Epic Real Estate Investing - EPREI 018 : Creative Real Estate Investing and Financing

Episode Date: November 4, 2011

"Where do you find the money?" and "How do you find the money?" are the two questions of which the answers seemingly allude most investors seeking to build their real estate investing business. On this episode, Matt shares his top 3 sources of money inside of his own creative real estate investing business. Learn more about your ad choices. Visit megaphone.fm/adchoices

Epic Real Estate Investing Podcast, episode 18. You're about to meet a man that can show you how he took control of his life and financial future and how you can do the same. He's never been on TV. He's not a millionaire, and he does not know Donald Trump. He is a full-time real estate investor, newly discovered author, and family man. He does not report to a boss. He creates his own schedule and takes his family on a few vacations every year.

He got started investing in real estate with almost no money in a really crummy credit score, and he's going to show you exactly how he did it and how he continues to do it. You will have to work. You will have to be responsible. However, laying by the beach sipping fruity drinks is a reasonable goal without further delay. Your guru. I'm sorry, your guide to a better life through real estate investing. Matt Terrio. Hello and greetings from the epic real estate investing podcast, the podcast that'll show you

how to build wealth through creative real estate investing. And that's what we're going to discuss today. And for a long time to come. So you'll have the option to realistically retire in the next 10 years or less and enjoy the good life while you're still young enough to do so. My name is Matt Terrio, author, full-time real estate investor and family man. Now, if this is your first time listening to this show, you're going to want to do two things. First, go back and listen to Episode 1 to get the gist of what the show is all about and why it's here.

I mean, everything that we discussed from this point forward is just going to make so much more sense to you if you do that. And two, download the free real estate investing course, how to do deals, no money required. And you can get that at free real estate investing course.com. It's a step-by-step course of how to invest in. in real estate using no money or credit and that's yours for free at free real estate investing course.com okay so when you hear creative real estate investing or creative financing what does that mean to you what does it mean in general I mean what are the thoughts that come to your mind when you hear those phrases because they're used pretty liberally and they're used interchangeably

I mean the word creative I mean it can be a very broad stroke perhaps it's probably easier to define creative real estate investing and creative financing by first defining what it is not. What is not creative real estate investing and creative financing? So to answer that, this is about as uncreative as you can get. First, call a real estate agent and let them know what you're looking for. Second, call a bank and get pre-qualified for a real estate loan. And then third, sit around and wait for your real estate agent to call you to go tour properties. That's conventional real estate investing. And there's nothing wrong with that, by the way. I mean, if you've got the resources to get what you want to get done that way, knock yourself out. But even if you do have those

resources available to you, even if you have a lot of money to use, even if you have an amazing credit score, there's a limit to how many real estate loans the banks will allow. I believe it's four. I think it used to be 10 and then it went back to four and it goes back and forth from what I understand. And just a couple of weeks ago, I mean, there was a movement to get it increased to 20. And I'm not sure if that went through or not I don't know if that was a rumor or if that actually happened or if someone was just, you know, fantasizing. Whatever the limit, though, there is a limit. And once you hit that limit, if you want and or need to keep going in order to achieve

your financial goals, your real estate investing goals, you will have to get creative. You're going to have to get creative at some point. And then there's the rest of us who don't have a choice but to get creative, whether you're limited by money or if your credit score is less than desire. you've got to get creative. And up to this point in my real estate investing career, I have yet to get a conventional loan for a transaction. And quite honestly, knowing what I know now, I doubt that I ever will.

I can create better deals than the bank could really ever offer. And not to mention, I can take action much faster as well. And sometimes the difference between success and failure in a transaction is the speed of which you can act. and on top of that, doing creative financing and creative real estate investing, it's just fun. It's where the fun is in this business for me. I mean, the thrill of putting a deal together using no money or credit and everyone involved still ends up getting what they want is just that.

It's a thrill. And there's no limit on how much you can do. And there's no limits to the creativity either. Now, as I've been sifting through all of your burning questions and lining up guests to address them for you, I noticed a great deal of your burning questions revolved around financing and how to find the money. And I'm glad that I asked because what this survey revealed to me was, I haven't covered the subject of money and financing as thoroughly as I had thought. I mean, I created an entire free, step-by-step-free real estate investing course around doing deals where no money was required.

