Epic Real Estate Investing - EREI 070: Creating Cash Flow with Little to No Money

Episode Date: October 14, 2013

Listen in as Matt walks you through a podcast listener's deal and breaks down his secret weapon to creating cash flow with little to no money. Many of the concepts Matt shares on the podcast can be tough to grasp without visuals, he understands this. In the interest of making a difference in your business, he'll be conducting free online trainings between now and the end of the year. You can register for these free trainings at EpicProWebinars.com Learn how to use the Seller Information Questionnaire for an unfair advantage, how to create an irresistable offer using Matt's 3 Option Letter of Intent, get copies of Matt's special calculators and documents to streamline your business and more. Go to EpicProWebinars.com to register. It's free! The Epic Pro Academy is closing its doors to new members for remodeling on November 17th, 2013. The Academy will re-open January 2014 enhanced and improved at its regular price. Become a member between now and November 17th for 50% off the Academy's regular price. Go to EpicProAcademy.com and become a member. Having trouble with your buyers' list? Nobody buying? Chastity W. from KC borrowed Matt's private "all cash" buyers list and made $13,500. You can borrow Matt's list, too... at EpicWholesalers.com  It's been downloaded more than 10,000 times this year. Get this game-changing course while it's still free, How to Do Deals : No Money Required. Get the download at FreeRealEstateInvestingCourse.com Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, Matt here, and before we get started today, I just wanted to extend a sincere thank you for your support, for sharing this show with your friends and your family, for sharing with me, your challenges, and your triumphs via email, and sharing with the entire world your favorable comments over at iTunes. None of it has gone unnoticed. I appreciate you so much, and I'll continue to do what I do to show my appreciation. And in the interest of your success, your specific success, I'm going to be making some significant modifications and additions to the Epic Pro Academy over the holidays. You see, because of the amount of passive rental income that I've been able to create for myself this year, I'll finally have the time to complete the academy in the way that I originally envisioned it.

So come November 17th, I'll be closing the academy down to new members, and when I reopen in January, membership will be offered at the regular price. However, I'm going to leave up the initial launch price until November 17th. November 17th. So if you've been thinking about joining, now it would be a really good time to take advantage of the final days of this launch promotion. It's a 50% savings from right now until November 17th. So go to Epicproacademy.com and become a member. We'd all love for you to join us.

Thanks again for your support of this podcast. Now, enjoy the show. Broadcasting from Terrio Studios in Glendale, California. It's time for Epic Real Estate Investing with Matt Terrio. Yeah. Hello. Hello. And welcome to another episode of Epic Real Estate.

estate investing. If this is your first time listening to the show, welcome. Really glad that you're here. This is the place where I show people how to get out of the rat race using real estate. And it all begins with a simple shift and mindset, a shift in focus. Stop focusing on creating piles of cash and start focusing on creating streams of cash. What we like to call here in the real estate world, we call that cash flow. So that's the mindset. Now here's the meat. Go to free real estate investing course.com to get my free course. How to do deals, no money required. It's a step-by-step course that shows you how I'd start building my business if for some reason I had to start over. It's what I would do if I had to start over. I get asked that question all the time. So there's the

answer inside that step-by-step course. I mean, specifically, I walk you through the two fastest and easiest strategies to making quick cash in real estate. And that's yours for free. Absolutely, no strings attached. It's a whole and complete course. You can get that at free real estate investing course.com. Free real estate investing course.com. Okay. I've got an awesome show for you today, loaded with some really good stuff, certain to increase the ROI on your investments.

And actually not only the ROI, but the amount of investments you're able to acquire. It's an awesome show I'm really excited about today. And we'll get to that in just a second, but I've got two quick announcements. You might want to get a pen and paper ready for these. I'll wait. Okay. time's up. You can always rewind.

First, I'm going to be conducting regularly some free online training beginning this week and through the end of the year. So if you'd like to attend, you can get all the details at EpicproWebinar.com. For example, this week I'm going to be going over the seller information questionnaire. And there's a lot of visuals involved. So it's kind of, it doesn't, I can't really do it real well or do it justice on a podcast. I mean, I know the seller information questionnaire. It might not sound too exciting.

but, you know, if you're having challenges getting properties under contract, you're really missing the boat with this tool. It's so much more than just a questionnaire. It's essentially the foundation for your negotiating position. I mean, it's made me thousands of dollars, and, you know, and it's, I don't know, I would love to say it's made me millions of dollars, but I haven't gotten that far yet, but it's certainly made me hundreds of thousands of dollars and half a million for sure. And it's doing the same for my coaching clients as well.

