Epic Real Estate Investing - 9 Tools for Your Creative Financing Toolbox | Episode 208

Episode Date: June 6, 2016

It’s a shame how many aspiring investors fail to take that first step in real estate investing because they’re convinced they don’t have the resources to do it.  Continuing in our creative investing series, today Matt is sharing 9 creative ways to fund your next deal. Be sure to listen with an open mind, and remember that these 9 tools are not applicable to every deal.  However, if you use discretion and keep things simple for your seller (using Matt’s 3-option letter of intent), these creative financing methods can help you explode your growth.  Enjoy! ------- The free course is new and improved!  To access to the two fastest and easiest strategies to a paycheck in real estate, go to FreeRealEstateInvestingCourse.com or text “FreeCourse” to 55678. What interests you most? E.ducation P.roperties I.ncome C.oaching Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Podcasting from Terrio Studios in Glendale, California, it's time for Epic Real Estate Investing with Matt Terrio. Hello, and welcome to Epic Real Estate investing, the place where I show people how to escape the rat race using real estate. Lately, we've been showing people how to escape the rat race using a lot of creative real estate. You just got to shift your focus from making piles of money to making streams of money, change that. one thing just one time and you are on your way. You're on your way to financial freedom. It's not the most exciting path. I promise you that it's rather dull and boring. Oh my God, is it boring. But it is the fastest. And once you get there, life, then becomes exciting.

And that's what it's all about, right? And, you know, speaking of exciting, we've got more creative real estate investing today, specifically on creative real estate financing. Now, over the last few episodes, we've covered various creative deal structuring and a question, came into me this week. And we've been getting a lot of questions. This is a, this is, the creative real estate investing thing is a hot topic and everyone's got a bunch of questions. So, I got a question from Brenda, Brenda Blakely. She gave me permission to use her name. And she had asked a very general basic question. And this isn't the only time I received this question. But the question was, do these types of deals really work? Now, I've been doing this for a while,

investing in real estate for more than a decade now. And I've been coaching and training for training people for, I don't know, a little over six years. And I've worked with enough people now to where I know almost exactly what their experience is based on the questions that they ask. And a question like, do these type of deals really work? What that does, that that suggests to me is that there's not a lot of experience there, not a lot of experience out in the field. It also tells me that Brenda has likely been, say, to a few seminars. She's purchased a course or two. She's heard some similar ideas as to what we've been discussing here the last few weeks.

She might even have given it a go herself a couple times, only to be shut down and discouraged. And then she started looking for a different program or a different coach, a different method, whatever. And I ran that by her and I was able to confirm this with her that I was right on the nose. So if the creative ideas that we've been discussing the last few weeks isn't the first time that you've heard them. like Brenda, she's heard them before. And, you know, but you've heard about them, but you've yet to pull any of them off. I want to share with you what I think, what most teachers and gurus from stage or on a webinar, they conveniently forget or they fail to mention.

What that is is, yes, all of these ideas work. They do say that. Each and every one of them do absolutely work. Will they work for every situation, though? Absolutely not. And when I hear a fellow educator out there training students to build, say, their entire investing business around subject twos, around that single strategy or around just lease options, or around even just wholesaling, I cringe a little bit. And sometimes I cringe a lot, depending on how they present it. Because, you know, say, for example, if you were to start looking for motivated sellers and you are only submitting subject two offers, you know, how much opportunity you are leaving.

on the table. You know how much money you're wasting in marketing, how much time you're wasting and prospecting? I mean, if you did that, if you just submitted subject to offers to all the leads that came your way, you're going to burn out so fast and you're probably going to go broke on marketing dollars before you ever do a single deal. You see, it takes a very unique and special situation for a subject to deal to be a solution for the seller. And just because that that subject to deal for the seller was rejected, doesn't mean that, say, an option would have been a good solution for that seller. Or a private lending structure wouldn't have worked for that structure.

