Epic Real Estate Investing - Creative Financing and Negotiating: Practical Application | 982

Episode Date: April 8, 2020

I today’s episode, Matt shares how he recently used his creative negotiating and financing ideas to put a REAL DEAL under a contract! Tune in, learn, and turn the current market situation into an advantage!   Learn more about your ad choices. Visit megaphone.fm/adchoices

It's Creative Acquisition April there, Rockstar, and I've got the real deal for you today. This is Terrio Media. Success in real estate has nothing to do with shiny objects. It has everything to do with mastering the basics. The three pillars of real estate investing. Attract, convert, exit. Matt Terrio has been helping real estate investors do just that for more than a decade now. If you want to make money in real estate, keep listening.

If you want it faster, visit r-e-i-a-a-a-a-ac.com. Here's Matt. Hey there, Epic Investor. It's Matt Terrio from Epic Real Estate, where we show people how to invest in real estate with an emphasis on retiring early. This is the Epic Real Estate Investing Show, and if this is your first time here, really glad you found us, really happy about that.

And if you like what you're here, make sure you hit the subscribe button before you go. Hit it before you go, so you don't miss an episode so you can catch another one. And if this is not your first time here, welcome back. You already know the deal. You keep coming back. And you keep sharing this with your friends and family. And I can see it in the ratings.

I can see it in the reviews. And I hear it through the internet. And I hear it through my own network. It's pretty amazing. Hey, I heard about your show from someone else, which is always a good feeling. And that's all because of you. And I am really grateful for that.

So thank you. Thank you very much. And now I want to give back, as always, without holding back. So it is creative acquisition April where the entire month I'm filling your creative financing toolbox for the shifting market. Because it's going to be the most powerful thing in your toolbox are these creative financing terms, these creative deal structures, these creative acquisition strategies. Because what has really worked for people in the past market where the market's appreciating will still to some degree work in the new market. but if you focused on that and you were just this one trick pony doing that, you're going to leave a whole lot of money on the table.

You don't really want to take that strategy into this new market because you can do so much better with looking at things differently. And that's where the creativity comes into play. When you hear creativity, and you might have heard that before, like, what does that actually mean? Well, what it means is you're just putting ideas in place of the actual money to purchase a property. So instead of money, you put an idea in its place

to where you don't need the money. money. That's how it works. And what this is going to do for is going to give you greater deal volume because there's going to be more of these types of situations to where these structures are going to fit. And there's going to be greater seller motivation where they're going to be more receptive to it. So you're going to do more deals. You're going to be able to create a lot more cash flow for yourself. And ultimately, that's what we all want out of real estate. We want the freedom that real estate promises. And that comes from the cash flow that real estate produces. You're going to be able to manage your risk with these strategies because you don't have to put

as much money into the deal. And it's really your first line of defense from overpaying. And that can be the real big risk in a shifting market because, you know, if the market is declining and, you know, when is the right time to buy? Timing the market is almost impossible to do. We just don't know. We know clearly when we look in hindsight. But timing the market and buying at the right time, that's really difficult.

But if you're buying with these creative strategies, you can really protect yourself. and also a huge hedge against inflation if you're controlling property with these creative structures. Because, you know, and specifically right now, this is something really important for everybody to really understand because it's probably a bigger issue right now and will be into the nearby future is inflation. The purchasing power of your dollar is about to be reduced significantly because of all the stimulus packages that the government is put in place. They're pumping more money into the system. And immediately it feels good. And it does stimulate the economy and it gets it going. But long-term effects is it decreases the value of your dollar. And if you're owning real estate, it actually

preserves the value of your dollar. And then number five, it's just going to give you options. Once we blow through this thing and everything shakes out, you're going to be controlling a bunch of real estate and you're going to have options to do with it what you please. It's a lot easier to manage that portfolio than it is to go out and build it. So take advantage of this time and get control of a bunch of real estate. Because if you do this correctly, you will never have to work again if you don't want to. All right, that's what the options create. The options create freedom. And these are just all benefits of incorporating these creative acquisition and financing terms into your offers. And if that's important to you, then you want to get well versed on this.

So I created a couple cheat sheets for you. You just go to epic breakthrough.com and that can at least get you started. It can make you dangerous, that's for sure. Epicbreakthrough.com. All righty. So if you've ever been to an epic intensive, one of our live three-day events, you know that I like to shy away from hypothetical questions, hypothetical scenarios. You know, for some reason in real estate, people just love to ask those types of what if questions. You know, at the beginning of the event on day one, right first thing in the morning, I lay out the rules. Here's the rules. And one of those rules is no hypothetical questions. I mean, if you've got a real situation that you're dealing with, bring it on, let's knock it out.