You know, these trainings are absolutely free. So to check the schedule, go to EpicproWebinar.com. EpicproWebinar's.com. This first training is this Thursday evening, depending on when you're listening to this podcast, the November 17th at 6 p.m. Pacific Central Time. So go to EpicproWebinar's.com to register for that and all future webinars. I'm going to keep that updated all the way through the end of the year. Okay, second announcement.

I want to congratulate. You got to congratulate. Got to give the respect and the proper is where they're due. I want to congratulate some specific special epic wholesalers for their sales the last couple of weeks. Congrats to Pierre, Kyle, Joel, Chastity, all who put some sizable checks in their pockets by offering their deals to my private all-cash buyers list. So to get these checks, here's what they did.

They each got properties under contract. Then they submitted the details of their deals at epic wholesalers.com, epic wholesalers.com. And from there, my assistance, they received that information, and then they sent their deals to my personal buyers list. And some of my buyers picked up those deals. And they got paid. I believe the smallest check issued was $4,000. And the largest one of those was $13,500. And, you know, my buyers, they don't pick up everything that we send to them. But if your deal matches their criteria, hey, there's a really good chance that they will. You can view their current criteria and get more information about this program at epic wholesalers.com.

Congrats to you guys. Very proud. Okay. So I'm curious about how your problem solving is going. You know, two episodes ago, episode number 68, I believe we discussed your primary job as a real estate investor, that job being a problem solver. And in the beginning of your real estate investing career, or even in the middle of your career, if you happen to be experiencing a slump that you just can't get out of for the life of you, you know, your biggest problem is really just generating leads. That's your big primary problem, generating leads. And if you can solve that problem, most of your other problems inside your business will disappear. Okay. So, So to be a good problem solver, you've got to learn to start taking initiative and you got to be resourceful.

And I gave you a bunch of ideas, a bunch of links and resources to get you started. And I've asked for you to share your results with me. I've received a few emails doing such, but I was hoping for more. So please share with me your results. Send them to me at mat at epic real estate.com. Matt at epic real estate.com. And then what I'm going to do is I'm going to take all the results and I'm going to repackage them, I guess, put in a nice little package, and I'm going to make them available to you.

I'm going to give them back to you. Okay? I'm not going to charge anything. I'm just going to give it back to you. So we can all kind of start creating community here and helping each other out. Okay? So, oh, and I, you know, I remembered after I released that episode, I failed to mention two more resources for leads.

So you want to write these down. Check out a website called Melissadata. Melissa, just like the girl's name, Melissa with two S's, M-E-L-S-A-Data.com. and they can find for you just about any lead list that you can imagine. And another that I've actually never used this one, but one of my coaching clients brought it to my attention, Zbuyer.com, Zbuyer.com. This site, it just basically connects buyers and sellers.

And it looks like it's primarily, and I think this is its primary attention, is for real estate agents to be connected with buyers, but they do have a section where they serve investors as well. And, you know, this student that brought it to my attention, they closed the deal from this service. So I mentioned actually to another student, and he closed a deal as well. So if you want to check that out, that's zbuyer.com.

And by the way, I'm not affiliated with any of those companies. I don't get a kickback or anything. I'm just passing on the good news. Okay? I received a phone call on the Epic Pro hotline that I wanted to share with you as, you know, I'm seeing a trend of this type of deal. And I think we're going to be seeing a lot of deals like this for the next several years. So listen to the call, and then I'll explain.

Hey Matt, this is Ryan and Charlotte, North Carolina. First let me thank you for the wealth of knowledge and wisdom that you pass down to all your followers. You are truly a blessing. So now that I got your boot looking out the way, here's the deal. I'm working on my first deal after about two months of marketing to app and tea owners. And I wanted to run some numbers by you and pick your brain for some creative deal structure and for a secondary residence. The details are as follows. The ARV is 78,000.

