Epic Real Estate Investing - Creative Financing and More! - Pace Morby | 1175

Episode Date: January 20, 2022

On today's show, Matt is joined by a fellow creative financing junkie, Pace Morby! You might've seen him and his trademark peace sign all over the internet discussing subject to real estate deals. Pace began his career as a contractor renovating over 7,000 homes for other people until one day he started flipping his own houses and gradually creating a portfolio of rentals that will give him the cash flow he needed for full financial freedom. If you like creative financing, smash the play button as you are in the right place! Let's go! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. On today's show, I'm joined by a fellow creative financing junkie. You might have seen him and his trademark peace sign all over the internet discussing subject to real estate deals. And he began his career as a contractor renovating over 7,000 homes for other people until one day it flipped for him. And he started flipping his own houses and gradually, methodically creating a portfolio of rentals that will give him the cash flow he needed for full financial freedom.

And very much like my story, accomplished it all without the assistance of bank financing. Now, I got no idea what we're going to talk about, but I've got an hour bookmarked for this because I'm sure it's going to be nothing shy of amazing. If you like creative financing, that is. You ready? Let's go. Welcome to the all-new, epic real estate investing show. The longest running real estate investing podcast on the,

interwebs, your source for housing market updates, creative investing strategies, and everything else you need to retire early. Some audio may be pulled from our weekly videos and may require visual support. To get the full premium experience, check out Epic Real Estate's YouTube channel, epicorei.tv. If you want to make money in real estate, sit tight and stay tuned. If you want to go far, share this with a friend. If you want to go fast, go to R-E-I-8. Here's Matt. Mr. Pace, Morby, Pace. Glad to have you, bud.

Happy New Year. Same to you, man. I'm excited for the year. I am excited for the things that we're working on. I want to hear what you're working on this year as well. Sure. Bro, you want to hear something cool that I'm working on right now? I totally want to hear something cool.

So one of the reasons I love and appreciate you and a lot of the content you provide is because you actually know what you're talking about with creative finance, right? and you've done deals. And it's so fun and refreshing. Like, I learn things or I'm reminded of things that either I knew and forgot or I need to be reminded about on your channel all the time. And I look up to you. You're amazing. Thanks, bud.

There's other people that I feel like are missing the beat on creative finance stuff. And what I mean by that is this. I feel like nobody's really showing anybody how to do this business really other than you and I. and one of the things I'm currently working on that I'm going to elevate some of my game is when somebody asks me a question what I'm going to do is I'm going to be doing some really high level fun stuff

like I have a question on my email somebody emails at me it's an agent and this agent sent me an email regarding due on sale and Matt I have answered the do on sale question probably as many times as you have and I'm like you know what I get it nobody's going to go out

and look for the information and they want the information given to them. I totally get that. But I also realize that maybe I'm not doing a good enough job educating on the due on sale class. And so the question was this. It's an agent out of California. And he says, man, I'm so excited about learning about sub two.

I didn't know it was possible. Even seller finance didn't even know it was possible. I'm like, that's what's crazy about agents is they don't even learn that seller finance is a thing until like years into the business. Right. He says, but I'm really hung up because I believe that subject to real estate investing

is illegal and I could go to prison as a licensed real estate agent for doing subject to transactions. Yeah. And I'm like, okay, I've answered this a lot. And maybe I'm just not good enough on my content. So what I'm going to do is I'm going to go and find the top three, not investors, but real estate lawyers in the nation. And I'm going to bring them to the table and I'm going to have them answer the question about due on sale and actually cite law and case law and all of these types of things. And I'm sitting here thinking, I'm putting this together and my first one is next week. And I'm like, you know who else would be fun to collab with on this? Is Matt freaking Terrio?

Oh, sweet. And I think it would be really fun. I'm paying these attorneys. They're friends of mine or we've become friends. You know how it is. It's like you're in the industry. You start doing deals with people. You have to leverage a relationship to get an answer that you need or whatever. And you become friends with the people that you do deals with. Right. So these attorneys, some of them I've closed deals with as closing attorneys and some of them are literally just real estate like litigators. They litigate people for breaking real estate laws or, you know, having a buyer-seller conflict and they take people to court. And so I've got some really high-level people that I'm going to bring onto my YouTube channel. I would love to collaborate with you on this just because

you're my buddy. And I think you're one of the most articulate, intelligent people around creative finance where I'm going to do a whole series on due on sale clause. Because this guy sends me this email. It is such a great email listing out all this case law, all these people have done creative finance incorrectly. And what we're going to do is we're going to do like a three, maybe four or five part series about each individual case. I'm paying my attorneys to review all of these cases,

go back, do the research, get their paralegals to bring all the information together. and we're going to do a one-hour case study on everybody that's ever gotten in trouble with creative finance. They've already started the research, and they're coming back to me and it's like, dude, the reason people get in trouble with creative finance has nothing to do with creative finance. It has to do with the fact that they're mismanaging the transaction or they committed fraud. They didn't actually uphold their promises. And through the research, these paralegals are like, we've actually found 10,000 times more issues with traditional transactions than we actually have found with creative finance transactions.

I'm sure. So first off, would you want to collaborate with me on that and just share it on your YouTube as well? Oh, for sure. I'd love to. Absolutely. Be a blast. But for a couple moments, what do you feel like are the top things that when people are learning sub two or novation agreements or anything in creative finance for that matter? What do you feel like are the big boogeymen that people really worry about? Do on sell clause, I would say, is probably number one. Would you agree with that? I mean, when we're talking about subject two, for sure, we go subject two's and wrap, stuff like that.

Do on sale clause is a concern. So do on sale is obviously with subject two because there's an existing underlying mortgage and the lender says, hey, in my documents, I have the right to, you know, call the due on sale clause. That's number one. Number two, I would say, and I would love to get your take on this, I would say that number two is you can't do sub two on certain types of loans. I get that all time.