I like that type of stuff. But, you know, what if the tenant trashes the house? Or what if the tenant slips and breaks his neck and sues me? What if the realtors won't accept my offers? What if I can't find the money? I don't like those what-if questions. Because really, they're just your fears, right? They're just your fears that you are projecting out in a question thinking you're searching

for information. And you are searching for information. But what's the real intent or what's the motive behind asking the question? Are you looking for a reason? to move forward or are you looking for a reason to not try? And that might have just stung a little bit or it might have been Matt. How dare you say something like that? That's awfully insulting. I listen to your podcast because I want to do this. Yes, no, I get it. I understand. But when you've been doing this for a really long time, I mean, you just become kind of a,

when you interact with as many people as I have that are in various stages of pursuing their real estate, you become a really good student of people. And then you can start to kind of see through the read between the lines with their questioning. You know, do you really want the answer so you can go take action on it? Or you just want the answer to satisfy your curiosity, but you're not going to do anything with it? Or are you looking for a reason to validate not trying to bail yourself out? All righty? So anyway, I didn't even know.

I don't know how I went down there. But that's what those hypothetical questions are. That's those what if things, they're not productive. Okay. And so that's why I was just say, just move at the speed of instruction. Travel as far as you can see when you get there, you will see further. And it's why I really try to hold back here on the hypothetical scenarios in the theory. And I like to share case studies.

I like to bring my clients on and have them tell their story. I like to share my own personal experience. I like to talk about real deals. What's actually happening? What's so? And this month, I was actually anticipating a lot of. of theoretical, hypothetical conversations with you because, you know, we're right at the beginning of a shifting market. And I thought it might take a second for that shifting market to kick in before

I had some real life world examples to share with you. So I was just like, okay, well, we'll just kind of break the rule for a second and get you all prepared. But you know what? It's happening right now. So I've been bailed out now. And so I just picked up my second creative acquisition this month. And the creativity, right, you might have heard that before. All that means is we're inserting an idea in place of the money. Okay. So you're buying property with ideas and not so much the money.

And I got my second one. I mean, I'm barely even trying yet, right? And it's only the seventh here. So you are listening to this on the eighth. So the seventh. And I had a great conversation today. And so rather than giving you a. examples of how you can use these terms and deal structures. I kind of thought how this month was

going to go. So I was just going to give you a bunch of different examples. So you know, you could pick and choose of what works for you and, and you can see how these things all fit together. But I've been bailed out. I'm just going to walk you through step by step of what happened with the deal that I got under contract today. We started the conversation about a week ago or so. I got a call. I was from a friend of a friend. And there was a referral. And this friend of a friend is in the medical profession called me up and, you know, and told me a little bit about a situation. He just bought a turnkey property a few months ago back in July or August, I believe. Gosh, that's almost a year ago now, I guess.

Okay. So, wow, the time is flying. Anyway, he bought the property in a market where I coincidentally hold a few properties. And that's always a plus when that happens. I love when that happens because when I'm looking at a property, my first thought is, do I have somebody that can manage this and get this property to perform? That's always my first thought. and when a property comes my way lands on my desk in a market where I already own some,

then that's a good thing. All right, so told me about the property. They paid $135,000 for the property. That seemed like a fair price for the area is pretty much market value. And he just wants to get his money out. He had it for a tenant in there for a minute, and the tenant didn't stay long. And now he's rehabbing the property, and he just wants to get his money out. So first he asked me if I knew anybody that would buy his friend that,

referred me, said I was the person I could probably connect them with a buyer, particularly in that market. And I said, well, well, okay, yeah, maybe. Tell me about it. So that's the big question, right? Particularly when a lead comes to me in such a casual manner, in such a, where there's a, I know, a mutual familiarity, or at least a mutual friend involved, a mutual acquaintance. So I said, okay, tell me about it. And just let them talk, right? Remember, it's an interview. Nothing changes. I don't care where the lead comes from. It's always just an interview. Right. And so I asked, after they told me a little bit about it, and I kind of already just told you what they told me, and I said, so is anybody living in the property now? And he said,

no. And I said, okay, great. Well, what condition is it in? And he says, well, I just had it all rehab. It's all rent, ready, ready to go. I said, okay, do you have any idea what it would rent for? I already had an idea, but I want to know what they know and what they're going to say. And they said, 1250. And I was like, in my head, I'm like, yeah, that's about right. And so I said, well, great. And it sounds like a great property. Why are you selling it? And he said, you know what?