A note buyer wouldn't have worked for that structure. Or, say, a purchase and then repurpose and rezone type deal wouldn't have worked. Or maybe just a straight wholesale deal could have worked as well. So what I'm getting at is take each one of these ideas and just put them in your toolbox so you can call on them when you need them. Now, what I can tell you, Brenda, is that none of them will work unless you can find motivated sellers. And that's something that the gurus and the educators out there, they tend to forget. They'll tell you how to do deals all day long, but they won't tell you how to find them.

So if you can find them, then the doing is a whole lot easier. So don't worry so much about the strategy or the technique until you have a motivated seller of which you're hip to their problem. And then once you know what their problem is, you can now look in your, toolbox for the proper tool and present the best solution. Got it? So good question. Great question, Brenda. And I know you're not the only one who had it.

So that's why I answered it. All righty. So let's do a rundown of nine tools, nine tools for creative financing. I want you to take note of them. I want you to understand how each one of them works individually. And then I want you to go back to the homework that I gave you a few episodes. I wonder how many of you actually did it. Did you do it?

Did you actually do your homework? Remember, when I assigned you that assignment, of to write $100,000 at the top of a piece of paper. And then I wanted you to start, come up with at least 10 different ways of how you could pay off $100,000 to somebody. Well, I've given you a bunch of strategies in the last few weeks. I'm going to give you nine more today. And I want you to resume your homework or start it if you haven't started it. I just want you to take all these different strategies and mix and match them in various ways of how you could pay someone $100,000.

What that's going to do is it's going to get your work. wheels turning. I want you to keep on going until you just can't do it anymore. But also what it's going to do, it's going to create a skill for you. And you're going to be ready for when that opportunity hits. And you're not going to be sitting there going, I don't know what to do. Right. No, you're going to know exactly what to do because you practiced. Real estate investing, it's a skill, just like anything else, just like shooting a three-pointer. It's a skill. You've got to practice it. And the more you practice, the better you get. So it works just like that and everything else. And all righty. So let's go. Number one is hard money. Okay, not really creative, but

hard money. That is a, that is an option out there. It's a hard money loan. It's a specific type of asset-based loan financing through which a borrower receives funds secured by the property, not by their credit, not personally, typically by the property. Hard money loans, they're, they're typically issued by private investors or private companies. And interest rates are typically much higher than conventional, commercial, or residential property loans because of the higher risk and the shorter duration of the loan. They want to get paid on their money. So if they're going to put it out there for a short period of time, they want a good return.

So most hard money loans, they are used for projects lasting for, I don't know, for a few months to a few years. The big advantage of hard money is you can typically access it fast and it's not based on your credit score. So you don't have to go through a giant underwriting process. and if you say say you stand to make over $40,000 on a project, who cares if you pay $10,000 on interest and points over that six-month period that you were working on it? Right.

So it's all relatives. It's not going to be a good fit just for just like what we're talking about. It's not going to be a good fit for every deal, but it is there and it can help you get the deal done. So, you know, if that deal is going to pay you $5,000, of course you don't want to pay $10,000 on interest and points, right? So that's not a good fit there. So that's hard money.

it. Number two, seller financing. We've talked a lot about this, but I'm putting in here because it still has to do with financing. Sometimes the bank is going to loan you, you know, they'll loan you 90%, and allow a seller to take back a second mortgage for you, say, for five or 10%, leaving you you needing only maybe 5% or nothing down. Sometimes if the seller has the ability, they'll go ahead and they'll finance the entire thing. You know, 80% of my entire portfolio, 7d7 units to date. We've done a lot of reduction lately, but we're down to 70%. 37 units, 80% of that portfolio was financed with seller financing. Okay.

So I wanted to bring that up again because I think that's one of the best places and easiest ways to actually do no money down deals or having very little money into the deal for yourself. Number three, land contracts, also called contract for deed or contract for sale. They got a few different names out there. What this means is just the seller lets you make payments. You make payments over a contract, but you don't get you. get title until you've completed and executed the contract.