So maybe I missed something. And actually, you know, I probably missed a lot, as there are countless ways to invest in real estate. estate using no money or none of your own money specifically and i guess my free real estate investing course really only covers two ways but they are the easiest ways they are the easiest two ways and later on in this episode it'll probably start to make sense as to why you should embrace those two easy ways first so let's begin with this question i received and there are four parts to this question where do you find the money for your deals how do you ask for it how do you present your opportunities, what do you do to help increase your money partner's comfort level in giving

you money and doing business with you? Okay, so there's four parts to that question. Great question. So let's take the first part. Where do you find the money for your deals? Well, there are three places I always look for the money, and I do it in this order. First, I look at the seller themselves to provide all of the money that I will need in a deal. and after I found out why the seller needs to sell and what they want out of the sale,

then my brain really starts to work with regard to how can they help me help them. Initially, I start to think about how much money do they owe on the property. That's going to dictate a lot of what can and cannot be done. I want to know if their payments are current. And one of the biggies is when do they need whatever it is that they want out of the sale? I mean, if they own the property free and clear, that's pretty, that's pretty, easy. If they have a loan, however, my first choice is to leave the loan in place and do what's most commonly referred to as a subject to deal, of which I will take ownership of the property

subject to the existing loan, which means after the transaction is completed, I am on title, but the loan is still in the seller's name. I now babysit their loan, so to speak, by making sure their payments get paid and done right, I can flip the property for a profit, or I can hold on to it and cash flow. That's the first place that I'm looking for the money. I'm looking at the seller, and if there's a loan in place, I want to leave that current loan in place. That's a lot of money, typically, that you just found if you can do that. Now, if I need some money above and beyond the existing loan, I look to the seller again for seller financing, for them to carry back an additional mortgage of which, if they agree, I would typically, and I use the word typically

because really there are so many variables involved. But typically, I would hand this off to a third-party servicing company to wrap that second mortgage into an AITD, an all-inclusive trust deed. Also referred to as a wraparound mortgage. You might have heard it referred to in that manner as well. Now, you can keep the two separate, the two loans separate if you want. You can leave the first loan in place with the bank and make the payments to the bank, and then you can leave the second loan in place with the seller and make those payments directly

to the seller. However, I like using third-party servicing companies to just wrap it all up into one loan, the all-inclusive trust deed, then send the servicer just one payment and let them distribute that payment to the appropriate lenders. That's my first choice. There are a couple of other strategic advantages of using a third-party servicing company, but the primary reason is it keeps the transaction simple, it keeps it clean. So again, that's my first choice, going to the seller for the money via good old-fashioned

negotiating or seller financing. and you know, the more that I do this that I deal with the sellers directly, the more I'm finding I'm using hardly any money at all. I just think that's just after a little over, I guess, a year of focusing on distressed sellers. I've now done it so many times that I just expect to not come in with any money. I mean, I mentioned in the last episode the four unit I just picked up in L.A., and all I had to come in with were my closing costs. I mean, it's like anything.

It's a skill, a skill of negotiating and deal structuring. And like any skill, it can be learned, yet it takes some time and it takes some practice to learn, develop, and become competent. But it's worth it. I mean, it's a skill that pays very, very well. And it's a skill that once you reach a certain level of competence, it's almost like a license to print money. And it's that skill negotiating and creative deal structuring that's going to encompass probably at least 50% of what I'll be training on inside the Epic Pro Academy of, which I'm shooting for a November 15th launch date. Yes, that's a shameless plug. More of those to come, I promise.

Epicproacademy.com. You can go there if you want to learn more. Okay, now, if I can't get all of the money I need from the seller, the next place I look to is private money. And, you know, private money right now, it's very easy for me to get. And because it is, I can move on just about any deal under $500,000 with relative confidence

because I know I have access to private money. But it wasn't always that easy. but I'll tell you how it can be easy for you. In fact, you can have all of the private money you need if you follow just one rule. And that rule is to pay your private money person back when you said you were going to pay them back. Simple.

I mean, you do that. You won't have money problems. You won't have to go find the money ever. And I mean pay them back, even if your deal was a dud, even if you lost money. You figure out how to pay them back and pay them back on time and do it with a smile on your face, even if it hurts. Do it with a smile on your face.