I'm really busy. And I've already had my share with the tenant. And I just, maybe this isn't for me. I just want to get my money out and think about it. And I was like, okay, well, why don't you just call a realtor? And I said, you know what? I just, I just want to make this nice and easy. I don't want to deal with a realtor.

I'm like, okay. Well, I have to pay off any loans or liens if I were to buy it. and that's my question, right? Not how much do you owe on it or, you know, is everything current and, you know what? Well, I have to pay off any loans or liens if I happen to buy it. And so that's a question after years of experience of how you can actually pull out the true answer from a seller if they have a loan on or anything like that. He says, no, no, no, I paid cash. I own it free and clear.

I said, okay, great. So me already knowing the answer, but it doesn't matter. I want to pull out what the seller knows. So the next question was, all right, so do you have an idea of what similar properties in the areas are selling for? And he said, yeah, I paid 135 and it seems like that's what they're all selling for. And I said, okay, great. So what do you want for it? And he says, I'd like to get 135.

I'd like to get my money out. Okay, well, is that at all negotiable? It could be, but I really, I mean, you're the first person I called. I'd really like to just get my money out. All right, cool. So let me make sure I got everything. And so I just kind of repeat everything back to them. I always do that to make sure that they know I listened and I understood.

It's a great rapport building technique. And, you know, it's kind of how we should treat other human beings anyways. How we should treat each other is listen to each other. And then I just ran down everything that I just shared with you. And I said, okay, great. So did I miss anything? He says, nope, you got it. And so I was like, okay, so you want to sell it, right?

He says, yes. And I said, is this a later or a sooner thing? And he said, soon. I said, how soon? It's like yesterday. Can we close fast? And so I know everything I need to know moving forward. But here's the thing, as I explained to him, you know, with so much uncertainty in the market, I mean, we're in the middle of this health crisis.

It's really tough to tell what the market value is or where we're headed. I mean, I'd be taking a huge risk by giving you what you want for it. I don't think the market, once this is all, you know, once the social distancing guidelines have been lifted, I don't know if the market's really going to validate it. So that'd be a big risk for me. And so he asked, well, what could you give? I was like, this is great. This is exactly what I want. And this is the type of stuff that happens when you align yourself with the seller, when you interview the seller, and when you blame the market, right? Then all of a sudden, the seller is pulling you. in. It was almost textbook. And I had said, you already asked me, what could you give? And I was like, well, you know, based on, you know, what you shared with me. And then just, you know, after carving out a small profit for myself, I mean, this is what I do. I want to make some money. Don't have to get rich off of it, but I want to make a little bit of money. And then it's kind of factoring in the extreme uncertainty in the market. And not to mention that the property is vacant and it would be a rental

for me. I don't know what it's going to be like trying to put a new tenant in place with what's going on in the world. You know what? I might insult you if I told you what I would actually give you for it. Right. So what I'm doing is I'm laying the foundation to hit them with a really low number. And I want to do that because I'm doing what's called setting an anchor. Right? I'm setting an anchor. This is very very, advanced technique, negotiating technique. I don't know if it's very advanced. It's something I didn't learn until a few years ago and I'd been negotiating for a really long time. So it was advanced to me, but it's really slick because it works really, really good. And he said, well, just, okay, just lay it on me.

What would you, what could you give me? I said, well, considering the risk of the market, and this is unprecedented, so I don't even know what I'm getting myself into, but I would be willing to take the risk at, I don't know, 60,000 bucks. that's like less than half than what he paid for it. And I was kind of cringing on the other side. I was like, just be quiet. And maybe 65 after I have it inspected and everything checks out.

And he's like, hell no. No, thank you. And I said, I know it sucks. This virus thing, I thought it might, you know, I didn't think you were going to take it. But it is what it is. I mean, the virus really, I mean, this thing is terrible. It's really making buying decisions tough,

perhaps when we come out of it and if everything's stabilized, we can look at it again. He was like, nope, I can't wait, got to go. I need at least $100,000. And I was like, that just feels like it's going to be above market after the whole thing shakes out. But let me ask you that if I were to consider that, how much of that do you need right now? And this is how it happens. He was like, huh? Like, what do you mean?