People DM me and go, can I do a sub-two on a VA loan? Can I do a sub-to on an FHA loan? Can I do a sub-to on a hard money loan? Can I do a sub-to on a reverse mortgage? And the answer, this is why it's great to collab with other high-level people. My answer is you can sub-toe on everything.

You can sub-to anything, yeah. Anything. And so that's the second thing I get. Now, is it advisable to go out and take over- over a reverse mortgage sub two? Probably not because those lenders are really intelligent and they know they're going to come over and attack that property. There's other strategies you can do. We can maybe do a whole other topic about another day. The third one I get is what happens when you default on my payment? So the seller asks a real estate investor. What happens, Matt,

if you default on my mortgage. And so I have a whole slew of things I talk about when I'm talking to a seller of how to overcome that objection. And also my paperwork protects the seller, all those types of things. But I'm going through all these things and I'm like, man, I swear I'm talking until I'm blue in the face. And then the next day, the next week,

somebody asks me those same questions again and again and again. And I'm like, I should create a series on my YouTube channel. I would love to collab with you on this. And then every time somebody asks me a question about due on cell calls, I'm like, here, watch these series. Right, right. You know, it's just the kind of the nature of what we do and we're working with people and helping them get started or maybe they've done some business. They've got some experience and that. They want to start incorporating creative strategies and stuff like that.

We can sit here and walk it through the whole process A to Z right now. And then we come across somebody yesterday that's never even heard of us and say, so how do you do the subject two thing? Like, I just did it. Bro, I did a 26-hour live where I walked through a such-and-such, and you just found me today. It's unfortunate, but I feel like we're stand-up comedians to some degree where it's like, hey, I killed it. I was on stage. I crushed it. Everybody's like, wow, you blew my mind.

And then the very next day, somebody goes, who are you? Tell me some jokes. And I'm like, you didn't see the thing. I crushed that. It was amazing yesterday, right? I got to be amazing again. Yeah. Yeah, totally.

you've had your YouTube channel for a while. You're putting out a lot of content. If you're going to make that relationship to stand-up comedians, it's like, I only know so many jokes, right? But they have to keep on writing. But for us, it's pretty simple,

straightforward. It's the same thing over and over and over again. And we're constantly having different angles and different ways to approach the subject and teach it. Yeah, new analogies, new stories, new examples, all that kind of stuff. And so that's where I'm, like,

that's where I'm like, you know what, I'm going to try something else, because a big part of this is people don't realize, here's what happens for everybody that doesn't understand. Why does a guy like Matt Terrio or a guy like go and create a YouTube channel? How does it benefit us? Honestly, guys, when you start doing real estate deals and you're collaborating with people in your local market, it starts becoming an overwhelming thing in your life where people are constantly calling you and texting you and saying, hey, can I stop by and just take some of your time?

Can I take you out for lunch? Can I get some coffee? And that escalates and escalates to a point where the domino effect of all these people asking you for help and you then giving them help becomes so overwhelming that you are forced almost to create some sort of uniform way of delivering content to more people than just the person that you're on the phone with. It's non-scalable. And so you start out by I just want to help people. Was that your inspiration? That was my inspiration.

I just, the way I got started is I was a contractor and I had most of my business coming from Instagram, right? Like befores and afters. It makes a lot of sense. Like, here's this lady's backslush before she met me. Here's her back splash now after she met me. And people would go, oh, paces, Instagram's dope. I'm going to hire him as a contractor. I land a contract with Open Door. And I was Open Doors contractor for like the first five years they were in business. And so then when I branched into real estate investing, I had a little bit of a following already. So I started telling people, hey, this is new for me. I'm going out on appointments. Whoever wants to go on appointments with me, jump in my Prius. I'll meet you at

Circle K at 6 o'clock on a Saturday morning. And the first Saturday, I had this many people show up. And I went on my appointments and act as if. And I was taking like Instagram stories and going, hey, man, like I'm out on these appointments and the people, my ride along partners are getting so much value. But the reality is there's nobody in the car with me. I act as if. And then the next week, I did it again. And that next week, I had exactly three people show up. Exactly three people. And in fact, the meetup I was just in this evening, one of the people in the front row was the first guy I ever took on a ride along like eight years ago. Okay. The next week, it was 30 people. Literally like three weeks in, it was like compounding, compounding. And then about a month later, maybe a month, maybe five weeks into it, I show up to Circle K one morning at 6 a.m.

and there was a line of nearly a hundred people waiting to get in my Prius with me because word had gotten out that this guy pace is going around town, taking people on appointments and talk to sellers and all that kind of stuff. And it wasn't until maybe five years after that that I actually started a YouTube channel. It started compounding that now once a week I used to these big whiteboard sessions. I bought a 30-foot whiteboard in my hallway in my office and I go, all right, guys, just come over on Friday afternoon. We'll have a big taco truck. And I would order tacos for everybody, title company would pay for it. And then I would go through and I would underwrite creative deals and I'd show people examples and I'd boom, boom, boom, boom, boom, boom, boom.

And then I'm like, oh my gosh, okay, great. And one day this lady sat there with her phone and recorded the entire thing. And I asked her when I was done, I go, can I have that? And Matt, that was the last time I ever had to have a taco truck meeting because now I could just send people that video, go watch this. I realized, oh my gosh, I'm a business owner. but I'm not scaling my time. And that's when I started creating more content that actually helped more people nationwide rather than just my local geographical area.

I imagine it was really similar for you too. You just get people in demand. They want answers from people who are actually doing the business. I got started halfway through life. I was in the music business for almost 15 years. And then when that digital download came along, I tore that whole industry up and turned it completely upside down.

I had to kind of reinvent myself. and to pay the bills, I wasn't qualified to do anything else. I mean, no one was hiring an out-of-work music entrepreneur. So I ended up bagging groceries, and I did that for about six months. And it was very humbling, a little embarrassing because all my friends and family. And it was funny because when I was in the music business, and I was doing really great and having a blast, making a ton of money, I made my million by the time I was 30 and everything.

