Epic Real Estate Investing - Disrupting the Game: The Secret of 0% Seller-Financed Deals & The 401(k) Trap | 1274

Episode Date: July 20, 2023

Prepare to dive deep into a world of epic wealth creation strategies as we disrupt the traditional real estate investing game! In this eye-opening episode, we unveil the powerful secret of 0% seller-financed deals. This revolutionary approach is set to transform how you perceive and handle real estate investments, unlocking unprecedented potential for financial growth and freedom. But that's not all. We also dare to challenge one of the most accepted financial norms: the revered 401(k). In our game-changing segment, we expose the retirement myths that could be quietly sabotaging your wealth journey. Are these pension plans the safety net they're proclaimed to be, or are they actually a trap, keeping you poor and miserable? Whether you're an investor aiming to scale your portfolio or a novice eager to delve into the world of real estate, this episode is set to radically reshape your understanding of wealth creation. It's time to disrupt the game with us on the Epic Real Estate Investing Podcast. Ready for a revolution? Tune in now. P.S. Whenever you're ready to go deeper and further with your real estate investing, looking into my partner program to help you get your first deal might be the move... take the first step here for free 👉 https://epicearnwhileyoulearn.com/ Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Ladies and gentlemen, investors of the world, brace yourselves as we stand at the precipice of a wealth-making revolution. First up, we're talking about a legendary strategy, how to structure a seller-financed deal for zero percent financing. It's a master class in tactical finesse, an unyielding game changer promising the sweet taste of success without draining your coffers. In the second segment, are you ready to challenge everything you thought you knew about financial security? We're breaking down the deceptive 401k, the sly serpent silently strangling your dreams of riches, why your 401k might be keeping you poor and miserable. It could be time for an early withdrawal.

Listen in and decide for yourself as we shatter illusions and blow your mind. So brace yourself, put your game face on, and let's get ready to rumble. Strap in! It's time for the epic real estate investing show. We'll be your guides as we navigate the housing market, the landscape of creative financing strategies and everything you need to swap that office chair for a beach chair. If you're looking for some one-on-one help, meet us at rei-aise.com.

Let's go, let's go, let's go, let's go, let's go, let's go. Let's go. Yeah, look at this. Third property liked it in the last four months. I take your inside, but the seller's down a two-week lease back. But no banks involved, 11% down and 0% interest. And the sellers, they were happy with the price too. I mean, what are the chances?

Better than you think if you know what you're doing. So I started seller financing to build my cash flow in empire about 17 years ago. And it was an absolute game changer for me after I filed bankruptcy in 2001 when my record label went belly up. And I was something that the banks called unlendable. You know, I probably would have been lucky if Wells Fargo even let me. me in the door at that time. A lot has changed for me since then. More assets, more money. My credit score, it's back up above 700. But what hasn't changed for me is my preference for seller finance. Regardless of how high interest rates go, sellers will always do better. So if interest rates,

they got you bummed. And banks, they want too much of a down payment. And sellers, if they want too much for their property, I'll show you how I structured this deal with 11% down and 0% interest. interest. Jerome, jack up the rates, pal, he's definitely going to be scratching his head on this one. You ready? Let's go. Imagine this. You find a great income property, but instead of going through the usual bank loan process, you strike a deal directly with the seller and bypass the clumsy loan process altogether. No credit check, no appraisal, no contingency. That's seller financing. And with it, I get to skip all of that stuff. Cellar financing empowers me to pay the seller in affordable installments, just like a mortgage, but without all the red tape.