The seller has asked me for 115. A seller purchased the home in 2010 for about 60,000. Owns the home free and clear, 100% equity, no second mortgages. Square footage is 1825 of the 3-4 bedroom, three-bath. Mother-in-law suite added recently. And at the one-story ranch built in 1962 with no garage. The market rent is around $850. And the seller put in about $15,000 renovations with a new roof,

carpet, paint, et cetera, and major systems. And that's why he's asking for such a high price. The motivation for the seller is that it's a couple, an elderly couple, near in retirement. The home is vacant. They have a mountain of debt, and they're afraid of being landlords. I briefly talked with them about negotiating down his price. He says he wants his price, but he'll be open to hear my terms. I don't think this is a traditional wholesale deal,

but maybe there's a way to work out. terms over time to make it beneficial for me and a seller. Let me know what you think, Matt. Thank you. And once again, I love the podcast and all the materials that you make available for all of us here. Talk to you soon and hope to hear from you soon. Bye-bye.

Okay. Thanks, Ryan. And I'm going to answer your question just a second. But what I was mentioning just before I played Ryan's message is that I'm noticing this trend in all of my markets. And so are my wholesalers. And so are my coaching clients. and that trend is motivated sellers with properties owned, free, and clear.

And this is happening, I believe, for a few reasons. First, just it's simple demographics. The baby boomers, they are retiring, okay? They're retiring. Things like, I don't know, it was like $8,000 a day or something retire. I heard some crazy statistic. So there's a significant portion of the population that has spent the last 20 to 40 years working and paying off their mortgage.

So that's a lot of homes. that are being paid off. I mean, the last time I checked, that's 34%. I mean, it was 34% of all single family residences are owned free and clear. There's no mortgage. And what's ironic about that is the belief out there that most single family residences are underwater.

They're short sales. No, not the case, not by any means. And as the markets are recovering, that number is only going to get smaller. I mean, believe it or not, there are more homes in the United States that are owned, free, and clear than there are short sale.

candidates. So that's the first reason we're going to see more and more of these types of deals because that's where a huge portion of the population is right now in their life cycle. The second reason we're going, the second reason we're going to be seeing more and more of this trend is as Ryan Sellers mentioned, they are in a mountain of debt. Now, I mean, I guess a mountain could be, it's a rather relative term. A mountain to one person might be a molehill to another. I mean, but this is the situation for half of American households, half.

I think it's 48%. That's good enough for me. That's half. Although the amount of household debt is on a slight decline. It has been over the last couple years, a couple points, not by a lot, but it is showing a downward trend. Baby boomers, even though that debt is declining, baby boomers are retiring, so they're carrying that debt into retirement.

So when their income is not what it was during their working. years, that debt becomes less and less manageable. I mean, it might not have been that big, it might have been a molehill while they were working, but now that they're retiring, that mole hill looks a lot like a mountain. So it becomes tougher and tougher to manage with less income, obviously. So thus, you're going to see this situation with your motivated sellers for a while, for a long while to come. I think we've got another 10-year window for baby boomers to be retiring. Third reason is, most people don't want. to be landlords.

I know. I love being a real estate investor. I love buy and hold. I love being a landlord. I love managing my property managers. And that's why you're here because it's what you want to do as well. But most people don't want to do it. They just don't.

They've heard the horror stories. And actually, they've only heard the horror stories. They've never really heard the good side. They just don't want to be landlords. So this is what you've got. You've got the baby boomers retiring. They're living on less than what they're used to. They're carrying their debt in the retirement.

and they're likely living inside of their lifetime savings, meaning their home. It's its own free and clear. They spent the last 30 years paying it off, and now they own it free and clear, but they still got bills. You still need income. So they have a few options, but they don't want to refinance because that would create even more debt. It creates a new mortgage.

They don't want to rent their property to generate some income for themselves because they don't want to be landlords. So really selling their home seems to be the only solution. to them. That seems to be the only solution to their challenges. Now, that's a very big, sweeping general statement. Every factor is not going to apply to every struggling baby boomer. But as a real estate investor, I mean, you're going to hear this story from motivated sellers more than we ever have in the past. That I can almost promise. It's very much my prediction. I'm going to stand by that. And I can stand by it even more firmly because the evidence is already

there. Okay. I've seen it with my own. investing, seeing it with my wholesalers, my students, and now my listeners, just like Ryan and Charlotte shared with me. And I've never talked to Ryan, and he shared that completely unsolicited. So it's out there. I'm seeing it, and I'm hearing it, and I just want you to know. Okay? So I think it's a really good idea that you are prepared for this scenario.