But my grandma was always concerned about me, right? She was always like, well, are you going to get a job? What are you going to start working? And I remember the day that I was this worst time in my life, I was 34 years old and I was working at the grocery store. Oh, thank God. You got a real job now like that. And I was like, that's a funny story. You know, I come from police officers and firemen and civil servants and stuff like that.

So everyone's got a very traditional nine to five. And they got a pension waiting for them. Exactly. When I made this beard off into real estate, it really resonated with me and I got really good at it. You know, I got that little book. You've probably never heard of it called Rich Dad Poor Dad. Have you heard of this book? It's a really good book.

But it introduced me to this concept called passive income. And I had never, you know, really understood that. I mean, I speak English. I can take the word passive. I can take the word income. I can put them together and kind of figure out what it was. But never introduced to me as a strategy or something to pursue, something to build on. So I did that.

And like inside of just under four years, I was able to get out of the rat race where I got my passive income to exceed my expenses. And so kind of what you were saying where people want to take you to coffee and stuff like that because they knew me from just three or four years previously. You know, I'm up there going paper or plastic. And now all of a sudden I'm playing golf. on a Tuesday. And they're like, how do you do this?

I would love to do that. Can I take you to coffee? Can I pick your brain? And I was like, oh, I guess there's some demand for this, right? So very much like you, that was my initial inspiration. But I always thought about, you know, if I would have never been introduced to that book, if I would have never experienced that catastrophe of getting kicked out of that industry, if I'd have never been introduced to real estate and how to put all this stuff together,

I would have never learned it. I remember there was a time when I was in the music business. I had a million bucks in the bank. And still was like of the mindset, didn't think. could buy a house. That was just such a far out concept to me to actually have a real estate transaction. But I was 29, 30 years old, and I didn't really have any financial worries at all. But my initial inspiration was to help other people because I recognize that people wanted to know. But when I had my son, that's where it shifted. Gosh, if I wasn't raised with that civil servant type mindset family,

where would I be today? How much struggle could I have avoided? And so now I'm documenting everything really for my son. It's all for him. That's what keeps me going. I love that. Yeah. I love it. I want to elevate the conversation around creative finance, right? So I want to get guys like you and other really epic dudes that I really love. A lot of the guys in creative finance don't have YouTube channels. And if they do, they really don't have a lot of big following. And you're one of my favorite people to collaborate with. So next week, next Thursday, I've got Sean St. Clair, my real estate attorney, would love to get me, you, and him on a live. I've already got it scheduled. I'll send you the invite. I'd love to collab with you. We're going to go through one of the case studies of somebody

getting in trouble with creative finance and finding out that it actually was never about creative finance. And then we're going to deep dive into due on sale clause with a actual real estate attorney. And I'm actually going to bring the gentleman on the live who asked the question via email so that he can pick my attorney's brain. And I told Sean, I was like, I will pay you by the hour. Just help me out. And you're like, hey, you don't have to pay me. You don't have to pay me. Come on, you're an attorney, man. That's not in your blood. You got to charge me by the hour. If you say, if I sneeze around you, you're charging me. Right. So that's going to be a lot of fun. And I'm really looking forward to elevating the conversation

because my biggest goal professionally is to normalize the conversation around creative finance. I want agents and brokers and other people to understand seller finance is an option for their clients. Subject two really should be something that commonly comes up of like, or agreement for sales, land contracts here, executory contracts for people that are like, I don't have equity. What is my option? And what's interesting, I bought three deals last week, one in Gainesville, one in Fayetteville, North Carolina, and another one in Arlington, Texas. Well, the one in Fayetteville is a, it's a sub-two deal triplex. I'm keeping that as just a traditional rental.

Gainesville is a seller finance deal and Arlington is a sub-two deal, $600,000 home in a really upscale neighborhood near Dallas-Fort Worth. That's going to be an Airbnb. Why didn't the seller sell the property through a licensed realtor and just get the highest and best number? Is because they didn't have equity. They pulled, they did a refinance a year ago. they then went through a divorce and now they're actually two months behind and they're like, we don't know what to do. Our agent said they can't sell it. And the agent suggested to that seller they should just let the house go back to the bank.

And I'm like, okay, there is a lot of education that needs to happen around this and where these deals come from. And so I'm going to elevate the conversation and I would love to collaborate with you on that. For sure, for sure. You know, I think the very first time I decided to make a video about the do-on-sale clause, I did a boatload of research, and I went through court documents, and I went through all the public records trying to find, is this thing really illegal? And it was a lot of research for, I think, a seven-minute video, way too much time that I put

together. And to your point, I have to create it all over again because no one has ever seen the video, right? But it's not against the law. It's just a breach of contract. And breaching a contract is not illegal. That's really in a nutshell is what I think they may find, but there have been several cases. It would be interesting to see if they find the same stuff that I did because I'm certainly not an attorney. But what I found a public record was like, it's not illegal at all.

In fact, every time it's been in court, the person that was doing the subject to did not lose. The first time I ever was interface with the due on sale clause was a deal of my own. I buy a deal. Check this out. Buy a deal from Cody Sperber. Okay. His team calls me, Bryantapolis, one of his new actual. acquisition guys, calls me up and goes, pace, we've got this seller that has no equity. Okay, well, let me go on the appointment. I'll go on the appointment. I'll show you guys how to lock

it up, right? Cody had kind of scaled out of the business to that point. He was around on stages and doing the things he should be doing and elevating his brand. And I go, Brian, I'd love to go, let's, but I got to buy the deal. I'll give you an assignment fee. It's a 16-plex, multifamily, people already living in it. So I absorbed existing tenants. I paid Cody Sperber and his partner, Brianapolis, $82,000 assignment fee on a sub two deal. Now, a lot of people are immediately going to go, well, if you took over an existing mortgage through Subject 2, and then you gave somebody $82,000 for bringing that deal to you, that is the highest assignment fee have paid on a sub two deal.

Where did that $82,000 come from? And I think that could be another video for you and I. Maybe that's something we write down is where, how does pace structure his finances around his subject two deal? But basically that $82,000 came from a private money lender, okay? So I bring my, I take over the first 16plex subject two. I bring a private money lender to the table and I put that private money lender in second position that covers my assignment fee, my closing costs, all that kind of stuff.