and paperwork. I think of it like buying a house with an IOU to the seller. Now, I know what you might be thinking. You can buy a house with an IOU. How is that even possible? Or maybe you've tried this before, but the seller always seems to say no. Well, that was my experience too for a long time. And here's what I learned that allowed me to start hearing more yeses and doing several of these a year. Mistake number one that would get in my way, I would bring up seller financing too quickly and I scared them. Or two, I made it too complicated and I couldn't. I could confuse them. Or three, they needed all of their money for something else, and I just didn't hear it. I ignored them. When I stopped making these three mistakes, I saw a noticeable increase in the number

of seller finance deals I got across the finish line. Like three to one. It was significant. One other shift in my mindset I had to make, and that was to recognize how seller financing benefits both parties. It benefits the seller more than most people think, and it just takes a minute for most sellers to understand how. You just got to break it down to them. But once they see that they can get more money, steady cash flow, some nifty tax benefits, no agent commissions, no appraisal needed, no lengthy escrow period, a significantly simplified process, and that they are secured by a tangible asset, the right sellers are down. And as a buyer, many of those benefits are my benefits too, not to mention I get easier qualification and flexible terms. And you know how much both parties

save by removing the man from the equation? Enough to make it worth it for buyers and sellers to play nights together. Now, there are different types of seller finance deals, the most common being either a land contract, a lease purchase, or a mortgage note. And there are some nuances to each of them. But they all really boil down to me giving the seller some money now and then giving them the rest later. How much now and how much later depends on what I negotiate with the seller. And that's where the structuring of a seller finance deal begins with the negotiation and proposal of price and terms. And that's how I buy real estate, by either my price in the seller's terms or my terms and the seller's price. I only need control of one or the other to put a good deal together.

Let me show you with this. It's my Deal Dynamics Axis, TF. The vertical line represents the price I'll pay for the property, and the horizontal line represents how I'll pay the price. It's almost a given that the seller wants all their money now, the how. So that leaves me with how much money I'll give them. And for a deal to make sense financially, it leaves me no real choice but to start down here with the super low price. And as you can imagine, sellers typically don't like that price. And so they ask for more. Now, instead of going back and forth over the price, like most investors do, I will typically and reluctantly agree to the seller's price and I'll ask for more time to pay it. I found that I'm much more inclined to get a seller finance deal done when proposing

it in this order. It's like a first date. I don't greet him at the door with a big sloppy French kiss. I waited it until at least after dessert, right? If I go straight in asking for seller financing, I get shut down much more often. So I marinate on the price for a bit, because that's really the only thing most sellers understand anyway. And if I reach an impasse there, I then introduce the terms, but not how you might think. You see, when it comes to structuring a seller finance deal, there are three sets of terms that I incorporate to complete the structure. The first set are the terms of the sale, and it's either going to be a low price with a single installment or a higher price with multiple installments.

Then next, I've got terms of the loan. And here is where I'll negotiate how the installments will be paid. And here, I've got options. I've got lots of options here. Then I've got terms of the documents. And most investors, they miss this one because they think the deal is over. There's a deal after the deal that nobody ever told them about until now. So this deal right here, I found it using deal engineer's AI predictive analytics,

sent them a handwritten letter using a new QR code strategy I'm testing. The seller called me within a week of me sending the letter. I used my nine-point seller interview to get the information that I needed and built some rapport with the seller. And they weren't too excited about what I proposed, but they asked me to follow up in a month, which typically means thanks, but no thanks. And when I got back to the office, I put them in my green apple follow-up system, which immediately sends them a triple offer letter. In this letter, the first offer is the deeply discounted fast cash offer.

That's right here. The second offer is my wholesale priced 90-day offer here, and the third offer was full market value of 5% down, and the balance divided into 300 equal monthly payments, zero interest. It's simple. I just recap in the letter the different price and terms that we discussed when they told me they wanted to think about it. The seller called me about a week after that,

And long story short, they wanted 15% down instead of five. We settled at 11% and we wrote it up like this. This is just a standard purchase agreement, but with a few additional clauses that preps us to move forward with regardless of which offer they wanted. They're not necessary clauses, but they streamline the process. And I structured it like this. The price goes here, just like it would on any other purchase agreement,

and then the terms in here. And I just write them out as I and the seller understand them. There's no need for any complicated legalese here. It's 11% down, ballots to be divided into 300 equal monthly payments. So we both signed. I turned it into the escrow officer, along with my promissory note. Now, this is important if you want to take advantage of the deal after the deal I was talking about, the terms of the document.