And it's an awesome scenario, actually, that it presents an amazing opportunity for you to really ramp up your cash flow with minimal money out of your pocket. And as I answer Ryan's question, I think you'll see what I mean. By the way, good job, Ryan. Awesome. I mean, you were able to get all of the relevant and pertinent information needed to put an educated offer together. I don't know if you use the seller questionnaire or not, but it sounds like you did. And because you did, I can help you.

I get a lot of calls, a lot of emails where they're asking questions and there's just not enough information for me to provide an answer. So I always have to ask again. But Ryan did an excellent job. He gave me all the pertinent information so I can help him. I don't need any additional information to give you a solid answer. So nice work. All right.

So Ryan mentioned that the guy was pretty set on his price, but he was open to listening to Ryan's terms. And that's the mindset you want. Your mindset has to be, I'm either going to buy this property at my price and your terms or your price in my terms. And I get a lot of questions when I say that because people don't really understand what I'm saying. So what that really means, the gist is,

If you can get control of one of these, just one, you can get control of the price or get control of the terms, then you can always put a deal together. You can always make a deal out of that. And as I take you through answering Ryan's question today, I think it's going to become more clear as to what I actually mean by that when I say I can purchase at my price in your terms or your price in my terms. Now, in Ryan's scenario, if I were in his shoes, I would like to give the seller options. If I just mention what my terms are for his price, then the seller's answer is going to be either yes or no. I mean, you might get a counter offer, but it's typically going to be an unreasonable one. But what I've found is if I give them the seller options, I'm more likely to receive a yes. And at the very least, I'll get the sellers wheels turning.

I'll open up dialogue and they'll come back with a reasonable counter. It's funny. You know, when you give the seller an offer, when you give them one option, they say either yes or no. But if you give them three offers or options, they'll pick one. They somehow forget that they do have a fourth option of saying no. It's really funny how that plays out. It happens over and over and over again. So I'm going to walk you through my thought process here, and this is much easier to understand when I can share with you visuals.

It's the reason my second webinar this month will be on this exact subject. It's just much easier to explain with visual. So if you want to learn this, because, I mean, as you're going to be experiencing a lot of these types of situations for several years to come, make sure you register for this live training. It's the three-option letter of intent training, and you can do that at EpicproWebinar.com. Okay, so we're going to craft a three, or, yeah,

a three option letter of intent. We're going to put together first three options, and I'll explain to you what the letter is at the end. So option number one. Option one is going to be Ryan's price and the seller's terms. Okay? The seller wants cash

to clear his mountain of debt, right? So if you're going to pay cash, the seller's terms, we have to figure out what's Ryan's price, right? What's Ryan's price? Well, the seller wants $115,000. Ryan has figured the ARV, the after repair value,

at $78,000. Now, Ryan could just go do a basic calculation, 75% of ARV minus repairs, and then go from there. But I want you to think about this a little bit more. Remember, to escape the rat race, you must stop focusing on making money and focus on making streams of money. In other words, cash flow.

And that calculation, that 75% of ARV minus repairs, that's more of a how do I make money type mindset. I want you to look at more of how do I make streams of money mindset. And as I mentioned, this specific situation, this is the ideal time to create some cash flow, to create some streams of income, to do that for yourself with minimal money out of your pocket. So when you come up and you meet someone that's got their property

and they own it free and clear, I want you to immediately switch to how can I keep this and create cash flow for myself? That's what I want the question. And then I'm going to give you some answers. So rather than determining Ryan's price off of the after repair of value, the RV, let's use the market rent to determine our price and we're going to work our way backwards from the market rent.

Besides, really, that's always the most important number to me because if I did want to flip this property for some quick cash, if I'm unable to do that, if my intent was to flip and I got stuck with the property and I'm forced to hold on to the property, I want to make sure it cash flows while I hold on to it. So I really think this is how you should always evaluate, but I understand it's not. But that's my thought process, and that's why I do it this way.

