesa saying, hey, you have this unpermitted addition.

Like, I don't know what you're talking about. So I go to the code office and I'm talking with them. They're like, yeah, you didn't have permission to do that. I'm like, well, we bought it that way. Well, unfortunately, you know, you didn't have permission. So we had to go to somebody who drafts, what is it, not an architect, but a draftsman. You needed to create some plans for the addition that was already done. We had to go to the city and get those approved.

And we were really close to not getting them approved because, and they would have had to, they would have had us take that carport conversion back to a carport. And then we would have lost, you know, I don't know, 150 square feet and our ARV would have gone way down. And so it was really, honestly, a few inches too short to actually have it, have there be like a driveway to the side to be able to go into the backyard where we had to put some covered parking because there had to be covered parking on the property. And there wasn't any way of doing it in front. So we had to put some in the back. And because it was too close to the neighbor's fence, they were so close to letting us or not having us do that. But they finally said, okay, you guys, you just put some carbon parking and we'll

grandfather it in. It'll be okay. So this huge process happened. And so ultimately we ended up losing about $5,000 on that deal. So this happened to me on my last flip, or one of my last flips, where I found out after closing that the garage conversion to part of the house, was done without permits and therefore the city or the county is the county property county wouldn't let me do it and so i went to the county went back and forth them trying to do it at the end of the day they would not let me do it they basically said we want you to tear all down down to the ground rebuild it all back up again even though it was fine the way it was they just wanted it completely gone uh yeah which of course was so i just turned into a garage and that flip turned out fine i guess

it i mean it would have been a wash probably the market helped me a lot i guess but um i guess i'm wondering, like, how do you prevent against that? And David, I'd like to know your thoughts as well. Like, do you guys go into flips and go research permitting areas now before you close on a property? Or is it just, that's the one in a hundred that just sucks. And that's why we do lots of them. For me, yeah, that, that really did suck. Just to be honest, that was that. But again, that was a very learning and growing experience because, you know, you're going to get into things like that in real estate. If you, if you have a plan, this is how it's going to look, you will likely be frustrated because frustration stems from unmet expectations and you will have unmet

expectations most likely with each property that you do. So it's just the idea of, you know, you learn, you grow. But, you know, moving forward, no, to be honest, we don't go looking and seeing, hey, was this permitted, was that permitted? But it also depends on the areas in which we're in. So like I'm here in, you know, I'm in Arizona. I'm also in Burbank, California. In Burbank, it's funny because half of the city is not permitted, but half of the city has been grandfathered because it's an old city. There's tons of stuff that has been done. And so as long as you don't do anything else to it, you know, and it works, then there's a lot of unpermitted things. And so when we go into areas where there's unpermitted things, we really ask ourselves, okay, what is the likelihood that the city is going to come in and say, hey, there's issues here and issues there. If the likelihood is so, small and our contractors are knowing what they're doing and they're going to go and make sure that everything is safe, then we just, we make it look nice and move forward. But, you know, we're not going to sell something that's going to be dangerous, that it's going to have bad wiring or something like that. And so we do have our contractors look over the whole property

and make sure that everything is, is nice and safe. That's what we do. It's funny you ask this question, Brandon, because I also have a story just like you guys where I bought a property that was unpermitted and I bought it from an auction just like Shiloh's. And now I'm starting to think that maybe that's exactly why they put these properties at auction because they know that we're not going to do as much due diligence, right? Whereas if you put it out there on the MLS and it's a very quick search and you're like, oh, that's not permitted. Now, to be fair, something not being permitted really isn't like the end of the world and sometimes it doesn't make a difference at all, right? The problem with mine was it had been vacant for a year, which meant in Florida, the, the city has

to send out a specter to make sure it's not going to burn down when they turn the power back on if it's been the power has been shut off for a year. Right. So while he's there, he's like, oh, let me just take advantage of this opportunity to tag the crap out of everything else that I see in the house, right? Right. So he goes crazy with this little red tape, just like the Grinch on Christmas ruining everybody's lives and comes back with a laundry list of stuff I have to fix. And one of them is like a third of the square footage of the entire house is not permitted. You have to tear it down. And I'm I just go ballistic. Like what on earth?

I have to take it like not only am I losing the square footage, but I'm paying money to lose square footage and make my house worse. It's like the worst scenario that you could ever possibly have. Yes. So this is a quick tip for that. Never give a city inspector the lockbox code before you get there. Because they just get creative. They go and they start looking at things.

Or in other words, if they're going to come there, Make sure that you have enough people around the house so that it makes it very difficult for them to move through the house and just make sure that they stand in their way as much as possible. Because when they get in there and they start looking around, again, going back to the house we had in NASA, he then looks and he says, well, hey, your smoke alarms are not all connected. I'm like, what are you talking about? Yeah, you need to connect all of your smoke alarms through this system of wires. I'm like, they didn't say that at Home Depot when I bought these smoke. So again, and it was because he got there like five minutes before we did.

And he started going through a whole bunch of stuff. And so definitely make sure you're there. Make sure you have a lot of people there. Just kind of standing in the way and saying, oh, that stuff's good. That stuff's good. That's funny. I call the local police department and have them searching for warrants and unpaid parking tickets and like stand in front of that bedroom door,

you don't want them to go in and be like, are you sure you want to come in? Because I've got a list of parking tickets that you owe about $400 on. Is it worth it for you to get your little tag out? Yeah. I don't know exactly like how you avoid that. But I honestly think now sellers who know we're going to have a big problem like this are probably putting their houses in auction.