And even my upfront management costs to get the property fixed and fully operational. a year and a half later, I go to sell that property. I go, you know, I've never had the due on sale clause called on me. I've never had it happen. And I see all these people on YouTube saying, it's not going to happen. It's not going to happen. It's not going to happen. So what do I do is I call the bank.

It's in contract to sell. So I go, here's what I'm going to do. I'm going to tempt the devil. I'm going to call the bank and tell them that they should call the house or they you called the note do. The bank? Yeah, at the bank. Who's the first person you contact if you call customer support?

Is it somebody who actually even knows it do on something? No, it's your customer service person. All right, got it. That was a trick question. So I was like, oh shit, where's pace leading me? First person we talked to is some knucklehead,

maybe even in the Philippines that doesn't know anything about anything other than just customer support. So it's like, I got to talk to your manager. And I make this recording, by the way, Matt, because this is now at a point in my journey where I'm documenting what I'm doing.

So I'm like, this would be great. contact. I'm going to call the bank and I'm going to try and get the bank to call the due on sale clause on me. And I'm in contract to sell the property and that buyer is a cash buyer. So they're going to come in, pay off the under, yo, Chris Askin. What's up, brother? I was just texting him. Are you friends with Chris? Yeah. We go way back. Oh, he's awesome. He's awesome. So I'm attempting the bank. Please, let me talk to somebody. Let me talk to somebody. I want you guys. the call to do on sale clause on me. I want you guys to know that I purchased this property,

but I never paid off your debt. And I'm now the owner. The person who I'm talking to, the customer service rep, has no clue what I'm talking about. So I elevate to the next person. That person has no idea what I'm talking about. And then it wasn't until they transferred me to the loss mitigation department at the bank that I was able to talk to them. And these people in loss mitigation department are so focused on foreclosure. that they had to then push me to another department, and I finally talked to somebody, I said, I own this house, and I did not pay off the debt when I purchased this property. And the bank is like, what's the problem, sir?

What's the problem? What's the problem? I could not get this bank to do anything about it. They did not care. It's in nobody's job description to give a crap about the due-on-sale clause. So I couldn't get them to do it. And I document this on a phone call and then back to our previous point. You and I have both made some pretty epic content. Same thing with Chris Haskins. He's made some really dope content. He's a cool guy. And it's like people that venture into this world, they, I wish I could just take a microchip and download all the cool stuff that you've taught and Chris, Ron the Grand, all these epic people and download it like the Matrix, like you now no kung fu and just download in people's brains but that's not going to happen we have to do the

research and guys that technology doesn't exist so Elon's working on it Elon's working on so about three months later I've sold that 16plex they pay off the underlying my lender gets paid back I make like 150,000 dollars on the deal it was great three months later we buy a property on lost gutchman trail and this is what happens I get the do-on-sale clause call on us. And here's exactly why. And I was like, yes, finally, I got the two ones. I'm like, oh. And that's the difference, right? The mindset of a guy like you and a mindset of a guy like me is different than the person who's sitting there trying to absorb all the, like I want problems to deal with so that I can overcome them and feel them firsthand. And I understand that's the

equation. It's how you were successful in the music business. It's how you're successful right now as a real estate investor. It's why you're successful in your YouTube content. You went through the motions and you did the thing that does the thing. Okay. So here's how we got called. We got to do on sell class call. Lost Dutchman Trail, sellers behind on their mortgage about $20,000. So they're in foreclosure. They're like a month away from getting foreclosed on. So what do we do? We buy his mortgage subject or we buy his house and take it over subject to in the process, I go get a private lender to bring that $20,000 to Title. Title then pays off the late payments and we reinstate the loan.

Now the loan is in good standing. We then close escrow the day after we get the loan in good standing. And about a month later, we're done cleaning up the property. We're getting ready to, we get a letter. It's from a bank called Johnson Bank. Never heard of Johnson Bank. It's a teeny little bank with six branches and we get a letter. We are executing our right to call the note due.

You have 30 days to pay off this debt or we will then go through a judicial foreclosure to take the property back. And I'm like, oh my gosh, I'm framing this letter. I frame the letter. And I love that letter. It's the first time I got the due on sale clause called on me. I've now been involved in five of them, but this is how we solved it. So we call the bank. It's lucky enough, it's a small enough bank that we got a hold of a branch manager.

We then got a hold of the president. The president of the bank is the son of the founder. And so we get on the phone and I'm talking to the president of the bank, founder's son. And I go, hey, my name is Pace Morby. We reinstated this guy's loan. We stopped him from foreclosure, caught up the arrears. I'm confused why you guys want the do-ons? Why are you guys calling the do-on sale?

I don't get it. Why are you calling? He says, Pace, it's always been bank policy. That's what we do. And I go, okay, well, I'm curious. How did you guys even know? Is there somebody in your bank? Is there somebody that it's their job to find this out?

And he goes, Pace, actually, I found it personally. I'm like, okay, how in the hell did the president of the bank find out that we bought it's subject to. He goes, well, we're kind of an old school bank. This house was in foreclosure. It was in a Manila folder on my desk and we have a stack of 50 foreclosures on my desk that I personally manage. So when you reinstated the loan and we sent you the reinstatement letter, I then, a week ago, go through my file and I'm pulling out the houses that have been reinstated. I go back to the system to punch in the data to make sure this house is now reinstated, and I noticed that the deed had transferred.

Title change, right? Yeah. And I'm like, oh my gosh, this is the greatest lesson ever. Because now what I do, Matt, when I buy a house subject to and I'm saving it from foreclosure, I typically wait 15 to 30 days to transfer the deed in my name just to make sure that the reinstatements happened. The bank doesn't see that deed transfer just in case. We hold the deed at title and we wait until we record it.