So these days, I'm always working my way, backward from the rent. So I created a spreadsheet that calculates all of this for me, of which I'll give a copy to all of those that attend the webinar. But for here, on the air today, I'll do my best to just walk you through the calculations verbally. I'll give you everything. So market rent is $850. That's the gross rent. So for my quick and dirty math calculations, I like to count on 60% of that as my net rent, meaning after maintenance and management and insurance, taxes, vacancy, after all the property expenses are taken into consideration, 60% of that gross rent, that's what I get to keep.

For single families, it's probably closer to 65%. For my multifamilies, it's, I don't know, it's probably right around 55%. That's not a hard and fast rule, but that's just kind of my rule and thumb. But for the purpose of coming up with a really quick number, I have found 60% to be pretty reliable. It gets me very comfortably into the ballpark. So 60% of $850, $850, 60% of $850,000. 60% of $850 is $510.

That's what I can expect to keep from each month after I pay my property expenses. So I put $510.10. That's my cash flow. That's what I put in my pocket. Now, each and every one of you have decided what your minimum deal terms are, right? I hope. You know, that's part of the free real estate investing courses to decide what your minimum deal standards are.

And we haven't talked about this in a while, but we certainly cannot forget it. It should come into play with every single deal that you. you do. And what I mean is what is your minimum ROI? What is your minimum return on investment? What is the minimum return you are willing to take on a deal in order for you to say yes to the deal? So, I mean, is it 5 percent? Is it 10 percent? 25 percent? Very personal question. And this number is entirely up to you. The answer is up to you. People ask me, where do you start? Well, I just kind of say, look at, okay, so where's your money right now and what's it earning you? So your money is in the bank earning 1%. So wouldn't 3% be a huge upgrade? That's like three times what you're

getting right now, right? Or if you're in the stock market and you're pretty good at it and you're averaging 6, 7%, okay, for me to go into another investment, to go to the trouble to withdraw that money, maybe I need 9 or 10%. Okay, so that's entirely up to you what that minimum number is. And the specific question for Ryan's scenario is, what's the minimum ROI that I would consider if this seller accepted an all cash price from me. Okay? What's the minimum ROI I would have to consider, or that I would consider,

if this seller accepted an all cash price for me? So whatever that number is, your minimum ROI, take your net rent $510 and divide it by the percentage, the percentage of return on investment. So let's just say it's 10%. Say 10% would be an acceptable return if you got stuck with this property

and the seller accepted your all cash price. So, if 10% would be acceptable to you, $510, take the $510 that's your net rent and divide it by 10%. Okay, $510,000 divided by 10% is $61,200. Boom, there it is. There's your cash price. $61,200. I don't really care at this point what the ARV is. I don't care what the comps are. I just know this is the maximum price that I can pay to. get my minimum R-O-I.

Okay, that's your maximum cash price is $61,200. Anything over that would give you a less than 10% ROI. Therefore, anything over that would be unacceptable. You just say no. So let's go with that. Okay, let's go with that one. Option one, Ryan's price is $61,200 and the seller's terms are cash. That's option one.

I'm going to give you $61,200 for in cash. Now, option two, for this option and option three, I'm going to go with more of his price, the seller's price, and then I'm going to craft my terms. So I'm kind of giving up control of the price, and I'm going to control the terms. So on option two, I like to give my middle of the road price. This is going to be more closer to what the comp say, what the market value is, maybe a little bit less. I'm going to go all the way up to the seller's price with option three, but I'm going to get a little bit. with option two, I'm not going to go all the way up to the seller's price, but I'm going to get a lot closer to it.

But I will go all the way to up to the seller's price on option three, and I'll show you what that means in a minute. Now, as I look at this price, option two, I'm looking at this as a price that's probably going to be a little bit under the after repair of value, the market value. But it's going to be a little bit less because I've already explained to the seller that I am an investor and I am here to make money. So I would probably show them comps.

This is what the comps say that your property is worth. But I'm going to invest, so I've got to make a little bit money. So I'll just take a little bit off. So let's say I'm going to offer $72,000 for the price. Okay, the ARV is $78,000. I'm just going to offer $72. It's random arbitrary. It doesn't really matter that much.