And it was just textbook. And when you align yourself with the seller, you make the market the bad guy. And you're interviewing to see if this is going to be something that you could buy. And you have the attitude that I do this every day. I can't buy them all. This is how it plays out. You can't skip these steps.

You've got to go through this process. And he's like, what do you mean? I said, well, I mean, I might be willing to take that risk for you if you were to, you know, take some money now and wait for the rest. And he's like, well, like, how much can I get now? And I was like, you know, I'll give you 10% down and then just give me five years to pay the rest. And he was like, forget that. And I'm going to look elsewhere.

I'll take my chances. And I was like, okay. And he hung up. And I was like, damn. I thought I was getting close and we were moving in the right direction. And I mean, because I would have given him 20% down. But he hung up so fast. I didn't get to go there.

So I was like, okay, well, I'll just follow up with them in a few days and see how it's going with them. But there's a couple days later. He actually called me back first. And he said, you know what, I've been thinking about your offer. And, you know, I think I would be willing to consider. I just want to make sure that I don't come out of pocket to close. So can you give me a little bit more down? Like 15% could cover all of my expenses.

And I can put a few bucks in my pocket. and then if you paid it off in five years at five percent interest, I guess I'd be okay with that. And I thought about it for a second. And I'm thinking like, okay, cool, I'll totally do this deal. No problem. But I really want to get some big principal paydown. That's kind of my thing right now is getting those first few years at the very least. If I can't get principal only payments, those first few years, I want to try and get some,

or make some big progress on the principal paydown to put me in a position to do a really strong refilator on. So I counter, I say, okay, well, you know, I could do the 15%. But instead of 5%, why don't we do 2% interest the first three years? And then I'll give you 6% a percentage more the second two years. And then I'll just give you a balloon payment at the end. But because of the market and it being vacant, I need a six-month moratorium on the first payment. So that's what I counterback with. I split the interest to have a lower interest in the first three years. And then I give him actually a little bit more than what he wanted in the last two. I'll give him the balloon payment. That was all, none of that changed. I'll give him the 15% down.

That's not a big deal. But, you know, because of the market, blame on the market, the market is a bad guy and the property is vacant. And who knows what it's going to be when we come out of this, how difficult it's going to be to find a tenant. I need a six month moratorium on the first payment. And so he's like, well, I don't know. I'll think about it. And he said he'd call me back. And I don't know, probably a few hours later, I got an email back from him.

And he put in 15% down, 3.5% for the first two years, three and a half instead of two. And he's going to do it two years instead of the three that I asked for. And then 5.5% for the three years after that with a three-month moratorium. So I was like, okay, I'm not going to push this any further. I like this deal. So I did a quick calculation.

and the cash on cash return for the first year would be, so that's $12.50 would be the rent if that's what I got. Multiply that by $12, right, for the year. So annually that would be $15,000 of rental income, gross rental income. And then I'll subtract 40% just for taxes, insurance, maintenance, vacancy, and property management. So that leaves me with $9,000 a year net income,

$750 a month. So the debt, on that first, that three and a half percent on that money would be $275 bucks would be the debt service. So at least we need cash flow of $475 a month. So that's cash on cash return. I'll do the calculation for you really quick. That is 38% cash on cash return.

Smoking, right? You play with those interest rates and you bring those interest rates down. It boosts your ROI really, really significantly, those little monthly payments. A lot of people think it's the amount that you pay for the house is going to change the ROI or the amount that you put down is going to change ROI. No, it's the interest rate and the rents. That's what really can impact that ROI. So this is a 38% ROI smoking. And then year three, the payment jumps to, I think, 425-ish, leaving me with 325 a month. So I go from 475 a month for the first two years to 325 a month, the last three.

So I've got this 38% cash on cash to play with, right? And meaning, how much? of that am I willing to share with a lender? Because I have the $15,000. I can put that down. But, you know, during this time right now with all this uncertainty, because none of us know what's going to happen, I don't really want to part with my cash. None of it. None of it at the moment. So I call up a buddy, said, dude, I got a pretty sweet deal. And I need $25,000 to take it down. And I only need it for a year. I'll give you 6% in payments. And we'll put you on as a second against the property, so it'll be secured that way. I already got a pretty decent discount on it.

And I got great seller finance terms, very favorable. And then when I sell a refi above the purchase price, I'll give you 20% of the difference of what I paid for, and we'll put it on the note as deferred interest. So I'm making payments at 6%. So I'm keeping it really low. And then I'm going to give them 20% of the difference. between what I paid for it and what I sell or refi it for.