Now, from here, everything happens in the same way it would with any other deal. I ordered a physical inspection, escrow ordered title, and once everything checked out, I brought in the down payment. We both paid our closing costs. and I handed the seller finance mortgage over to a third-party note servicing company who's responsible for the collections and the accounting of the mortgage. My LLC is on title to the property. The seller has a loan attached to the property for collateral, exactly like a bank would do.

The only difference between this deal now and any other traditional transaction is, instead of sending payments to the bank, I send them to the servicing company, and the servicing company deducts 1% and sends the rest to the cell. And that is how I structured this seller finance deal with zero percent interest. It really opens up new avenues, even if you do have access to traditional financing. Besides, it's just better paying a seller directly than a bank. Banks make enough money. So let's keep it in the family. That's my motto.

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grab your free investor package at cashflowsavvy.com. Wait, did you catch that? Free property management for a year with this property. Legendary. Cashflow savvy.com. Ever hear someone say, I have too much money? Me neither. Let's get you some more. Back to the show. If you dream to be middle class, you are going to hate this.

But if you aspire to be rich, or at least retire rich someday, you're absolutely going to love this. You've got to be totally relieved, but you're going to have a very important decision to make. Happy Fourth of July, Matt. thanks to you and other mentors, I have built an $8 million portfolio in five years. As you know, five years ago, I worked 50 to 60 hours per week and had $200,000 in a 401k and my personal residence. Thank you. I received this text message a year ago to the day that I'm recording this

from a client, JJ, that came to me wanting financial independence away from his job. But the decision for he and I to work together wasn't an easy one for him. He had a little bit in savings. he was working 50 to 60 hours a week and to $200,000 in his 401k, that was everything to him. He was in his early 40s, almost 20 years away from being able to tap into his 401k without penalty. But he was miserable doing what he was doing. And he had the potential and ambition to go out on his own, but he was afraid to take the risk. It would have been a calculated risk. I mean, there were several things that we could do to manage the risk.

And I told him two things. I told him, one, that 401k is keeping you poor and miserable. Two, the bigger risk is a not taking one. And people, they get all emotional when I say these things, but there's no room for emotion in this decision. It comes down to two things, of which I do when it comes down to any investment decision. This investment just happened to be an investment in himself, but it's still an investment. First thing, you do the math.

Second thing, you calculate and manage the risk. How you feel about it won't make a difference in the outcome unless you let your feelings get in the way. You'll still win some. You'll still lose some, but when staying the course is a guaranteed loser, you got to change course. And that's the choice for a lot of people, a potential win versus a guaranteed loss. So I took JJ through the decision process. Started with, how old are you?

43. What's your income? $145,000. How much do you have in your 401K now? $206,000. Your monthly contribution, 10%. Do you get the employer match? Yes.

100%. Yes. Up to how much of your sales? salary, up to 2%. What age do you want to retire as soon as possible? Okay, 60. And what's the return you're getting in your 401k right now? 9%. That's pretty good. The average return in a 401k since its conception is 5 to 8%. So at 60 years, JJ, your monthly contribution will have compounded to $1.6 million. So at what age do you plan on dying? He couldn't answer. So I put in the average life expectancy, 87. To maintain his current lifestyle, he needs $9,600. $1,600.

month. His 401k will cover half of it. Oh, and this is the big hidden secret. I asked, what are the fees in your 401k? And he didn't know, but he said he'd check. Phoneed me later, 1.5% a year. That's pretty good too. And it doesn't seem like much to most either. But here's the thing, just as his contributions compound in the way the financial planner told him they would, so do the fees of which the financial planner did not tell him. That 1.5% a year reduced his balance to $1.34 million, stealing $260,000 from his retirement. That's more than the average balance of a 401k at retirement age, by the way. So after doing the math, and to get that, JJ, all you got to do is continue working 50 to 60 hours a week doing something you hate for the next 17 years of your life.