So I go to the bank, or I go to the president. I go, okay, so I bought it subject to. Obviously, we know this is not illegal. What are your other clients? I don't even know why I ask this question, but I was like, what are your other clients doing that are buying subject to? How are they overcoming the due on sell clause? And he says, it's pretty simple, base.

Our other clients are deeding the property back to the owner and purchase. the property on an agreement for sale, right? And depending on the state you're in, it could be a land contract, contract for deed, whatever. It's all an executory contract. Right. And I go, okay, any other ideas? And he goes, no, that's the way I would do it. I would deed the property back to the owner and then I would repurchase it on an agreement for sale. And so I went to my attorney and I'm drafting the documentation to go back to the seller and say, hey, hey, seller, we got the due on sell clause called on us. Let's do a deed back to you. And then I'll repurchase the property on an agreement for sale. Stop the foreclosure or stop the do on sale and we're good.

And my title rep, her name is Eileen Brown, 48 years doing subject to transactions, 48 freaking years. She says, you know what, Pace, I've always wanted to try something. And Matt, this is an interesting one. I don't know if you've ever tried this. I've only done it now twice. All right. I would love Pace to see you do this. deed the property back to the owner and then repurchase it on a lease option with an auto renewal every single year and your option price is the balance of the mortgage. And when you stop and think about that, you're like, that's freaking genius. So I called the president of Johnson Bank back up and I go, hey, my title rep says I can just deed it back to the owner and purchase it on

a lease option with an auto renewal with the option price to be the balance of the mortgage. So essentially, I could hold it for forever. The challenge with that, Matt, now this is some high-level stuff, and I'm sure there's even stuff in this that has gone over people's heads, but here I am hanging out with a legend in the creative finance game. Of course, I'm going to go high-level real quick. The challenge with that is now what do I not get because I purchased it on a lease option is my tax write-offs.

I don't have the deed. Therefore, I cannot use deprecate. I can't get depreciation. But the dope thing about it is that I stopped the due on sale. I accomplished it really easily. And I learned some lessons along the way. So how many times have you had it called on you? I've had it called on me three times.

And my students have had it called on them twice. Got it. We've done it twice on the lease option. But then I realized the lease option with the auto renewal and the option price being the the balance is really not that great. It's better just to purchase it. In Arizona, we do agreement for sale. I don't know what you guys do in Vegas, but it's better just to deed it back to the owner and buy it on an agreement for sale so that I have security and rightful ownership of the property. Just I don't have the deed. Then next question I get is, well, Pace, why didn't you just buy it on an agreement

for sale in the first place? And the answer is because I don't get tax benefits with an agreement for sale. And also the likelihood of the due on sale clause being called on you is about one and a thousand transactions and overcoming the due on sale. I've never met anybody other than idiots that don't have a mentor or are not actually educated. I've never met somebody who's actually in real estate who has lost a home to do on sale that was doing something, doing everything they should have been doing. It's people who are mismanaging their funds and doing stupid stuff, but you know what, there's people that lose their burr houses and their traditional homes all the time because they weren't making payments. Anyway, the due on sale clause is such a fun topic and

people are so deathly afraid of the due on sale clauses. They actually never venture into creative finance because it's like this boogeyman that scares them. Have you ever heard of that, the lease option thing? I think I actually heard it from you and we were on the on the conversation with Joe McCall. The three of us were talking about it. It was the first time I've heard of that. It's so interesting how simple it really was. And what was really fun about that whole concept was that the bank owner, the president of the bank, was coaching me along and saying, well, yeah, just do it this way and we'll be perfectly fine. It's just bank policy.

We understand you guys caught up his arrears, which we appreciate. Thank you so much. Because the last thing the bank wants to do is take the freaking house back. For example, the only time it's ever, it's never been called on me. I've never had it called on me. It has been called on one of my students once that I taught how to do. do it and I was a little bit nervous about it because now they were in a bind and I was just like so this is what you do just when call the bank back and say hey I got your note and this is the deal

the seller could not loan any longer make the payments and they were about to default and just give you the house back the house is in pretty terrible shape I don't even know if you want it back but I decided just to go ahead and take over the payments for them I'll continue to make the payments for them and I'm actually going to fix it up but if you call this due I'm not the going to fix it up and I'm going to stop making my payments right away. So what would you like to do? So that was, to your point, they don't want the house back. They don't want a non-performing note. So I told my client, my student exactly what to say. And he says, okay, let's give it a shot. And he did it. And then they hung up the phone call and said, okay, well, I guess we'll just have

to follow through. The bank called back in about five minutes says, you know what? I'm sorry, just go ahead and keep making the payments. Everything is fine. And then my student called me back said, hey, that worked. And I was like, woo. You know what I'm saying? But that's the only time it ever happened. You know, just play on what they don't want and remind them what they're going to get. I mean, it's a very common strategy that I do with very subtly, by the way, that I do with sellers. You know, if they decide not to sell to me and they're going to have, I want more money. It's like, well, you know, that's fine.

I would love to give you more money for your house. And it's a very nice house. And as hot as the market is right now, you absolutely could get more money. But that's the retail price. You're going to have to go to the retail process to get that. I've got a great real estate agent. they can come over and they go ahead and they'll list your house and they'll tell you exactly what to fix. I'm sure they'll give you some good guidance.

They'll get your house all fixed up. And then you'll take a couple weeks for them to get their marketing up and running. Then they'll list it. And then they'll probably have some open houses. You probably have to get lost on the weekends here or there. But they'll get it. This house is this market is really high. One in 30, 45 days, as long as that buyer's loan gets approved and it meets appraisal, you should have no problem.

But, you know, if it doesn't, then you have to start all over again. But if you'd like to get full retail, that's what you have to do. And I could hook you up right now if you'd like. So offer to make the appointment form and everything, totally give it up. And they're like, oh, yeah, no, I don't want to deal with any of that. Oh, so I guess you want the investor option then, too, right? Please stand by. We've got overhead to pay.

We'll be right back. Canada can be a global leader in reducing the harm caused by smoking, but it requires actionable steps. Now is the time to modernize Canadian laws so that adult smokers have information and access to better alternatives. By doing so, we can create lasting change. If you don't smoke, don't start. If you smoke, quit.