And you'll see what I mean. But then I'm going to ask the seller to finance a portion of this for me. So I'm going to offer $72,000 with some seller financing. Now you want to craft the, the financing terms in a way that you're above your minimum deal standards. And for the sake of ease, we're just going to keep 10% consistent through this whole example. So 10% is your minimum ROI. So for the seller to consider these terms, it's a good idea to offer a down payment

because they're going to want a little bit money at front. It makes it look more a little more appeasing. So let's just say, let's start with 5%. 5% down. We'll offer $3,600 down. Let me turn off my Skype here. I don't know if you guys heard that or not, but I did. Okay.

Oops. All right. So we're going to start with 5% down. We'll offer $3,600. Okay. Now we want to figure out what interest rate we can pay and still hit our 10% return on investment. You follow on me? We're giving them 5% down.

That's $3,600. And what's the maximum or what interest rate can we offer that would be appealing to them, but also allow us to hit our minimum return on investment, our 10%. So to make this offer more appealing to the seller, ideally I want to offer an interest rate much greater than what he could get at the bank. Okay. And that's not difficult today, as I think the banks aren't even breaking 1%. But as that is a point of reference,

and the seller might also look at as a point of reference that banks are charging anywhere from 4 to 6% on home loan. So that might be his market value for the rent. excuse me, for the percentage rate on carrying back the loan. So I'm going to go ahead. I'm going to try 8%. Let's see how that works. I'll put a 5% down payment, and I'm going to put 8% interest rate in the math.

And let's see what that happens. So we have $72,000. That's our offer price. We're going to subtract our down payment. That's $3,600. So that gives us a balance of $68,400. That's what we're going to finance. Okay, that's the amount that the seller is going to carry back.

So 8% of $68,400 gives me $5,472. Divide that by $12. That gives me interest-only payments of $456 a month. $456 a month. Now, my net rent is $510, right? That hasn't changed. $510. I'm going to subtract my loan payment, my debt service of $456.

So that leaves me with $54 a month of positive cash flow. $54 a month. That's what it leaves me. Now, annually, that gives me $648 a year in cash flow, $648. So take that $6.48 and divide it by the money you put into the deal. How much do we put in the deal? We put 5% down, right? So that's $3,600 down payment.

And if you do that, you take $648 and divide it by $3,600, you get $18% ROI. So that's above our 10%, isn't it? So those would be acceptable terms. That's cash on cash return on your investment of 18%. And you only put down $3,600 and you didn't have to get a bank loan. And 18% is your return. That's awesome right there, right? You created a $54 a month cash flow position in option number two,

and this option with only $3,600 out of your pocket. Now, $54 a month doesn't sound like a big deal, right? Well, how much money would you have to put into a bank account today to earn that type of interest. I'll make it easy for you. $64,000, $64,800 is what you'd have to deposit into a savings account, a bank account, to receive $54 a month of cash flow, today's terms, or today's rates, but you did it with real estate with only $3,600.

Right? That's awesome. I think that's awesome. Anyway, okay, so we're running a bit over. Let's go to option three. here where we're going to give the seller their asking price. We're actually going to give them their whole price. The ARV, the after repair value that Ryan came up with a 78,000.

Their asking price is $115,000. There's a $37,000 discrepancy there. He wants $37,000 over the after repair value. That's like 50% above the after repair value. I mean, who right now, listening to me, who would walk from this deal if you had to pay $150,000 for this property? who would take it? Well, you can't really answer that because it depends on the terms, right?

We're giving the seller their price. We're going to make the term. So how do we make $115,000, $50% above market value? How do we make that a deal? Well, it's very easy. You divide the amount up into a number of payments as to where you still receive your minimum desired return on investment. Okay?

We're just going to divide that up into a number of payments. of payments, so we still cash flow and we still receive our minimum ROI. So option one, we have $61,200 in cash, and that deal is done, okay? Just cash, deal's done, both parties go on that way. Or he can choose option two. So we have $72,000 is the purchase price, $3,600 down. That's 5%. He gets that cash now, and then he gets monthly payments of $456. Now, oh, and with those payments, I'd typically, like I'd do interest-only payments and I do a 10-year balloon. I don't want to do full 30-year amortized because people, sellers will see full 30 years. And they're like, oh, I don't even know if I'm going to be alive that long.