I mean, if you have to miss your own rent or mortgage, you do it. If you got to sell the jet skis, do it. If you got to sell the Sony PlayStation, do it. If you got to go get an extra job, do it. If you got to take the proceeds from another deal to make this deal whole and complete, you do it. I mean, I don't care what you have to do, do it. Your real estate investing future, it depends on it. Well, at least with regard to using private money, it depends on it.

I'm telling you, the word travels fast, and your reputation is everything in this business, especially when it comes to private money. I mean, you might be able to talk your way into a second or third deal, but if you're not keeping your word and performing per the agreements you put in place, it's going to be a very short investing career using private money. And here's another pointer, an extremely valuable lesson I learned. Don't share your horror stories with your private lender. I mean, even if you paid them back, they don't need to know how close your deal was to collapsing and losing all of their money.

Keep it to yourself. Here's another pointer. Hope you're writing this down. I mean, these are very expensive lessons that I've learned, and I don't want you to make the same mistakes. No need for you to pay it too. No need for you to pay the same price or more to learn these lessons. These are yours for free. The second pointer, if things aren't going good during your deal and you feel you're going to come up short or late on your payment to your private,

lender, don't take your problems to them. Don't call them and make excuses. Don't try to renegotiate. Always go back to the seller first. Always go back to the seller and try to resolve your problems and issues with them. And if you can't resolve it there, figure out a solution without involving your private money lender. You see, you want to make this such a pleasurable experience for your private money lender, so they'll have no issues or nothing to consider the next time that you ask for money. Going back to your private money lender for a solution is always, always the last resort. In fact, if you run your private money relationships this way in the way that I just described, they'll be calling you asking, what's next?

Hey, can we do another deal? Oh, here's another. Don't make your private money lender have to call you for their payment. Don't make them have to chase you. Answer their phone calls. And if you happen to drop their payment in the mail on the day that it's due, call them and let them know. Hey, I just overnighted your check.

You'll have it in the morning by 8.30 a.m. Maintain that type of integrity and courtesy in your business, and your business will be a business. Not a frustrating pain in the ass. You see, I have access to enough private money to do my deals because I follow these rules and I have yet to breach a contract. There have certainly been times where it was uncomfortable. There were certainly been times where it wasn't going so good.

and I've definitely lost some sleep, and I've certainly lost a few more hairs off of my head through the process, but I've always been able to come through. And the biggest reason that has been so, and I'm not bragging, by the way. It's like we discussed the last episode. The reason I've always been able to come through is because you've got to know your exit strategies. I know mine. You've got to know yours.

You've got to know how you're going to get out of the deal before you get in. I have never taken money from a private money investor if I didn't know exactly. exactly how I was going to pay them back in the time that I said I was going to pay them back. Okay? So that's why my situation is the way it is right now. I follow those rules. And you can create that situation for yourself also. So that's how it is for me right now.

But how did I get here? How did I get that first loan? Well, first of all, if you're brand new and you haven't completed a successful and profitable real estate transaction, I'm sorry to tell you, but no one is going to give you any money. They're just not. I mean, especially in today's climate. But even when real estate was on the rapid rise just before the financial burst, I mean, it would have been an extremely rare occasion for an unexperienced investor to get a private money loan.

I mean, it was probably easier to get a bank loan then. But anyway, how do you go about getting the first one? Again, there are probably many ways to do this, but this is how I did it. I knew, just from my sales background, that for someone to do business with me, let alone give me a large amount of money to invest, they're going to first need to like me, then they're going to need to trust me, and then they're going to need to believe in my competence. You've got to build rapport, and there are three parts to that. They've got to like you, they've got to trust you,

and they've got to have confidence in your competence. So first, to get people to like you, you must first like them. Very simple, right? If you want people to like you, you must first like them and like them genuinely and like them authentic, If you want someone to be interested in you, you must first show interest in them. Okay? So how do you do this?

Well, it's really simple. Just listen to people. Stop talking so much, okay? Just listen. People like to be listened to and people like people that listen to them. Very simple. Just listen to people. So second, to get people to trust you, this is simple too.