So until you've made that final payment. It's more of a business transaction than it is a real estate transaction. It's just another way to do it. I like land contracts when I sell property. Not a big fan when I buy them. Okay. But if the deal is good enough, hey, I'll still do it. It just depends on the deal.

So land contracts. Now, credit cards. Yeah, credit cards. If a seller is willing to take, say, $5,000. down on a property, would you expect to profit $25,000? Why wouldn't you use a credit card? I mean, it might even deserve to be your first choice for financing. This is how most people are using Epic Fast funding in just this manner.

I mean, this is a true zero-down deal for you. And if you turn the project around in six months, you know, for that amount, you'd probably paid $400,500 in interest, say on an 18% credit card over at Epic fast funding, it's zero percent for the first 18 months. Would you probably pay $450? Would you let $450 get in the way of you making $25,000? No, absolutely not. I hope you wouldn't.

So credit cards, think about them, okay? It's just somebody else's money, just because it has credit card, just because it fits in your wallet, just because you have easy access to it, just because, you know, you were raised to say, watch your credit balance. Doesn't mean it's a good solution for your deal, right? That's number four. number five retirement accounts so there's some rules and regulations that you're going to have to abide by but check with a tax attorney to see how you might access funds from your retirement

account or even someone else's it's a great source of money and you there's a lot of noise out there around investors and programs and stuff trying to access those retirement funds reason being is there's enough money in retirement account accounts to actually pay off the national debt. That's where all the money's at, trillions of dollars. It's ridiculous. Okay. So, you know, look at your own retirement account if you got one or someone else's. And whether you pay yourself back or you pay someone else's back, that's tax-free money for that retirement account. So that's typically creates a good win-win solution for people. That's a good deal for anybody with a retirement account. Number six, your network, specifically friends, family, associates. And

And don't ask for it, by the way. Because I'll get a little weird when we go and ask for money from people that we know. Don't ask for money. No, present them an opportunity. Give them the ability to get something back. Okay, you're offering them a favor. Show them your deal. Offer them five, six, seven percent, whatever it may be, whatever the going rate is.

And don't think that you're, that they are doing you a favor. Don't think that. Don't come into a, that conversation is a position of inferiority. You got something hot. You got a deal, right? So don't think that they're doing you a favor, especially since their money, it's probably in the bank earning less than 1% anyway.

So just make it all about business. And if you use this source and don't feel that, you know, loaning you money at 7% is a gift. Okay, don't feel that it's a gift. It's, you know, if their money's just getting 1% or 2% in the bank, hey, you just did them a favor. Now, what I would recommend is you absolutely pay them back, else that could make, you know, Thanksgiving a little uncomfortable.

So that's number six, your network. Note buyers, example being you want to purchase a $100,000 property. By the way, I've seen a lot of stuff coming through my Facebook feed on note buying seminars. That might be a place to go where even if you're not interested in notes, that might be a good place to network and find people with money because those are people that want to buy notes. Because you know you can't leverage notes, right? You got to buy them. You can't get a loan from the bank to buy them. Typically, people that go to note buying seminars are people that got cash in their pocket.

So that'd be a good place to collect some business cards. Anyway, let's say you want to purchase a $100,000 property, but the seller needs the majority in cash. Okay, they need most of it in cash. And you just don't have the cash. So what you can do, after you picked up one of these little business cards at one of those seminars, you can structure this deal where the seller raises the price to $110,000. So they raised it $10,000.

And then separates that into two separate mortgages. So they got $100,000 mortgage and a $10,000. mortgage. You then sell that $100,000 mortgage to a note buyer at a $10,000 discount, which is typical, right? So you sell it to that note buyer for $90,000. So the seller gets his $90,000 in cash and a $10,000 note. So he got his $100,000, he got most of it out in cash. And what you got, you got the property with no money down. You got it 100% financed and now you make payments for that $10,000 note left with the seller and you make payments for the $90,000 note to the buyer.