Amazing as this sounds, there was so much meat on the bone when I bought the deal. I'm still going to make money. I'm just going from what I thought was a grand slam to like a double or a triple. You know, like, I'm not losing money on this deal at all. It's still a good investment. But like you said, you said something very insightful. The frustration comes from the unmet expectation. You know, I was a psychology major, and they taught us the definition of frustration is interference with the desired goal. And your expectation was your goal, right? So it's one of the

things I see that holds back certain people that get into analysis paralysis is usually like the engineer type mind that wants to put everything in a box. They want to turn it into a science. And when something happens that doesn't go according to plan, they lose their minds like the Joker says in Batman. You know, like they just freak out. That's not what I expected to happen. My expectation was it would be smooth. And real estate investing is really more of an art. You kind of have to like give and flow with the thing. And that's why creativity is so useful because when problems come up you haven't seen, you want to look for a way to solve it. So I've just learned that you got to hold these things with a loose hand and you had to take a big picture approach and say, sometimes I'm going to do way better than I thought. Sometimes I'm not going to do as good as I thought. But at the end of the day, I'm going to do way better than if I didn't invest at all.

Because some people, their whole careers get killed just from that unmet expectation. And they get frustrated by it and say, yeah, this wasn't what I thought. And it's so like mentally disturbing to them that they just throw in the town and give up. Yeah. Yeah, absolutely. And I think the psychology really does have a big impact on whether. somebody invests, whether they don't invest, how what their risk tolerance is. And so, yeah, I just second what you just said.

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I'm really, I love your strategy. I think it's one of the most brilliant things I've heard, and the listeners are going to love it too. Tell us how you're structuring these deals, how you're buying them, how you're funding them, and then your exit plan of a lease option, I think is fascinating. So, you know, as I was saying in 2016, we did those six slips. And then we started noticing that there was less and less meat on the bone and it was getting harder and harder to find flips that had enough spread to make it worth time for my wife and I to do a flip. And, you know, my wife was actually in California with my kids at this point.

So in 2016, we moved our family to California because my now eight-year-old daughter wanted to do active. when she was six. And so before real estate, we weren't going to be able to do anything like that. But then when real estate came along and we were able to increase our money, basically, we then all of a sudden a lot of options started to become available to us. So we moved our family out in 2016 to California. So at this time, my wife's in California and I'm going back and forth from Arizona to California. And so I really have to structure my business at that time better. So I had a coach who was teaching me because I did a real estate training. It was one of those expensive trainings that I know Bigger Pockas doesn't like. So I did one of those. And then I don't mind

him. I did have a coach. And one of the things that he told me, and he told me a couple of things that were really, really great. But one is he said, you need to get an assistant. Every time I talked with him. And I talked with him every week, he said to me, do you have an assistant yet? And I said, no, he says, you need to go get an assistant. So I finally went and got an assistant. And, you know, I was just paying her hourly, but she made it possible for us to be able to switch this model to doing these lease options because they were going to take a little bit more time and effort. And with my wife in another place and with me only there half the time, I needed somebody to be able to do a lot of things that either I couldn't do myself or that wouldn't be worth my time going and doing. Anyway, going back to what you were saying, when in 2016, when we found that the margins were getting smaller, we went to another training and it was a pretty inexhaired. expensive training in Phoenix that where this guy talked a lot about lease options. And so my buddy and I went,

my partner and I and we decided, hmm, I wonder if we can switch over to this lease option model. And so we were running the numbers and running the numbers. And we decided, you know what, I think that we can. And so at the very end of 2016, we had a couple of properties that we still had. And so we switched them over to the lease option model. So this is specifically our lease option model. What we try to do is we try to get our all in, meaning the purchase price and the rehab, we want all of that to be $140,000 or less. And so in our market, that works really well. And we want that to be 75% of the ARV. And so to give an example, let's say we buy a property. This is a property that we did. We bought a property for 93. and then we put about 47 into it.

And so we're into about 140. And then the ARV came at or the appraisal came in at, I think it was 190. And then we sold that property on the lease option for 195. So they come in with an option fee. And then so they come in with the option fee. That helps give us some money back. We also were able to get a loan on that property at 75% of the ARV because we have a great relationship with that bank.

and we've done, I mean, they gave us 16 loans in 2017. Wow. So it was great. It was a great contact that I got from another investor. So we went, we did all of these loans with him. He gave us 75%. And so we're into that property, you know, practically nothing. You know, they give us that option fee of, you know, a lot of our option fees are about 3,900.

So they give us an option fee that brings it. So our all in is zero. And then we're still cash flowing about $100 each on this property. and they have this option to purchase the property anytime between now and within the next five years. So let me, I want to unpack all of that. First of all, so you find a property that needs to be fixed up. You buy it. You said using, is it like your HELOC, that kind of money?

Like you said, or what did you say that? So, you know, I told you about that, the program that I went to. One of the things they taught us to do was to how to access credit lines, how to just basically, how to access credit. And so I went from having $200,000 of available credit up to about $800,000 of available credit in about a year and a half time. But I had to work and work and work with banks. And so, you know, as part of our little team that we have that does real estate, my buddy's the realtor. And basically, I'm the money guy. I go and I find money. So I find money through banks. I have some of my own money. And then we partnered with probably 20 people.

from last year that bring in money in order to do deals with us. So, all right. So I want to talk on the credit line thing real because you're, are you talking like business lines of credit or are you talking credit cards or what are you talking? So I'm talking business lines of credit, credit cards, business credit cards, signature lines of credit, portfolio loans, home equity loans. Any type of loan almost.