Just say what you're going to do and then do what you say. That's it. That little practice alone will have you stand out amongst the crowd. It has you stand out because very few people operate that way. Now third,

to get them to have confidence in your competence, this is actually my favorite and it's probably the easiest. Just don't keep your victories a secret. Let the world know about your successes. But here's the caveat. Let them know about your successes

but only when they ask about them. Don't walk around bragging. and boasting. I mean, when someone ask you, hey, what's up? Or what have you been up to lately? You're going to tell them. Tell them about your successes. Don't keep them a secret. I mean, in the beginning, my answer was when someone said, hey, what's up? Or what you've been up to lately? My answer was, I'm flipping a few short sales a month. Things are going really good. And I would leave it at that. But I'd always get a comment like, really? How did you do that? Or this was my favorite. Isn't that illegal? People love to tell you that things they don't

understand are illegal, especially real estate agents. And just a little tangent on this. You know why real estate agents think everything is illegal? Because once a week in their office, and I know this because I was a real estate agent, I've been in several offices, and this was always the same in every office that I was in, because once a week in the office meeting, the broker is pulling out the latest newspaper clipping or the latest bulletin from the DRE, the Department of Real Estate. They're pulling out these newspaper clippings and these bulletins about what agent just

went to jail for some shady practice or what's the latest scam running through the neighborhood. And you know why they do that? I mean, they hear this every single week. You know why they do that? Because the broker is liable for the activities of their agents. They share those stories to scare their agents to keep them in line. They try to scare them straight, so to speak. They keep them in line and have them scared to death to do anything outside of conventional

real estate. I so wish I knew what I know now when I was an agent. I mean, there were so many missed opportunities because my broker had me terrified to do anything outside of the normal. Anyway, where was I? Oh, when people would ask me, how do you do that? Meaning, how do you flip short sales? I would say, oh, it's easy. And I would just walk them through the process with the intent of speaking just slightly over their head.

So I sounded smart and competent, but not too much over their head to I didn't want to sound cocky and I didn't want to confuse them. I still wanted them to understand how it works and how it's done. And it would sound like this. You see, I network with real estate agents. There's a lot of short sales in our market right now. And after a year or so, the agents have really been beat up by the whole short sale process. And when it comes right down to it, a short sale just equates to an agent that it's going to take more work and less pay. And I understand that. I understand that pain. So I've addressed that pain. So what I do is I call up real estate agents with short sale listings, and I call up the ones that have had the listing for 90 days or longer.

And I ask if they have any offers. And if they have offers, I just let it go. But if they don't have any offers, my next question is, if the seller doesn't get an offer, is the property most likely going to foreclosure? And if the answer is yes to that, then I just go ahead and I present them. That's how I find my deals.

I want to know, are there any offers on the table? Because if there are, that means there's competition, and I don't want to waste my time with it. and if they're going to foreclosure, if foreclosure is imminent, meaning the sellers are going to lose their property unless they're able to sell it, then I can move in and help. There's some incentive for the agent to work with me. Because I know that agent has had that property for three months,

is probably spending money on marketing, spending their weekends at an open house, and nothing's happening. And if after 90 days they don't have an offer, they're probably not going to sell that property, and all that time's going to go to waste because the bank's going to end up foreclosing on the property anyway. So what I do is I present to agents,

hey, cancel the listing, I'll purchase the property directly from your seller, contingent on a successful negotiation with the bank. I'll do all my own negotiating. Then once the short sale is approved, then I go ahead and relist the property with the agent at a 7% listing. This way, the agent doesn't have to deal with the bank. They get to conduct a conventional transaction with me, and they're going to make more money. And not only are they going to make a higher commission, they're getting that commission

paid on the higher price that I'm going to flip the property for. Everybody wins. You know, and I'm doing one or two of those a month. And that's how I'd explain it. And then people would get it and they'd understand. But what was really conveyed was, I know what I'm talking about, and I'm doing it successfully. Now, you can do the same thing with my free real estate investing course.

I mean, I walk you through the process step by step so you can first follow it and realistically do deals. I mean, I want you to do deals. That's the primary reason. And second, so you can explain it when people ask you what you're up to. I mean, if you do this enough, keep doing deals and letting people know that you're doing deals when they ask, it's only a matter of time before someone asks you this question. And this won't take long, by the way.

It's only a matter of time before someone asks you out for coffee or asks you out for lunch because they want to pick your brain. I mean, it's only a matter of time. Because you are now likable, you are trustworthy, and most of all, people will have confidence in your confidence. And when this happens, this is your prime opportunity to find private money, especially your first private money lender. So, I recommend you take everybody up on their invitations when they ask you out for coffee or lunch. First, I mean, you're going to get a lot of free coffee and a lot of free lunches. And second, you'll get to answer all of their questions to first further convey your competence.