And he was noticeably disturbed by that. And I told him, dude, shit, this isn't that bad. I mean, I typically see much worse. The national average balance of a 401k is 60 years old, according to Vanguard, is $207,874. According to Fidelity, it's $175,000. So, JJ is in far better shape than the vast majority of 401K holders, as only 1.4% of 401Ks have a balance greater than $1 million, which means 98.6% of 401k holders don't have a million dollars at the age of retirement. So if retiring with $1.3 million has J.J. disturbed about his future, how does the guy with $175,000 feel. You know, when I first dove deep into the inner workings and the math of a 401k, I concluded it's a plan for people who plan to be poor when they retire. And I haven't

seen anything since to change my mind. First, the tax-free growth, it's misleading. It's a perceived tax break while you're making your contributions. But the taxes on the required withdrawals in retirement are not taxed as capital gains as they would be in an investment outside the 401K. but they're taxed as ordinary income, which in most cases, especially in JJ's, is double. The tax-free growth is taxed double when you finally get it. Crazy, right? Second, the employer matches a little smoke and mirrors too,

but it's still free money, right? No. The Center for Retirement Research did a study based on tax data and found that for every dollar an employer contributes to your 401K match. They pay 90 cents less salary to men, 99 cents less salary to women on average. Translation, it's a wash. The employer deducted money from your salary

so they could contribute to your 401K. Third, there are those fees that add up to hundreds of thousands of dollars off your balance. With 401Ks, there are usually more than a dozen undisclosed fees. There's legal fees, trustee fees, transaction fees, stewardship fees, booking fees, finder fees, and others. But that's just the beginning. The mutual funds inside a 401. case often take a 2% fee off the top.

JJ was fortunate. It was only 1.5%. But here's how the math works. If a fund is up 7% for the year, they take 2%. Your net return is just 5%. Jack Bogle, the founder of Vanguard, is on record saying, what happens in the fund business is that the magic of compound returns is overwhelmed by the tyranny of compound costs.

On the same subject, Bogle has asked the rhetorical question, do you really really you want to invest in a system where you put up 100% of the capital, you take 100% of the risk, and you get 30% of the return. I'm not happy with that deal. Fourth thing, your money, it's locked up for the best years of your life. I mean, you could be enjoying it now and in a way that it will still be there to enjoy when you retire too. The fifth thing, you're in the stock market, which makes your retirement subject to the timing of the stock market. What if you were planning to retire in 2002, having just watched your 401k lose almost 50% of its value the year prior. Either you would have taken the loss and just said, oh, well,

or you would have worked five years longer just to get back to zero. Same thing if 2009 was your target, having watched your 401k lose almost 50% again the year prior. So do you take the hit or do you work four more years just to get back to even? In fact, between 2000 and 2013, there was no growth in the SMP 500, meaning for 13 years your 401k didn't grow at all, aside from the money that you put into it. Wall Street refers to this period as the lost decade. They got a name for it. And when I saw that, I wasn't about to base my retirement on the timing of

and the cooperation with the market. JJ wasn't down for that plan either. And I'll tell you what he did in a minute. People get all broken up when I point these things out. I mean, I was telling a group of people one time about Ted Benna and Herbert White House. You know them? Yeah, Ted invented the 401K and Herbert was one of the original advocates for enrollment into the plan. 35 years later, Ted was quoted that he created a monster and that the 401k should be blown up.

His exact words, blown up. Herbert, in a Wall Street Journal article titled, The Champions of the 401k lament the revolution they started, he expressed major concerns about what he did. You see, Herbert, good guy. He took on the role to fight the corruption that was happening inside of pensions. And he was thrown for a loop when he discovered the bigger beast, he helped create that swindles people out of their money.