Okay. We've worked towards getting those credit lines. That's fantastic. All right. So, I mean, obviously, you got to be careful with them. So basically what you're saying you're doing then is you're buying them with this money, this short term money, basically, right? Maybe higher interest, higher payments, whatever. But you're just doing that. Well, not really. Yeah. So it's not really, I mean, we buy most of our properties with hard money lenders. Okay. So hard money lender comes in. And because we have really good relationships with these hard money lenders, they'll sometimes lend us between 90 and 100 percent of the purchase price. And even on some of the deals that we've done, like we did, a deal that the purchase was one 110 and actually this is a funny deal this was it originally was a mobile home that had continually been built upon and so it was more structure you know a structural built home than it was mobile home and so that when we did have to get a lot of permits on we then converted the whole home to a structure built home and the rehab was like a hundred thousand so the hard

money lender was willing to come in and lend us about two hundred thousand dollars on that property so we lent us for the purchase and then about 90,000 of the rehab because the ARV was like 285, 290. Nice. Nice. And that's actually just a really good point to bring out. Like, if you want to find, you know, hard money lenders to fund most of your deals, I don't know many that will do 100%. Maybe they will. But if you want to fund most of your deal, just find really, really good deals.

Like a hard money lender is, like their job is to get as secure a loan as possible so that they win no matter what. So the better deal you get, the better chance you find of a hardman lender like that. So you're buying it with hard money. You're using the credit lines then as like rehab money. Is that like where that comes in? Yeah. Okay.

Yeah. So we were using those more as rehab funds and things like that. And just real quick on the hard money, we didn't get those loans at the beginning. So we built up that relationship with the hard money lenders until eventually they started giving us those types of loans because they saw our track record. So going back to your question, we were using a lot of those credit lines to, you know, flip and then also to get some of these properties. But then, you know, over time, as we've been doing

this, I've been able to pay off the majority of all of those credit lines. And so even though I have like, you know, maybe 800,000 available, you know, I might be using maybe, I don't know, 400,000 right now. And that's a huge equity line at a low interest rate. And then a couple of other ones at pretty decent interest rates. And some are business lines and some are personal. All right. So you buy the property with hard money using some business line lines of credit for however rehabs and whatever you're getting the property done looking beautiful now the thing's worth way more now you're going to that local community bank you're getting a refinance on it so you can pay off all that short-term money and now you have a nice long probably what is it 30-year mortgage on it I'm assuming so

they're giving us business loans on this so these are these are 20-year mortgages five-year fixed and so they adjust after five years but that's where the lease option comes in because we do lease options for five years. That's awesome. So in that way, you know, the people in the home and we don't just put anybody into our properties, we're not looking to, you know, release option these over and over and over again. That's not what we're looking to do. We look for end buyers, people that want to come in that for one reason or another, they can't

purchase the home right now because they may have had maybe their business, you know, collapsed in the financial collapse a couple years ago, or maybe they've had some medical bills or something like that. But they're good people. They have solid jobs. They are, you know, they have a good income. We bring them in because they really want to own their own home. They don't want to keep renting and renting and moving and things like that. So they find that we're doing this lease option like, oh, that's perfect. Yeah, I can, I'm happy to pay that option fee so that I can buy this property. And a lot of them, when we give them these five year lease options, they come up and they say, you know, what, my goal is to be able to buy it in the next two years. And, you know, they're, they're happy to be in there.

they're grateful to be in there and they take really good care of the properties. Cool. Can you give us a basic definition of what you mean by a lease option for anyone who isn't familiar with the term, hasn't heard of it? We don't talk about a lot on the podcast. Yeah. So a lease option, you have to be careful also with the lease option because there's different laws that have come into effect such as Dodd-Frank and other things like that,

that try to protect people from getting into mortgages that they're eventually not going to be able to pay. And so what we do is we qualify somebody to lease our properties by, you know, we do a background check and credit check. And then we also verify their income. So they have to make three times more than the lease amount every month. Okay. So if we lease it for 1,200, they need to make at least $3,600 a month. And so that is the lease portion.

Okay. And it's just a regular lease, except a couple things that we do put into the lease to make it so that the property management is really low is we, rather than leasing it at 1250 a month, we lease it at 1350 a month. And then in there, we include this line that says, if you take care of the property, if you take care of all of the things that need to be taken care of, we will give you $100 discount a month on the property. So your rent will only be $12.50. And so they go and they take care of things.

They're not asking us. They don't say, hey, you know, somebody threw a rock at my window and it broke. They go and they take care of that because it's understood that we're not putting in renters, we're putting in end buyers. So the end buyer wants to get this property. And so they're going to take care of it better. Just as if you were to buy a property and get a mortgage on it, you're not going to, you're not going to go to the bank and say, hey, my dishwasher stopped working. You're going to go and you're going to buy another dishwasher because this is your property. So when we put somebody into these properties, we make sure that everything major is going to work

on this property. We're not putting in somebody into a property that has a bad roof or that has that the plumbing is shot. If we find that the plumbing is shot, like after we've already done it and we've looked it over, if we found that there was something that we did not notice in the rehab, that there was an issue with the roof, we go and we take care of those things. But all of the little things, we expect them to come and take care of. So the option is a separate document than the lease. And basically it says you have the option to purchase this property at any time between when you first get the option up until and then whatever time period it is that we decide. Last year, we did five-year lease options. This year, we're doing four year and next year we're

doing three-year. And then in 2022, we're going to have a lot of our lease options coming up. And at that point, we're going to be able to, you know, kind of bunch some together in order to possibly do a 1031 exchange and to some larger deals at that time. And so that's kind of our strategy over the next five years. What are some of the benefits of a lease option? Why would somebody want to do that opposed to just being a landlord and renting it out? So with a, you know, being a landlord, you put renters into your property. And I don't know if you guys have ever rented a property versus bought a property.