If you don't quit, change. Visit unsmoke.ca. Good things may come to those who wait, but better things come to those who go out and get them. Let's get it. Back to the show. It'll be fun doing the do-on-sell clause stuff, and I'd love to collab with you

and have it on your YouTube channel, have it on my YouTube channel, and spread the love, and get our attorney to give the people the love. What I really want to do is I want to send that video out to realtors that say, this is illegal, this is not possible. And then have an attorney say, hey, I'm here. I'm challenging you on that.

Show me that it's illegal because I'm going to show you that it's not. And anyway, we'll have a lot of fun with it. But bro, we got some good questions in the side chat. Yeah, we do. That's those right now. Enough about us. Let's see. We kind of answered this the beginning.

Maybe they got here a little bit late. But let's look at this. Can I apply the sub two concepts? in creative financing to commercial real estate. Okay, so commercial real estate is a blanket term for basically anything over four units. Okay, so we could go into commercial stuff like deep, but multifamily. So I have, I'll pull it up. I'm all about that proof life, you know what I'm saying?

I've got a 35 unit mobile home park in Yuma, Arizona. You guys can all pull it up on your screen. I will pull it up on mine as well. and I bought this property for $600,000. And the great thing about this property, let me pull it up just real quick, is that it came from a wholesaler that had no clue what they were doing.

You see the little share icon there? You got it? Yeah, I'm just pulling it up on Zillow so you guys can see it on the map and stuff. No, I'm just using this software for the first time. I don't know if you got the same controls over there. Let's see. Boom, there goes.

Let's see if it will let you add it to the show. There we go. Okay, so this little deal, this is unit number three, all of these mobile home parks right here, this whole entire mobile home park, 35 units, I bought it for zero down to the seller with zero percent seller finance. And the seller was being marketed to by wholesalers, right? Wholesllers were like, that thing is worth maybe $500,000. $500,000.

So I'm going to offer them $350 because that's what wholesalers do. And I'm a wholesaler too. We do wholesale. I know Matt does too. And wholesale has its place in this business for sure. It's an amazing business model. And what happens is the wholesaler comes to me and he says, Pace, I know you're this creative guy and you can buy things at full retail.

This guy wants 100 grand over retail. And I go, okay, well, show me the rent roll. Show me what's coming in. Actually, what's funny is the rent roll was all drawn in pencil and paper because the owner of the property, just an old school dude. But I took that. I'm fine with it. And I actually have the rent roll. Maybe I'll pull it up and show you guys the original rent roll of this thing.

This was last summer. So I go, here's what we do. We tell the seller this. Hey, seller, we're willing to come up to the number you want of $600,000. If you're willing to give us the terms that we need, that's the line. I should make a T-shirt. That's the line. I'm willing to give you the number you want. if you're willing to give me the terms that I need.

The seller, most sellers on like single family homes have no clue what terms mean. And I say that word terms on purpose, so it causes them to pause and they go, what are terms? And then I go into my infamous F150 story where I explain how I've sold vehicles on seller finance. And it somehow clicks with sellers and they're like, oh my gosh, that makes so much sense. So then I go back to the question after I tell that story. If you guys haven't heard that story, go to YouTube and type in Pace More B F150. And I go back to this question of the seller and I go, so now you understand seller finance. So I'm going to ask you again, if I come up to the price you're asking, would you be willing to give me the terms that I need in order to buy this property?

The seller says, well, as long as you get me my $600,000, I'll do whatever you need. That's the number I want. I go, okay, I will make you payments for the next 20 years because I'm going to pay you zero percent interest, right? I'm basically baking in all the interest right up front. You're making that extra hundred grand between retail and what you're getting with me. And let's get this thing closed up. So I go and buy a mobile home park for zero percent interest, zero dollars down, 35 units that nets me in my pocket, $7,500 every single.

single month. So the answer is yes. You can do big multifamily stuff. We have an apartment complex right now. It's 200 units. Check this out, Matt. This one's dope. I haven't closed this deal yet, but we're in negotiations right now. What I'm doing, and this is going to get high level really quick. For a lot of people are like, wait, what? I don't understand how this is working. So I've got a $10 million asset, $10 million multifamily deal. I have a lender, non-recourse. So if you guys don't know what non-recourse means. It means that the lender doesn't base their decision off of me personally and they don't utilize my credit and it doesn't go against me if I fail to pay the loan. So I have a lender who is going to bring $7 million to the table and they're going to help me purchase this $10 million

asset. And what I'm doing, this is something a lot of people don't think about, is I'm having the seller, seller finance my debt. own payment. So check this out. I've got a private money lender that's bringing me the $3 million I need to bring to the title company. So that totals $7 million between the loan and $3 million with my private money lender. So I'm $0 out of pocket. I bring all $10 million to the closing table. Instead of that $3 million going to the seller, we close escrow, deed gets transferred to my name. then that $3 million gets reimbursed to me after close of escrow, and I then create a second position note for the seller finance portion of $3 million.

And then my lenders, who gave me transactional funding, get their $3 million back with their interest. And so I can buy a $10 million multi-family property by creating or putting the seller in a second position and having them seller finance a portion. A lot of times people go, the seller doesn't want to seller finance to me because they need money right now. They need money so they can roll into another deal. Okay, we'll give them $7 million on the purchase and have them just seller finance the amount of money that your bank wants to see you put as skin in the game and you've just hacked a multifamily deal. So, guys, yes, the answer is absolutely yes.

You can do multifamily. You can do commercial. My building. We just bought a million dollar office building. But wait, back up on that one, Pace. So you borrowed the $3 million in private money, but kept it and then got the seller to finance the $3 million. So you got the whole deal for nothing and you put $3 million in your pocket? No, I did not.

I gave my lenders back the $3 million. So I used my lender's money just as a transactional funding. Oh, just for transactional funding. Got it. Yeah. So they bring three, my sellers bring, or my private lenders bring $3 million to the title company. And what happens is instead of that $3 million, leaving the title company, and going to the seller, the seller already agrees up front.