So I always put, I start with a 10-year period, okay, and I do interest-only payments. Now, with option three, I want, I want option three to look really, really sweet. Because this is really the option I'm hoping that they're going to take. Yes, I'm hoping that they're going to take the $115,000. I hope he's going to take his price. And I'll explain in just a second. So to make this option look sweet. I want to give him his asking price.

That's already looking kind of cool to him, especially when it's compared to the other two options. And then I'm going to give him more money up front. Okay, so I could give him a 5%. That would still be more money up front because 5% of 115 is more than 5% of 72. But I'm going to offer him 10% here. Okay, I'm going to give him 10% down.

So I'm going to give him $11,500 down payment. And then I'm going to divide the balance into 250 equal monthly payments. That's just the number I started with. 250 equal monthly payments. So purchase price is $115,000 minus the $11,500 down payment leaves us with $103,500 that we're going to divide into 250 monthly equal monthly payments. And that monthly payment is going to be $414. So if we subtract $414 from our net rent of $510, that hasn't changed, still the net rent's always

the same. So we subtract the $414 from $510 that leaves us with $96 a month of cash flow. Okay? It's like we're getting double the cash flow and we got an option number two. But we paid a whole lot of money for it, right? So already he's like, I don't have that work. So that gives you $1,152 a year, $1,152 a year of cash flow. Divide that, your annual cash flow, divide that by your down payment of $11,500.

And that gives us a 10% ROI. Boom. We paid $115,000, and we still got a 10% ROI. We hit our minimum return on investment, even by giving him his price, just by crafting the terms a little bit. So now I've got three options. From here, I don't care which offer the seller accepts. I win either way.

I get my minimum return on investment of 10% regardless of which option he chooses. So I'm cool with any of them. Now, if your minimum return on investment is greater, it's 15%, no big deal. Just do the math using your minimum ROI, and you've got to play with the numbers a little bit until you come out with that. But here's why I really want the seller to take option three. Because if you noticed, I didn't mention an interest rate in option three, did I? No, I said the balance would be divided into 250 equal monthly payments.

There is no interest rate. Now, I didn't say principal-only loan, did I? But that's exactly what it is. Because a lot of people hear principal-only loan, I said, that's ridiculous. I'm not going to do a principal-only loan. I didn't say that. My wording was, I'll divide the balance into 250 equal monthly payments. It didn't even mention interest rate.

I mean, if you remember a while back, I don't know, last year, maybe about 18 months ago, maybe, I mean, this is exactly how I got my four-plex-in-compton with a principal-only loan, doing this exact thing. And if you're not seeing why this is so powerful, why this principal-only thing, why this equal monthly payment thing is so powerful. I'm going to explain it a bit more. You see, with a more traditional loan, like I put together in Option 2,

you see, my payments are only paying the interest rate, or they're only paying the interest. Nothing is happening to the principle. Nothing is being bought down. The balance is staying the same. Or even a better example is with a traditional home mortgage, say for the first 15 years, a traditional home mortgage amortized over 30 years.

For that first 15 years, the way those payments are structured, Most of your payments are only paying the interest. Very little still is happening to the principal in a very traditional mortgage in the first 15 years. So, in option two, even though I'm receiving an 18% ROI from the cash flow, after 10 years of making payments, I still owe the full balance of $72,000. Now, if the market stayed flat, okay, so let's just say in 10 years, nothing happened to the market. We all know it's going to go up, right?

It always appreciates, especially over that period of time. Just history has shown that. But if the market stayed flat, it just stayed exactly where it was, and the after repair value really was $78,000, I have $6,000 of equity in that position. So I got 18% return on my investment over those 10 years. So if it's 18%, in six years, I got all of my money back, right?

So the last four years were 100% profit, and then I still have $6,000 of equity. Decent deal. Nothing wrong with that. I do that all day long, every day, twice on Sunday. I should be able to sell that property after 10 years when the note is due. Maybe I start trying to sell it in year nine. I'll pay off the loan and I'll put $6,000 in my pocket.

Sweet deal. I got 18% return the whole time I held the property and I got $6,000 on my exit. Now, let's look at option three, where I paid 50% more for the property. Okay? I paid $15,000 for a $78,000 property. I put 10% down, so I owe $103,000 on the property. I made monthly payments of $414 for, let's say I did that for the same 10 years. Where would I be at the end of 10 years?