We've rented a property. And if something happens, you're just not that sad because it's not your property. Yeah. You know what I mean? And so you're like, oh, well, that's a bummer for the owner. But when you own the property or when you're working towards owning the property, You do put, you know, there's a piece of you in the property and they come in with this option fee. So there's a part of them that's really invested in the property.

And so you get, in my opinion, you get better tenants, people that are going to take care of the property. And then for us, we really don't have to budget for like the top three expenditures. We don't have to budget for capital X because we're for capital expenditures because we are only holding the property for a five year period of time. and all of the major things have already been done during that time. We don't have to factor in for vacancy because they've put in, you know, 3,900 to sometimes up to 10,000 in some of our properties to have that option to buy the property. And so they're committed to buy it. And so if they were to just say, you know what, there was an issue.

We have to move out of estate and take care of my, you know, my mother who's really ill. Then we say, well, you know what, we're really grateful that you were in our home, that you took care of it and will be a great reference for you out there. and then we bring in somebody else to that property. And they bring in another, you know, $3,900 fee. And so we can go and we can turn that property and make it nice again for that amount. So you don't have to budget for vacancy, capital expenses, or repairs because they take care of the repairs. So, you know, by the way, what you're describing, if somebody's hearing this and thinking,

this is incredible, I had no idea. Well, I know that person hasn't read Brandon Turner's book on the book on knowing the money down investing. Because this is all stuff that he pulled right out of the book. And you've taken the pieces of it that you needed and combined them together to put the strategy together. If I understand you right, what you're basically doing is giving up the potential upside if you have a huge market run, right? If your property goes to $300,000, well, there's a lease option that he could buy it at $195 and your tenant's going to get a great deal. But what you're gaining is the lease option fee up front. So now he's emotionally invested and financially invested in this property.

You're getting rid of the two biggest costs in my experience in 2018 for real. real estate investing, which is capital X and maintenance fees, because they're saying, well, we're going to pay it. And you're only having to give up a hundred bucks a month or so in rent to get that. And you basically created stability while you gave up, you know, the opportunity that it could have went crazy. So, you know, when I look at the strategy you're discussing, it would work great in a market where you're not expecting huge appreciation or maybe you feel like you've already had a really good run and there's not a whole lot of room to go. It's not a thing you'd want to use if you felt like, oh, this is the next emerging market that's going to take off on me, right?

Right. For the area you're in, this could work perfect. Sure. And also one thing that we do to account for that is we usually sell the properties for about five to seven percent higher than the current ARV. And so if the market continues to go in the direction it's going, by the time they exercise the option, they should be able to get that discount. So it should appreciate, you know, 10 to 15 over the next, you know, three to five years in our

market anyway. And so they're getting a discount on the property. They're happy, but we're happy because we're selling it for a premium today. And if I did this model with the one that I lost 5,000 on back in 2015, I wouldn't have lost money. I would probably have gained 20 to 30,000 on that deal. So just to give you an example of why we like these lease option models, because say a flip that where my buddy and I could each make 10,000, you know, a flip where there's a profit of about 20,000, If we use the lease option model, he and I make about three times the amount that we would normally make on a flip. And so rather than us each making about 10 on a deal, we'll make 30 on a deal. So each property that we get from the get go, we usually have a $30,000 increase in net worth right up front.

And then over the three to five years, we make about 30 to 40,000 each on each deal. So here's what I love about this is you're taking all these different strategies. I mean, like, let's list them off real quick, right? So you got the Burr strategy, which we talk about, right? Burr investing by rehab, rent refinance, repeat. You got that. You're combining that with hard money combined with business lines of credit, combined with lease options, like all wrapped in together.

You created this strategy out of, I mean, I doubt, I mean, like, again, like you, you created this strategy. Maybe somebody told you exactly to do this, but I'm guessing you just figure that out a little bit along the way, right? Yeah. So, so this was a hodgepodge of like three or four different strategies put together. That's super cool. And one other benefit, and maybe you cover this one, maybe you didn't, but when you're selling, let's say a tenant does agree to buy the property and they close on, you know, we used number 195 earlier. You don't have a real estate agent involved in that. You're not paying now 12 grand to a real estate agent to close that deal. You just made 12 grand

more than you would. If you would have flipped it, you would have had to sell. And the other thing, I hate flipping houses, but the thing that drives me nuts about it is like when I'm going to sell it, it's like there's a laundry list of stuff that the person wants to get done. They do their inspection. Now they got this thing. And I don't like this spot on the carpet. And I know I can say no, but then now I'm emotionally like lease options. They already live in the house. They live in the house. They live in the house. They know exactly what the house is like. And so, and we put that in the option. fee. We say, so when this goes time to sell the property, there's not going to be any realtor fees or anything like that. And then they're going to be paying the closing costs, basically. And so they see that,

they know that. And so there are very little closing costs. We just have some title fees about 1%, but it really does cut out so many costs. And again, so think about that. You are really ultimately giving it, you know, some of its highest and best potential profit, cutting out a lot of the costs. And people are happy to do this. So it's really worked out well in so many areas. And of the 16 that we did last year in 2017, we have not had any moveouts. Everybody's paid rent. So, you know, we've had zero vacancies. Everybody's paid rent. It's worked out really, really well. You're also reducing your capital gains from short term to long term if you're going over this five year period. So you're making a decent income. Anything less than a year that you sell, you're getting taxed at whatever.