And second, you'll be able to help them out as much as you can. And don't hold back on your answers. don't try and protect your secrets or anything like that. Let them know everything that you know. And just about when that meeting is over, you might say something like, well, here's what I say. So, Mary, I mean, you probably wouldn't be asking me all of these questions if you didn't plan on profiting from it in some way, right?

And Mary, or whoever it is, will say, yeah, of course. Then I'd respond, well, if you plan on doing that, you probably have some sort of resources to pull it off, right? What are you working with? And then Mary would say something like, Well, I've got a hundred K sitting in the bank, and I'm looking to put that to use. Now, your response might be, well, I tell you what, why don't we partner on a deal? You put in the 100K, and I'll put in the rest.

I'll do the rest, and you can do the deal right along with me. You can take notes, and you can learn firsthand how it all works. And at the end, you'll get your $100,000 back, and then we'll just split the profit. Does that make sense? That's typically how that conversation went from me. And that's how I got my first private money partner. And three years later, that person still funds. some of my deals. I mean, she's moved on to other things as she saw how much work was actually

involved in real estate investing, and she'd rather just loan me the money while I go out and make us the profit. And the more deals that we've done together, the more of the partnership has turned in my favor. I mean, what we began as 50-50 partners. And today, she loans me her money at a simple 8% interest-only monthly payment and a 10% profit share on the back end. And then when I'm not using it, she puts it back in her savings account, earning 0.75%, whatever the miserable rates are these days. And now you can see, actually, why you'll get calls from your private money people asking you, when's the next one? Okay, so there are three key elements at play here for this to work. First, you've got to be likable. And you will be likable if you start genuinely listening

to and showing interest in people. Second, you've got to be trustworthy. And you'll be trustworthy if you simply say what you're going to do and do what you say. You know what? I recommend you do that in every area of your life. And you're going to notice great things happen to people that do that, that keep their word. And third, people must be confident in your competence. And for you to be competent, there's no way around this. You must be doing deals. And you must be doing them successfully and profitably.

And if you haven't completed a deal yet, or you're not doing them on a regular basis or as frequently as you'd like, please go to free realestateinvestingcourse.com to learn how to do deals. Do that right now. I mean, regardless of your situation, do deals right now and do them consistently. And everyone around you will begin to have confidence in your competence, whether you're talking about it or not. There's something that's just kind of magical that happens.

People are attracted to people doing good business. And people want to do business with people that are doing good business, like lend them their money. You got to get on the court and you've got to win a few games first before you expect to have private money flowing your way. But once it's flowing your way, it is flowing your way. Just pay back your private money lenders and pay them back when you said you're going to pay them back and do it with a smile. Make sure it's a very pleasurable experience for your private money lenders.

And then you'll have all the private money you need for your real estate deals. I promise you that. Now, I know that was a lot of information. I know. And I'm sure a lot of questions were raised. So if you have those, please send them to Matt at Epicprofessionals.com and I'll answer them via email. And also I'll read the questions and answers on Facebook.

future episodes. So to sum it up, the first place that I look for money is through the seller themselves. The second place is through private sources. And the third way is through hard money lenders or transactional funders. Not so much of a mystery there on how to access that. And I'm actually out of time today, so I can't go into it. But for now, just know that hard money and transactional funding are typically my last resort. And the reason being is the money is expensive there. And because it is, it doesn't really work for every deal. You'll typically need a bigger profit margin to make it work for that type of money. Nonetheless, I'm not going to leave you hanging. I will be having a hard money lender and a transactional funder on a future episode to answer

all of your questions about that. And I don't think I got to all of the parts of that initial question either. My apologies, but I will, I promise. Okay? That's it for today, though. And until next time, as a very wise person once said, an essential aspect of creativity is not being afraid to fail. To your success, I'm Matt Terrio, living the dream. Thank you for spending this time with Matt Terrio and the epic real estate investing podcast. When you have a moment, stop by iTunes to leave your comments and let us know what you think of the show. And if you haven't done so already, get started investing today by visiting free real estate investing course.com to access Matt's free course, how to do deals, no money required.

Until next time. To your success. To your success. This podcast is a part of the C-Suite Radio Network. For more top business podcasts, visit c-sweetradio.com.