He's going to keep that $3 million in escrow. And about two, three days after my lender has funded and we've closed the transaction, the seller will now let that $3 million be reimbursed back to me in the form of a note and deed of trust in the seller's name in second position. And let's say it's $3 million. What we're currently negotiating is I'm trying to get the $3 million at 0% interest for five years. And the seller's like, I'll give you 3% interest at five years.

And I'm like, okay, well, I'll do 3% interest at 10 years because then I don't want to mess with a balloon at 5 years. You know what I'm saying? So what I'm probably going to settle on, and I know this is getting too high level too fast, but I'm telling the seller right now, if you want a 5 year balloon and 3% interest on your seller carry portion of 3 million, I will sign that agreement as long as my balloon will auto extend if the price. property does not appraise for the original purchase price. Sure. And the reason for that is because what if we have a crash? Mm-hmm. And I can't refinance out or I can't sell or I can't do whatever and I'm stuck.

So the seller is like, oh yeah, like this market's going to go up. We're in a super cycle, right? Totally. Anyway, those are the fun things that you can do in creative finance. The creative finance is that exact thing. It's very literal. We can be as creative as hell. And people, like, the way I bought my personal house, I told this on a live stream we did previously.

It's like, I bought my house through a consulting agreement instead of a purchase and sale agreement that gives me tax write-offs every time I pay a payment towards it. It is the craziest stuff you can accomplish in this. And anyway, that Yuma deal, I ended up buying two mobile home parks in Yuma and we're still acquiring more mobile home parks. But this, our big plan in the next 10 years, we're not Grant Cardone or anything, but we're going to buy, my goal in the next 10 years is to buy a billion dollars in multifamily real estate, primarily through creative finance strategies just like what I told you. Will I fail? Probably.

But I'm going to freaking try. And we're going to have fun and we're going to document it the whole entire time. So the answer is, yes, you can do any property with creative finance, any type of property. Yes. Kind of what's your point? Like, I mean, you're only limited by your own creativity. And when you get together with another person that does this on a daily basis as well, I mean, you always learn a new stuff.

You're like, wow, I didn't ever thought of that. Because the reason I asked you that question about the $3 million was that you very easily could have put the $3 million in your pocket. And you could have got this whole thing for free and walked away with $3 million cash, right? I could have. One of the things. I don't think I'm smart enough yet in raising capital to figure out how to keep that $3 million without too much interest sitting on it. You know what I'm saying?

Right. I mean, you have to deploy it. But a smaller version of that is something I frequently do is if I needed, say, 100 grand for a down payment, I'll go and raise 110 grand of private money. Right? And so I can put 10 grand in my pocket and I still got the deal. So I can get cash and cash flow with every single deal. All right.

So if you purchase a property on an agreement for sale and you want to use hard money, a hard money lender for the acquisition renovations and closing costs, how do you structure that? Kind of depends. Are we fixing and flipping the short term or are we going to keep this long term? Either way, the answer is the exact same thing. So what we do is we get permission from the seller to actually lean the property for the note and deed of trust in the seller or in the lender's name. So we securitize the lender the exact same way. We're just leaning a property that the deed is in the seller's name. the agreement for sale or the all-encompassing word for an agreement for sale or land contract, contract for deed, bond for deed, no matter where you are in the country, the simple way to talk

about it is an executory contract. They're all the exact same thing. So if I purchase on an executory contract, I actually am the legal, lawful owner. I just do not have. I have equitable ownership. I don't have fee title. I don't have the deed in my name. But what I can do is, I can refinance, I can sell it, I can do anything I want with that property, even though the deed is not my name, including creating another note and deed of trust in my lender's name the exact same way I would with a sub-tour seller finance deal. Yep. I mean, you could also, if as long as the hard money lender went with it and accepted it,

you could just use your actual contract for deed as collateral. Ooh, that's, I like that. That's smart. Let's slow the brain power down a little bit. Let's go down low. Let's how about Devin. That was like, please, pace, you're drowning me. What is an idea of a first good deal to start with?

First good deal. Okay, so a lot of times, I think one of Matt's best YouTube videos is he has a great YouTube video that says 10 places where either, I can't remember if it's sub two or creative finance deals come from. It's a wonderful video that talks about the lead source of where deals come from. It's phenomenal video. I've suggested other, I share your YouTube videos with people that I'm like, I don't want to make that YouTube video. Matt already made it. Let me just share it. That's a great video to learn

where deals come from. Okay. But if you're like, look, I get a lot of people to go, Pace, I'm not ready to be like a marketer. I don't want to be going direct to seller. I have a nine to five job. I'm super busy. I've got a wife and kids and all these other things. Okay, great. Well, I created a community. I don't know if there's any one out there that's created as large of a Facebook group as I have regarding specifically creative finance, but I have 40,000 people in a Facebook group specifically regarding creative finance nationwide that if you go in there and you go, I want to deal in Vegas this week. There are hundreds of people that will go, I got a sub two deal in Vegas coming up in the pipeline. Let's talk about what you want. And so if you're like,

I don't want to market, I just want a deal that I can buy. Go to the creative finance with Pacemoreby Facebook. group group, it's completely free. I don't sell anything in there and tell people, I want a deal that I can turn into, in my opinion, I think you should go and do your Airbnb, buy a sub two or a seller finance deal in a market of your choosing. Use the website Airda.com so you can verify it's a good deal and it's going to cash flow on an Airbnb. And find a deal that you can make $1,000 or $2,000 a month net in your pocket with very, very little money out of your pocket. And depending on how you raise your capital, like Matt brought up, you can get into deals

with no money out of your pocket and actually get paid to buy the deal. So I would find something like that. I would find somebody else that bought a sub-to- or seller finance deal. I would buy the deal from them. And I would raise money from a private lender that covers all my costs to get into the deal and give me an upfront chunk of money in my pocket, say five to $15,000. Now I got a cash flowing Airbnb that I didn't have to use my own cash, my own credit, or my own credentials, and I got $15,000 sitting in my pocket as a congratulations chunk of money.