your income bracket is, which can be really high. And if it's a short term, I believe, what is it, 15% straight? I think so, yeah. Yeah, that could be a big difference if you're getting tax at 30, 35% on your income and you only have to pay 15. Brendan, I know that you've done some of these. Why aren't you doing them anymore? Me?

Yeah. Yes. I did, yeah, so back in the day, I used to do a number. I did a few. I shouldn't say, like lots of them, but I did a few of them. Here's my problem. And maybe you've got to, Shiloh, you figure out a way around this. The problem I was having is that nobody knows.

All the tenant people that were calling, nobody knows what a lease option is or rent to own. You know, like, nobody knows what that actually means because tenants aren't real estate investors, right? So I was getting, I mean, I would get 50 phone calls from people and every one of them were the worst people I've ever met. I mean, like, they're real. It's like, yeah, I need a home for my marijuana grow operation and to store the bodies. You know, like, it was just like the worst people. And I'm like, well, do you have any, you know, what's your credit like? I don't have credit.

It's negative. You know, like. I have cash. Yeah. a lot of it. Exactly. Yeah. It was what,

I mean, every single. I steal the credit from the victims of the bodies that I'm killing. I use a different one on every house. Like, it was like that.

And so like I got so disheartened with people from doing, now granted, I was doing this in a very lower income, rougher neighborhood of Aberdeen, Washington. But I, I just couldn't handle all those phone calls. That was the primary reason.

So Shiloh, what did you do about that? Do you not have that? Or is that where the assistant comes in? That is where the assistant comes in. No, I'm just kidding. Let's see. We actually don't have that big of an issue with it, but a lot of them don't know what the lease option is. And they were calling up my buddy, the realtor, and saying, hey, what's this lease option?

And so what he did is, he went and he had this video made. So it's like a four-minute little cartoon video that is fantastic. And it explains the lease option really, really well. And so I'll have that up on my website so people can take a look at that video and kind of see, how it's explained. It's explained very, very easily. And so when somebody is interested in one of our properties, we explain. So it's, you know, you have the lease and then you buy this, you buy an option to be able to buy the property the next four years. I want you to go and take a look at this video. And if you're still interested, give us a call back. That's, so that's what we do. That's genius. Like I never thought of doing the video idea. I love that idea. I have a video like that for my real estate agent business. Yeah. But basically it's like a 60 second video that says, this is David. He was a

police officer. He invested in real estate. Now he buys houses. This is all the stuff that he's done. This is why you should work with them. And I send that to people when I first meet him and they know nothing about me. And it's like, oh, look at that. It's so cute. And he doesn't seem so scary anymore. I'm a huge proponent of these videos. Like you, I think I got mine made for three or four hundred bucks. I bet you there's people that will do it a whole lot cheaper than that. Five or for like five bucks. Yeah. Yeah. Yeah. That's smart people like Brandon would have figured that out. But yeah, like anytime you're looking to raise money from people or you're looking for a partner. Like, say that you want to flip houses and you say, hey, I'm the rehab guy. I need money. And you get sick

of explaining to every single person exactly how this works is you make a video that explains it and you send it to him. And it's like very engaging and makes someone to talk to you. I think that's a great idea, Shiloh. Well, I mean, we do this for the people that want to do the lease options with us. But people that want to like partner up with us. And it's not really partnering up with us, basically. People that want to learn our system, we will let them come in and they fund a rehab and we show them the whole thing from start to finish. And then they get their money back and then they get interest on their money. And so it's really a win in in all directions. We win because now we have somebody coming in with the rehab money. We have somebody that wants to

learn. We get to, you know, share with them what we're doing. They learn. They're grateful for that. And then they can go and they can do their own deals. And so with those, we don't show them a video because I like to work personally with people that want to learn. And so they come in and I work with them personally without the video. That is the coolest idea. I've never heard of anybody doing that, but I'm totally going to steal your idea here, Shilowlo. Like I want like I'm going to bring in people.

Yeah, you should totally. Marking it right now. Right now. I totally just send it text to my lawyer. Yeah, there you go. Good. Is that all it takes to trademark something? One second,

ready. Have you seen the episode of the office where Michael declares bankruptcy? No. And he just opens a door and screams, I declare bankruptcy. And he thinks like that's all. And they're like, You can't just say I declare bankruptcy.

He says, I didn't say it. I declared it. Well, actually, I'm sure you need to do. That is pretty much for a trademark. That's all you have to do, really. Anyway, if you want to patent it, that's more complex. Okay, so here's what I'm like, you're basically finding people who are up and coming,

wanting to get involved in real estate. And you're saying, look, if you want to learn everything that I'm doing, you've got to fund my next deal. And just like you did as a harmony lender when you got started, which is super cool. I love that. This is coming full circle. So now that, now you get funding for a real estate deal.