Got it? So why would you spend $10,000 more than what the seller wanted? Well, because the deal worked. It made sense. Okay? Don't ever ignore that part. Just don't do this stuff because you can. It's still got to be a good deal for you.

Number eight. Equity line of credit. Again, that's just another source of other people's money. You can access, you know, existing equity that you have in other properties or even if it's, even if it's your primary residence. Or you can do a cash out refinance. Maybe that you can do that. Now, whatever you purchase, just make sure, as with all of these examples, that your deal is going to pay you back more than what it costs for you to access your financing.

It's got to pay you back more than what it costs you to use that money. All right. So, equity line of credit. Number nine, joint venture or partnership. So there is, then when I say this, there's more money out there than you could possibly imagine. We talked about retirement accounts a couple suggestions ago. And all that money, people are just saying, gosh, I wish there was an opportunity that present itself because my money is just sitting there. And if, you know, if you're short on funds, that might be tough for you to imagine.

If you've never had a lot of money before, that might be tough for you to imagine. But that's a problem for people with money. So don't discount this, okay? All of that money, it's trying to go somewhere. If they want to put it somewhere, they want a return because it's right now it's sitting there, you know, who knows where it's sitting. But it's really tough to even just get, you know, three or four percent dependable return by through conventional sources these days.

So a five, six, seven percent that actually is going to return that. Oh, my God. It's, you just have to start talking about it, okay? So if you come across a deal that satisfies the needs of that money, that money that's looking for a home, you can access this rather easily just by forming a partnership with the money people. You see, they put in the cash, you do the work. And I had a number of these until I got too many of them, because it can be a little cumbersome as far as bookkeeping goes. That's why I went ahead and I transferred everything into the Epic Wealth Fund for these types of arrangements. But

Joint Venture Partnership, great way to go. It's how I've built a good portion of my whole real estate business. I've been doing it for the last decade. All righty. So there you go. Nine tools for your creative financing toolbox. And I've used every single one of them. But, But they're not applicable to every deal. So don't try to introduce every one of them to a seller when you come across one. Okay. Don't try to make them all fit. I made this mistake when I'm getting started because I was so excited about what I had

learned and I couldn't wait to just go out there and crush it with all my newfound knowledge. And so I made this mistake of, you know, every time I sat down with the cell, I said, we could do this, we could do this, we could do that, we could do this, we could do that. And all this did was it just kind of raised red flags with a seller. Plus, one, I was a little too eager. But really raised flags because they didn't really understand it. So remember, you are a professional buyer. You're an investor. You're a professional buyer.

Most sellers are not professional sellers. So you've got to keep this thing simple. And, you know, the more creative you get, probably the slower that you would want to introduce that. And that's exactly why I started. using the three-option letter of intent. We've talked about that a lot recently. It's just, it's a staple my business.

I use it daily. You know, once it's been established that the low-ball all-cash offer is not going to be a good fit, that's when I follow up with the two additional options. Options of basic creative structures, very basic ones, an interest-only-seller carry-back

and a principal-only-seller carry-back. And I send that to them. And then I follow up with them. Hey, Mr. Seller, Mr. Seller, which one did you like best? option number one, option number two, or option number three. Can y'all do that? Can y'all sell by the numbers like that?

Which one did you like best? Option number one, option number two, or option number three? Very simple, right? And then I just sit there and I shut up and I wait for their response. And then based on their response, I will then dig into the toolbox that I just shared with you today, the toolbox that I've been sharing with you those last few weeks. I go ahead and I look in my toolbox to see which tool is going to be the right one for the job. So if you'd like to get a copy of my three option letter of intent, you can.

And you can get the calculator as well. And it's available to you for free at epicl.OI.com. Epic. eloi. com. All right, y'all, to your success. I'm Matt Terrio, living the dream. You've been listening to Epic Real Estate Investing,

the world's foremost authority on separating the facts from the BS in real estate investing education. If you enjoyed this show, please take a minute to visit iTunes and share your thoughts. Thanks for listening. See you next time here at Epic Real Estate Investing with Matt Terrio. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.