And I'll just mark that on the note as deferred interest. So it's a big bonus. It's a great deal for the lender because they got a huge upside at the end. And they'll still get monthly payments as a market rate in the beginning. And so we shook hands and the deal was done. Right. So the payment for the down is $125 a month. So I'll take that out of my $475.

and that cash flow, that for those cash flow for the first two years, and it still leaves me with $300 a month. So I'll put $10,000 in my pocket at close. I don't know if you caught that, but I only need a $15,000 down. Well, you can borrow more than $15,000 if you want and record it against the property, and that's exactly what I did.

So I only need a $15, so I knew the deal was really good because I had a 38% cash on cash return. I got a cool little moratorium on the payment, and I got a little discount off of the retail price from a few months ago. And so I just said, well, let's borrow 25. I'll put 10 in my pocket at close,

and I'll still cash flow $300 a month. So what's my ROI now? Yeah, you can't even calculate it. I've got no money in the deal. I put $10,000 in my pocket. I just created that out of thin air. I was just like that, still getting the $300 a month of cash flow, and I still got the depreciation working for me,

appreciation when it happens. I got the amortization working for me. I got all the profit centers and an amazing amount of leverage, I got no money in it. All with my ideas. There's the creativity. So before my money partner was in there,

it was 38% cash on cash return, and now it's infinite. True story. I'm looking forward to making a YouTube video on this one. And it came at it really timely time. Timely time? Yes. But it's just a textbook play of how this is going to work.

And how it works. and how it's going to work moving forward. The name of the game is control. The tactic is creative acquisition. And, you know, I've only been talking about these opportunities. You know, I've been saying that they're coming for a week now, right? And they're actually here. They're already here.

And as an example, it's not a fluke. I'm not bragging. It's just a demonstration or example where I could have the opportunity today. Fortunately, I'm recording this podcast episode. really late. I had something else planned. But I was like, well, this deal got done today. So let's talk about this instead. So it sounds like I'm kind of whispering. It's because everybody's asleep right now. But Brandon, an RIA-A-Ace client, you just posted on my Facebook page, a big thank-you. And Brandon, you're welcome. And it's actually, I owe you the big thank you because you've just

gone out there and absolutely crushed it with what you got from here. And he shared with me how he got two signed contracts today. And then Chris and RIA-A-A-A-C client posted inside the private REI Ace Group, and he posted, let me pull this up real quick. It says, hello, Epic Team, we are all trying to stay focused and sometimes have to fight the funk. So I want to share a nice win that just came in to encourage everyone to not stop taking action. Curl up and you will not make it in this business. Fill your mind with healthy, helpful teachings like we get from Matt, thank you, Chris, and take action all in capital letters and we will succeed.

In June, I paid $47,000 for a house with a Section 8 tenant. the cash flow from day one. I replaced the garage door. That's all I did. It just appraised for $99,000 for a refi loan. Bought it for 47 in June, less than a year ago. Just appraised for 99. And the cash is coming back with an extra $25,000 of tax-free equity in this pocket. See, when you do this and you refi this money out, you get to put a bunch of money in your pocket that is not income. is this tax-free loan. And he's taking that 25 to go get the next one. So there are free cash flowing houses out there, he says, if you are focused and searching for them,

and some are better than free. And then he finished up saying, they are there and they are only going to become more plentiful. And I've been saying that. I've been saying that for a minute. But they are here now. Certainly they're going to be more plentiful, but we don't have to wait.

So the big question is, Are you going to freeze? Are you going to fiddle? Or are you going to push through and fight? You can get your share of this. This can be a life-changing moment for you. This could be the time you've been waiting for your big breakthrough. And get your share.

You can go and get started by going to epicbracthrough.com. Download those lists of 21 creative financing terms and 10 deal structure templates. They work. But they'll only work if you know what they are. and you actually use them. All righty. Epic breakthrough.com. If you found this episode valuable,

there's a really good chance that you know someone else that would. You might want to share this with your spouse or your business partner, someone on your team. If you think about it, share it with them. I would consider it a great favor

and just ask them to click the subscribe button when they get here. And I'll take great care of them when they do. All righty. That's it for today. God loves you and so do I. Peace, health,

blessings, abundance. and success to you. I'm Matt Terrio. Yo. Yeah, yeah, we got the cash flow. Huh. Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow.

You didn't know who, boy, we got the gas flow. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.