They get to learn and you can avoid all the high fees and points of hard money. I am totally stealing this idea to fund my next deals. This is the coolest idea ever. At the same time, we do, we do give, you know, a good rate to the people that come in to learn. And so it really works out well. I mean, when you think about it, total cost-wise, their money is usually just invested for about four months. Yep. So even if we're giving, you know, 10% or something,

their money is only invested for a short period of time. But still, they're earning money on their money. They get to learn the process. And so it's been really great. I've met some really good friends doing this. And they tend to be really grateful. And then they come to my meetup and it's great because then they share, hey, we did a deal over here with Shiloh.

It worked out great. And so it's been awesome all around. It really has. That's so cool. I'm really impressed with that. So anyway, keep that up. All right. So, yeah, super cool.

Let's see. So you're doing the lease option thing. So here's one more thing I want to talk about with lease options. One of the other difficulties I've found is that a lot of people who go into lease options, the tenant buyer, so to speak, they don't end up buying the property. I mean, I think I once wrote a stat that said 90% of lease options never fulfill their thing. Now, obviously they don't have to. It's an option.

They're not required to. They're not under contract that they have to. It's just an option. But how can you increase the chance that the tenant will? Because ideally you want them to buy it, I'm assuming, right? I mean, if they leave, you can always just redo it again, but it's nice to get out. Yeah. We don't set out to buy any property that we want to leave, that we want to do a second type of lease option.

All of our properties are really set up to just do the lease option once, and that's our goal with them. And so, you know, you talk about that statistic, but then again, you think about, well, where was that statistic coming from? And then you think, oh, I wonder if this is why the Dodd-Frank Act came out because of the way that they were setting these things up. So if you look at our specific model, our specific model, very simple. We're not selling it for way overpriced of the market. We don't have this exorbitant amount of lease option fee that they have to come in with. And so it is really for the everyday person that wants to come in that if they work on repairing their credit over the next year or two, they're going to be able to get a loan. All of the properties that we do, or the majority of them, I should say, are under the medium price point for the property.

So there's a lot of interest in that price point. And then also it's just easier to get a loan on those types of homes. And we connect them with a mortgage company or a mortgage broker who then helps them get their credit where it needs to be. So after they've been in our property for about a year, we're starting to now connect them with these mortgage brokers that will help them get to where they need to be in order to purchase the properties. And then when they purchase it, in all honesty, their monthly payment is going to go down. Yep. So it just works. It works for them.

It works for us. And so in, and you know, we haven't held these for the whole five years yet to be able to say, well, this is our percentage. But my honest guess with all of the people that we have in there, I think that ours is going to be much, much higher than the average. That's awesome. Yeah. That was the idea I was going to go with at some point if I get back in the lease options,

which I guess I kind of am with Mo Holmes. But anyway, like is hooking them up with a mortgage person, like helping them. because most people can get a mortgage if they just know how. Like I have a friend who did a lease option and wasn't able to fulfill it. Like he leased options actually from another friend of mine. They couldn't buy the house though because he quit his job right in the middle of it to go like be self-employed. Great for my friend. Like yeah, great for him wanting to go be a contractor on his own.

Like I love the guy. But at the time I was like, dude, like you will kill your shot of getting a mortgage if you do this. But he was, you know, these people just aren't cognizant of what mortgage lending laws are. and rules are. So hooking them up with a mortgage lender, I wonder, could you even require, maybe you don't do this, but could you require them to meet a certain number of times? Like, you have to meet once a quarter for the entire lease option with the mortgage person. Is that weird? Do you ever thought of that? You know, it's a good question. We haven't thought about that personally. So that would be something to look into. Right now, we just have them, you know, we introduce the

mortgage broker with them and then we follow up with the mortgage broker and say, hey, how's it going? We follow up with the tenant. And we're asking him, you know, what's before they even get into the property. We say we only want people to come into our properties that are and buyers that really, really want the property. And then when they say yes, then we hook them up with the mortgage broker. And so, you know, we're hoping that this is all going to work out, but we're going to follow up with them regularly. That's awesome. It's just so smart. Everything you're doing. So fantastic. This has been really, really good so far. And we're not quite done yet because we're going to head over next to the world famous fire round. Fire round. It's time for the fire round.

All right, let's get to the fire around. These questions come direct out of the Bigger Pockets forums. And so we're going to fire them at you right now and see what you've got to say. Number one, I'm a little confused on the difference between lease options or a lease purchase or subject to. What's the difference? Good question. And so, you know, we really do focus on the lease option. I think the least purchase, and again, I'm not an expert in this, but I think the lease purchase is the, you're really agreeing to this, this purchase.

Actually, I'm not going to really comment much more than that because I don't know a lot. Yeah, I get the feeling they're pretty similar. I think they're very subtle if there's any differences there. But anyway. Yeah. But then there's the subject two is, yeah. So, yeah, so subject two is different in that a lot of times you go to somebody that maybe having a hard time financially with their property and then you come over and you negotiate with them to keep their mortgage in place. you'll help them get it to where it needs to be with the bank and they'll sign you over the rights

to the home. And then you now have this property with the mortgage already in place that you can then sell to someone else or you can lease option to somebody else to rent out. And so you are able to use their credit and their mortgage. You're actually also helping them rebuild their credit. So that's more of a subject too. So that is a different animal than the lease option. Cool. All right. So here's a question. In the lease option to leapsch option. Have you ever done a lease option agreement with a seller for six months, then lease option the property to a buyer for three months?