Yeah, the 401. A. And that day, a guy in the audience stood up and told me I didn't know what I was talking about. Like, he knew more about the 401k than the guys that created it. You see, it's easier to fool people than convince them they've been fools. So I didn't try to convince them otherwise. So I'm not trying to convince you either. I just feel compelled to let people know that they have options. Time Magazine has run a number of articles over the years questioning the wisdom of footing so many people's retirement at risk through 401ks, such as their article, Why It's Time to Retire the 401K. They've been predicting for years that millions won't have enough money to retire after a lifetime

of handing money over to strangers. The statistics prove it. 98.6 won't reach a million bucks. People's emotional attachment to the 401k is keeping them poor. And if they don't like what they do for a living, it's keeping them miserable too. Warren Buffett said during a 401k discussion that full-time professionals in other fields, let's say dentists, bring a lot to the layman. But in the aggregate, people get nothing for their money from professional money managers. Now, I could go on, I could go into greater detail about why 401Ks are keeping people poor, but there are countless blogs, videos, and podcasts by people much smarter than me that have already done that. In fact, I've taken a stab at it a couple times myself. But the primary reasons

the 401K is keeping you poor and miserable, it's because, one, it's founded on the antiquated principle of saving money. And most people just don't make enough to save enough to outpace inflation. And number two, it's built on the eighth wonder of the world, according to Albert Einstein, compound interests. And again, people don't make enough to save enough long enough for the magic of compounding to create wealth. I mean, if you start early enough, sacrifice for decades and are able to dodge all of life's unexpected emergencies and mishaps, the 401k might work for you. But the rub is, your life is over by the time it does. It's the missed opportunities along the way that are keeping you poor,

that are keeping you shackled to a job you might or might not enjoy, but you're shackled nonetheless. By this time, JJ was ready for the leap, but he asked, what about the taxes and penalties for early withdrawal? Great question, and it's one that everyone has. And within the question alone is another reason why the 401k will keep you poor. First and foremost, I ignore the labels of taxes and penalties,

because they're big, scary words that stop people from taking brave actions. Once we remove the labels, all we're left with is a math equation of pluses and minuses. JJ had $206,000 in his 401K. There'll be a cost for the early withdrawal for sure. His federal income bracket is 32%. State tax is 4%. And he plans to retire in 17 years and his expected return over that 17 years inside the 401k is 8%. So if he withdraws early, he's going to pay 96,000.

$820 in taxes and penalties, 47% of the balance. And he'll receive $109,180, $53% to go out and fund his new venture. He's going to lose 47% of his 401k balance. That was a lot for him to take in. It's a lot of money. He was having second thoughts, as any normal person would. So I said, JJ, it's a simple question as to whether or not you think by working together, you can recoup $96,820 within 17 years. If you think you can, make the withdrawal and we'll get to work. If you think you can't, leave it there. And I remember, as we were staring at those numbers, I recognized something that I hadn't recognized before.

If he withdraws now, it's a 47% hit. If he waits, because of his tax bracket, 32% for federal, 4% for state, it's a 36% hit. So it's not really a 47% hit. It's a net 11% hit in exchange for 17 years of his life. You know the outcome. I showed you his text message at the beginning of the video. JJ and I, we put together a custom plan for him based on Einstein's eighth wonder. But with a twist, instead of compounding interest, we compounded assets.

And generally, that's a difference between 50 years and 5 years. Specifically for JJ, that was a difference between 1.3.3. three, four million dollars at the age of 60 and $8 million now at the age of 48. If you'd rather listen on the go, you're going to love the epic real estate investing podcast. It's the longest running real estate podcast on the interwebs. 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. peace, blessings, and success to you. I'm Matt Terrio. Living the dream. Yeah, yeah, we got the cash flow. You didn't know, home for it, we got the cash flow.

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