So I haven't made all of the payments yet. So just at the end of 10 years to make it equal with the option 2 example. That comes out to $49,000. $49,680 that I've paid. So I'm going to subtract that from the balance that I, that, or subtract that from the balance, the $103,000. So now I owe $53,000 on the property. I still owe $53,000.

But if the after repair value, all things being equal, it's still $78,000, I have over $24,000 of equity in this example. And I still receive 10% return on my investment from the cash flow over the 10 years. You see how that works? So I paid 50% more for the property, but just because I crafted the terms and such, at the end of 10-year period, and I'm just an arbitrary number, just make it apples-to-apples, at the end of the 10-year period, I've got $24,000 of equity, and I got 10% cash flow the whole time I was holding onto the property.

So that's actually why I want to pay the seller's price. I'll give him his price. Just give me my terms. I still got my minimum return on investment from the cash flow. But I built equity exponentially faster, four times faster in this specific example. Make sense? Okay. So you now have your three options to put together.

So what now? Well, all you do, just pull out a piece of paper, write a letter of intent at the top. Just make that the title, letter of intent. And then just open the letter with, you can even put this on a napkin or a paper towel. Dear seller, after a careful consideration of the current market conditions, I'm prepared to purchase your property in one of three ways. Option one, $61,200 all cash. Option two, $72,000. $3,600 now, seller to carry back the balance at 8% interest-only payments balance due in 10 years.

Okay, there's the option two seller financing. Then option three, $115,000, $11,500 now, balance payable, and 250 equal monthly payments. Simple. There's your offer. Now, after you've crafted that letter, I'd make an appointment to meet with the seller again. And, you know, as I presented my letter of intent, I would probably say something like, Mr. Seller, as I mentioned to you when we first met, I am an investor. This is how I feed my family, so you understand that I do have to make a profit, right?

Okay, very good. So I've completed my preliminary research. I've looked at the market conditions, and my offer is probably not what you're looking for, but it's all that the market is really going to allow me to pay. So take a look. My number is at the bottom. My phone number is at the bottom. Should you want to move forward if you have any questions?

But regardless of which option you choose, I can close in seven days, and you'll no longer have to worry about being a landlord. So that's what I would say. It's done, and they're going to look at the options. They might take one right off the bat. They might counter, and they say, well, can we tweak this or tweak this? Or they might say, I need to sleep on it, whatever it may be. But at least you're in conversation.

You're in dialogue. And it's much better than just saying, hey, you're crazy old man. No one will ever give you $1,000. I'm going to give you $61,000 in cash, take it or leave it. How a lot of investors do it. But this is a much softer approach, opens up the dialogue, and dramatically increases your chance for success. Okay?

So, Ryan, that's exactly how I would do it. Hopefully that answered your question. Thanks for the call. It's a really good one, and I hope that helped. And this is actually exactly how I've become owner of 180 units over the last few years. You see, with one of these types of structures in place, not the only structure, but it is certainly a primary strategy of mine. It's a primary tool in my toolbox.

And then this is how I can honestly say I got out of the rat race using little to none of my own money. And opportunities like this, this is what's exciting, opportunities like this are going to become more and more available for all of the reasons that I mentioned at the beginning of this episode. In fact, I'm under contract for 44 more units using this exact same letter. Now, I know that was a lot of math, a lot of calculations. It was probably a little difficult to follow along by just listening. It's far easier to see and understand when you can see me actually do the calculations on my spreadsheet. And if you'd like to see that, and you can also get a copy of that spreadsheet, and I'll even give you a template of that my three-option letter of intent, the same one that I use,

you can go register for the webinar titled Three Option Letter of Intent. You can register at EpicproWebinar.com. It's 100% free, and I'm going to give it all to you, okay? It's just like this podcast. I gave it all to you for free. I had another call to get to today, but I think we're out of time. We'll do that on the next show, okay? So that's it for today.

Until next time, to your success. I'm Matt Terrio, living the dream. You've been listening to Epic Real Estate Investing, the world's foremost authority on separating the facts from the BS in real estate investing education. If you enjoyed this show, please take a minute to visit iTunes and share your thoughts. Thanks for listening. We'll see you next time here at Epic. Real Estate Investing with Matt Terrio.

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