I was running numbers and wanted us to know if someone has done this and if so, how successful was it? So we haven't done that. And the reason why is because we want to be a little bit more involved with the property. We want to keep the property for a longer period of time because as the people are in there, they're paying down our mortgage on the property. And so that's another form of income is the mortgage paydown. So we don't do it that way.

We like to do the three, four, or five year terms. What about this? I can either do a lease option contract or a rental agreement and a separate option agreement, which is better in your opinion. Like one document or two? Definitely the two separate documents. And the reason being is because you don't want some. something to look like a mortgage because then you're going to get into the Dodd-Frank issues.

And so we don't do right now, we're not doing any credit backs towards the purchase price because of the Dodd-Frank Act. And so you want to have your documents be separate. So you have a lease agreement. And then you have this separate side contract, which is an option to buy the property. And that just helps keep you more safe when it comes to legal reasons and things like that. Okay. When you are lease optioning homes to tenant slash buyers, what percentage actually end up exercising the options? Does that matter? And if it does matter, are there ways to improve the likelihood that a tenant will exercise his or her option? So, you know, as we talked about before, historically it's been said that the, that a lot fewer

people actually exercise the option. What I believe, and we haven't gone the full course to test this out. But what I believe is as you're working with the tenant buyer and as, you know, if it's a longer term lease and they have more time to actually rebuild their credit and things like that, I think that you're going to be able to get somebody in a better place to actually get a loan on these properties. All right. Last one here. I'm going to do one more. My tenant wants to buy my property. I'm willing to sell except for they have horrible credit. What are some tips I can give them to improve it. Tell them to pay their bills on time. That is the first thing. But no, hooking them up with a mortgage broker will then sit down with them and say, in order to get your credit to where it

needs to be, you need to do this, you need to do this, and you need to do this. Hoking them up with somebody specific that actually gives the loans is going to be a better way of getting them ready to actually exercise the option, especially if you do it, like with a year or two in advance, notice, they have time to actually do the things that they need to do. Yep. There you go. All right. Awesome.

Well, that is the end of the fire round, but it's not the end of the show because we have next our famous four. All righty. So with that, let's get to the famous four. Number one, what is your favorite real estate related book, Shiloh? That's a really great question. I've been thinking about this a lot. And I think it's probably going to have to be two favorite business books.

Can I switch over to business books? You can. You can if you want. Rob, steal David's Thunder here. So my. So as I mentioned to you before, there's Cashflow Quadrant by Robert Kusaki. I love that book. And then there's the classic richest man in Babylon.

I love that book. Yeah. And then I'm going to go for a different one. I'm going to go with shoe dog. Oh, okay. Nike story. I'm not ready. The story of Phil Knight.

You know, that book. was very, very helpful for me, especially more recently because if you read that book, you hear his story of building and every month, you know, or every year his business was like, you know, doubling in size, doubling in size. And he was having the hardest time going to banks and getting funding for his business. And so that was one of his biggest deals and, or biggest challenges. And so, you know, going through that whole process and seeing the struggle and hearing about that struggle, it helped me feel like, okay, you know, if I'm going to get bigger, there's going to be struggles. And one kind of affirmation that I have for myself is I don't shy away

from big challenges. Big challenges. I welcome big challenges because they're an opportunity for growth and learning. So I don't shy away from those. I really like that book and kind of motivating me to take them head on. There you. Fantastic. All right, David. I won't rob your next question would be Yeah, since he took my second one. Oh, that was a really good answer, though. Honestly, big challenge, Bob. Tell me a little bit about some of your hobbies. What is it you like to do?

So, you know, I have different hobbies for different people. Like I love to go on dates with my wife. That's fun. We like to go out to dinner, go to a movie. We have a great time with that. With my oldest two kids, well, my oldest daughter, we went down to Costa Rica recently, had a wonderful time, beautiful. The food is great.

We went ziplining with my. My son, I love to go deep sea fishing with him. I don't know if you guys have ever done deep sea fishing, but it is a blast. And then my eight-year-old daughter, we rollerblade to 7-11 and we get surpies together. Nice. So that's what we do. My three-year-old, I like to build trains with him. So those are my hobbies.

I went deep sea fishing one time. And my dad was out and a buddy of mine. We went out on the boat. And we got out there and all of a sudden, like, the waves hit so hard and so terribly. Like, I mean, our boat was going like 30 feet, 40 feet up in the air. I mean, it was, I died for like an hour. Like, I remember just laying on the floor of the boat, just puking, but not being able to, like, get up to do anything about it. And they finally had turned the boat around and it only ended up being a two-hour tour instead of the whole day.

That was the worst day of my life. That does sound like a true fishing story where everything gets embellished just a bit. Oh, no, no, no, it was that bad. It was so bad. I passed out. I was so sick. I mean, I just passed out. And it was the worst experience of my life.

Oh, man. Anyway, okay, moving on. What do you think sets apart successful real estate investors from all those who give up, they fail or they just plain never get started? You know, that's a good question. I think that, you know, we talked about the cash flow quadrants. We talked about the different mindsets. I think that it does have a lot to do with mindset.

The employee mindset is very much about safety and security. They want to make sure, you know, I go to work, I get my, I do my 95, I get my, you know, paycheck, and I feel secure with that. That does make me feel insecure because whenever I'm working for somebody else, at any moment, they can decide, you know, this isn't working out and then they can fire me. I feel a lot more secure when I'm working for myself than someone else. But I think that's a big part of it is it's the mindset and the willingness to take risks. And so at the beginning, when you partner up with somebody who's been doing it, it's a lot easier to take those risks because you don't feel like, oh, no, I'm investing all of this money. I can lose it all. When you partner up with somebody who knows what they're doing at a kind of a limited amount, it's not as risky.