That's what I would try and focus on. Matt, what are your thoughts? You know what? This is something I'm more and more recommending to people, and that's, if you haven't taken advantage of your FHA loan yet? I mean, getting the type of, because if you're going to use other people's money and people will ask me, what, what, whose money should I use, right? Should I use the seller's money? Should it be private money? Should it be bank money, hard money? Where should I get the money from? And my answer is always the same. It's use the cheapest money first.

Use the cheapest money that you can find. And right now, no one's really got cheaper money than what banks have. And you know, you can get into a property for three, three and a half percent down with not a tremendous credit score. And you don't need to have a lot of income and you don't need to approve a whole lot of stuff. And you can get into that first house. And I would, I would do that. So you had the actual ownership and you have a nice long term fixed rate loan attached to it. It's really going to be great for the future as far as especially with the inflation that we're experiencing. And start with a house hack. You know, then if you live in house for six months and decided I don't live no more and then just turn it into a full rental.

Even if you have to go rent a property yourself to actually live in, I think that's a great really first place to start. And it's kind of obvious. But I think because it's so obvious, a lot of people neglect it and don't entertain it. And it's really easy and attainable for most people. That's what it's there for. I love that answer. I think the only counterpart to that is I think a lot of people shy away from that, not because of the down payment. They shy away from it because banks are challenging to get loans from if you don't have a two-year track history on your job and have a specific credit score. And I don't know FHA's credit score requirement is, but I think those are the two-requirements that people are like, man, I don't have two-year job

history. I've been turned down or, you know, maybe a year ago I had a credit card issue and now I can't get a loan or whatever else. But I think, that if you don't have either one of those issues, a credit issue or you don't have a job history issue, then going and buying your first deal with an FHA loan is absolutely the right way to go. Right. Or find someone that does. Have them go in and buy the house and then you lease option it from them right when they close and then you take your two years to get yourself in a situation where you can finance it back. Right. Partnerships. I've got a deal and I can't find the closed HUD. I'll have to bring this up on the next one because my team doesn't share my HUD with me.

I have a transaction coordinator. Matt, you know who she is. But this is a deal. I just closed the other day. And I did a really, really good YouTube video with Bobby Joe from this title company. This girl was so awesome. We went through the title report. We went through the HUD. We went through everything on my YouTube channel. But this is a property you guys can see right here. 3520 Northwest 46 Terrace in Gainesville, Florida. This is a property I bought on seller finance. I never once spoke to the seller. Somebody else in that Facebook group I talked to you guys about,

locked this deal up on seller finance. They are like, I don't have the ability to raise capital or I'm not an Airbnb person. I'm just a wholesaler. And I learned how to assign a seller finance deal to you guys. So I pay this person $12,000 on an assignment. But the reality is I did not pay them any money because what I actually did is I raised private money to pay the closing cost with the title company, the assignment fee to the wholesaler, the renovation and furniture for the Airbnb, and I put $9,600 on top of that for a management fee paid to me up front.

So when I closed escrow, the private money lender brought all their money to the table. We created a second note. And my Airbnb income pays the underlying seller finance and the private money lender, which then is another topic for a YouTube video. You're going to get, you probably got this question a hundred times. Matt, how do you pay off your private lenders? Right? That's a whole other conversation for another day.

With money. That deal, guys, I never spoke to a seller. I didn't text them, call him, bandit, sign them. nothing. Somebody else brought the deal to me. I went and got private money. That private money lender covered all of my costs. I didn't have a credit poll. I never talked to the seller. Nobody ever checked my tax history. Nobody even verified whether I had a dollar in my bank account. And I just closed escrow on that property like three days ago. Like we're doing these deals now. And I didn't have to bring. I literally just, it actually was from one of my students. They brought

the deal. They're like, hey, I'm not in a situation where I want to hold property in Florida. and I'm like, I do because I also have an Airbnb management company that manages nationwide so I can buy in any market I want and they will manage the property. So I didn't have to find the deal. I didn't have to fund the deal. I didn't have to use my credit. I don't even have to manage the contractors or manage the Airbnb long term. It's a freaking free piece of real estate in Gainesville, Florida that will net me $2,000 a month

in my pocket. and once the loan is paid off in, let's say, or 29 and 29 years and 11 months, I will then be probably cash flowing six, $7,000 a month. And if you add inflation on that deal, I'll be bringing in $11, $12,000 a month in 30 years. And all of it from not doing my own marketing, just by networking and buying deals from somebody else,

and then networking and bringing somebody to cover my cost to get into the deal. So if I could bottle up what I know and you put me or Matt in a freaking middle of a Kentucky field, I don't know if Kentucky has fields, but I assume it does. If you put Matt or I in the middle of a Kentucky field butt naked, and I don't know why we have to be butt naked, but we don't have to be butt naked. And you said, you Matt and you Pace have to go get a deal today on seller finance or subject to, you know what I would do is I would go network with somebody else that's already doing the cold calling

and the texting and ask them, can I help you close one of these sellers on creative finance and buy the deal from you? Yep. It's a people business, right? For sure. Every real estate you buy ourselves going to be from or to another person. Everyone's always focused on the marketing piece or they're focused on the new technology of how do we contact sellers and like you forget, you know people. You know people that know people, right? We'll be back with more. after this. Boarding for flight 246 to Toronto is delayed 50 minutes.

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Fisher is done celebrating. 19 plus Ontario only. Please play responsibly. Concerned by your gambling or that if someone close you call 1866-5-312 or visit comics ontario.com. And that wraps up the epic show. If you found this episode valuable, who else do you know that might too? There's a really good chance you know someone else who would.

And when their name comes to mind, please share it with them and ask them to click the subscribe button when they get here and I'll take great care of them. God loves you and so do I. Health, peace, blessings, and success to you. I'm Matt Terrio. Living the dream. Yeah, yeah, we got the cash flow.

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