You know what I mean? Somebody already knows what they're doing. But definitely, this is one thing I do want to say. You definitely need to vet the people that you partner with. In 2016, I partnered with somebody else up in Phoenix on two deals. They went very, very poorly, and I lost about 70,000 between the two deals. And so I learned a lot from partnering with that person about what to do and what not to do when it comes to partnerships. Wow. Yeah. Ouch.

Any pieces of wisdom there on what not to do? Yes. So definitely vet the person. And one of the red flags came to me when he went and showed me one of his properties. I'm like, oh, this is awesome. So do you have any offers on yet? He's like, no, how long has it been on the market? It's been on about 10 months.

We did just get an offer, though. And my thought was, huh, it's been on the market for a long time and it's a high-priced property. And so, but I was just really excited. Again, I was still pretty new. And so that wasn't as big of a red flag as it should have been. And then I was asking about all of these little things that didn't look like they were fully fixed. He's like, you know what? That's fine. That's fine. But they were higher priced properties. And then the higher price properties, those little fixes are not fine. You need to make sure that those properties are done well. And then I didn't read his contract nearly well enough to know if this deal goes bad, what happens. So you should definitely read the contract well, bet the person, talk with other people that they've invested with. If I had done any of those things, I likely wouldn't have invested with him and I would be $70,000 richer. There you go. Brandon and I had a attorney on the podcast that we were basically talking to him about, you know, making sure that your forms that you have for your tenants are rock solid. And one of the things that came up was that you can go to an attorney and say, hey, can I pay you for an hour of your time, read this contract and tell me what you think. You know, because the reason most people don't read contracts is not that they don't think it's important is that they don't understand and they don't understand. And they don't like feeling stupid. So they just don't read it, right? It's kind of like reading in a language you don't understand. We'll go take it to the person that speaks that language and pay them.

to read it for you and say, I want bullet points of exactly what these things mean. And if you, if you hear something that doesn't sound right, well, then you can bring it to the person. And just that really small investment of your time and a little bit of money would, you know, save people a lot of money. So that's a valuable lesson that you're sharing. Thank you for that. Shiloh. Absolutely. So last question. Where can people find out more about you? Good question. So I'm, you know, I'm doing lots of different things here and there. I have a website, blue equities.com. And on that website, you know, we highlight some of the rehabs that we've done.

So people can kind of see the workmanship of some of our rehabs. I am putting up some more information about lease options on there. So that's one way. They can Google me. I have stuff on Google about me. I have different, what do you call it, you know, educational videos when it comes to therapy and parenting. It's one of the things that I do is I teach parenting classes out in Mesa.

And I've been doing that for years and years. And that's been a great, a great thing. I also have an app that I've developed that helps individuals struggling with addiction, overcome addiction. And so again, I just have a lot of different things. You can Google me. You can come to the different websites that I have. I guess that's how to get to know me a little bit more and send me an email through my websites.

So that's how you get to know me. All right. Good deal. And of course, you're on Bigger Pockets. I've seen you around. I'm on Bigger Pockets. Make sure we link to your profile there on the show notes at biggerpockets.com. slash show 287.

And with that, Shiloh, we got to get out of here. Thanks for coming on the show today. It's been fantastic. I love your story. I love your journey. You got some creative finance stuff going on, and I love that. So keep it up. Thanks, fun.

And thanks for letting me come on the podcast with you guys. This is great. Yeah, thank you. Adios. All righty. That was our show with Shiloh, Lundahl. I sure hope I'm saying his last name, right? Lundall, I think so.

What is he is? We have such a cool first name that no one's really going to pay attention to his last thing. That's the problem. I kept saying like Shiloh. Yeah. Doesn't that mean peace? I think that means peace or something. That's Shalom.

Maybe in a different version of it, though. It could be Shiloh. Yeah, maybe. I don't know. Maybe I'm just butchering my Jewish language skills. Anyway, yeah, fantastic show. I love people who do like creative finance. I mean, I love all people.

But I have a special place in my heart for people who figure out how to put together deals using multiple different creative strategies. Because, you know, it's very seldom that one strategy works across. the board, right? He combines different things. Yeah, I like that. Well, we've all got access to the same recipes, but what makes a chef a chef is their ability to combine them into something that works, right? So if you're sitting there complaining that real estate is too hard or you can't make it work, maybe you're not combining the ingredients in the way that works and you need to look at yourself and ask yourself how you can improve as a chef. Wow. David, analogy green. Coming in strong.

I agree, though, but he had a lot of ingredients in his soup. So that was. Yeah, that's a good point. Yeah, it was good. So anyway, well, I hope you guys enjoy the show today. We got to get out of here. But thank you for being a part of Bigger Pockets. Make sure you guys subscribe to this show wherever you're watching it. And leave us some ratings and reviews because that helps more people hear about the show. And that's what we're here to do for Brandon sleeps in his car turner.

This is David Green. Signing off. You're listening to Bigger Pockets Radio. Simplifying Real Estate for investors large and small. If you're here looking to learn about real estate investing, without all the Hi, you're in the right place. Be sure to join the millions of others who have benefited from biggerpockets.com. Your home for real estate investing online.

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