Epic Real Estate Investing - How to Buy a House with Seller Financing | 1200

Episode Date: May 5, 2022

Does seller financing allow you to buy a house? If it does, how does it work? Well, seller financing is a good idea, but some think that it is just a tool that is hardly realized because many people still do not understand how it works. Therefore, in today’s episode, Matt will show you how seller financing works in a home sale. BUT BEFORE THAT, hear Matt’s opinion about recession and whether we are headed toward one or not! Are you ready? Let’s go! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. What is a recession? Because it's on everyone's mind. Not to mention, it's on everyone's lips. Probability of a recession. Oh, we're going to get a recession this year. Towards a recession? A recession's on the way.

Another recession. So what's all the hell about? Well, I'm going to tell you in simple English. What a recession is, what causes one, whether or not we're headed towards one. And I'm going to give you seven steps that you can take to prepare yourself so that you won't even feel it. You're ready? Let's go. Welcome to the all-new, epic real estate investing show. The longest running real estate investing podcast on the interwebs.

Your source for housing market updates, creative investing strategies, and everything else you need to retire early. Some audio may be pulled from our weekly videos and may require visual support. To get the full premium experience, check out Epic Real Estate's YouTube channel, EpicR-E-I.TV. If you want to make money in real estate, sit tight and stay tuned. If you want to go far, share this with a friend. If you want to go fast, go to r-ei-a-ease.com. Here's Matt.

Hi, my name is Matt Terrio, CEO of Epic Real Estate, where we show people how to invest in real estate so they can escape the daily grind and retire early. Now, you might have heard last week that the GDP, the gross domestic product, shrank 1.4%. and everyone's talking about it. So what does that mean? Well, the GDP is the standard measure of the value on whether or not an economy is growing.

When it's negative, it's contracting. And when it's positive, it's growing. So we've contracted. We shrink 1.4%. We didn't grow. That's what happened. So what could that mean? Well, it could mean recession.

So what's a recession? Well, simply put, it's when we experience two consecutive quarters of negative economic growth, like the quarter we just had. And that's typically characterized by high unemployment, low or negative GDP growth, falling income, and slowing retail sales. So we just had one of these negative growth quarters. Will we have a consecutive one that would officially put us into a recession? Well, recessions are notoriously difficult to predict. But as a potential indicator, the people over at Wells Fargo suggest that you watch for a telltale side in the yield curve. You see, if the slope between the 10-year treasury yield,

the blue line and its one-year counterpart, the red line, invert, it could be evidence of an impending recession. Now, that has not happened since March 2020, as you can see here. That was just before the COVID-19 pandemic shutdown of the economy and triggered a recession, albeit the shortest one in history. Now, there are a growing number of Wall Street banks that are forecasting and economic recession in the coming years as a result of the Russian war in Ukraine, their red-hot inflation, and an increasingly hawkish federal reserve. However, there are others that are doubting a recession. And President Biden, he's not concerned. Not concerned about a recession. Yet one of Biden's favorite economists thinks he should be. And I'll get to him in just a

minute. Like I said, recessions are notoriously difficult to predict. But if we look at what causes them, perhaps you'll have a little bit more insight and be able to make your own prediction. I mean, why not make your own prediction? As some people say, economists, they exist just to make weather forecasters look good. It looks like Ruben is in the lead and here comes out. So if you know what causes them, you'll know what to look for. And that's about all the experts have to work with too. So you couldn't do any worse.

The three most frequent causes for recessions are either an economy that's overheating or an asset bubble popping or an economic shock. So first, overheating. This is when an economy's demand for goods and services is outpacing the supply of goods and services. And you can tell by two key characteristics, rising inflation and unemployment below its natural rate, which causes growth to occur at an unsustainable rate. Almost every recession since World War II has featured a run-up in inflation before the recession began. The largest was the eight percentage point increase in inflation before the 1980 recession.

So just this March, the consumer price index jumps at 8.5%. So it's got the Fed's attention. As they're warning us that in order to tame the sky high prices, they'll probably be implementing a series of mega interest rate hikes. Now, some economists believe that the Fed waited too long to confront this burst in inflation, while others have expressed concerns that moving too quickly with these hikes could trigger the actual recession itself. So why the hikes? What are those going to do?

Well, they're going to raise the interest rates because, they tend to create higher interest rates on consumer and business loans specifically, which slows the economy by forcing employers to cut back on spending, with the idea that if they reduce the demand, it'll allow the supply to catch up and then even out. Fed Chairman Jerome Powell, he's pushing back on the too quickly theory, though, as he remains optimistic that he can strike a delicate balance between taming inflation with monetary tightening without crushing the economy.

We'll see. And in his defense, he's not saying it's going to be easy, but he's going to give it a go with all the tools and resources he's got. We wish him well. Anyway, now you understand how the overheating of an economy can produce a recession. The second common cause of a recession is the bursting of an asset bubble. And this is actually a type of overheating. And it's likely this is how our two previous recessions came about. Although neither featured a large increase in price inflation, both features.

both featured the rapid growth and subsequent bursting of an asset bubble. The 2001 recession was preceded by the dot-com bubble burst, and the 2007-2009 recession was preceded by the bursting of the housing bubble. Asset bubbles, they develop when the economy is thriving, and investors in a particular asset class purchase large quantities of that asset based on the belief that it will sell for a higher price. But if those asset prices hit a wall and then fall, and if enough people had significant exposure to that asset, it could empty the pockets of people

all across the country. The third cause of a recession is an economic shock. You see, it's not always some type of overheating that causes a recession. Negative, unexpected external events, referred to as shocks by economists, have the power to disrupt growth too. A classic example is the oil shocks of the 1970s and 1980s. For instance, in 1979, oil output, it dropped by about 4% as a result of the Iranian revolution, causing mass panic, which then drove prices higher. The price of crude oil more than doubled, and that shock pushed the U.S. and other countries into a recession. The COVID-19 pandemic is another example of a shock, which triggered one of the most severe but briefest recessions in U.S. history when the economy was almost completely shut down. In hindsight, probably not the best

move, but hey, nothing we can do about it now. The U.S. economy lost 22 million jobs and unemployment surge to 14.7 percent, the highest since the Great Depression. So, I don't know, could the Russian invasion of Ukraine be such a shot? Could the excessive printing of money have caused economic overheating? Could the housing market once again be an asset bubble that's about to burst? Or could we be seeing all three of these converge? Again, it's really tough to predict. The experts, they're certainly chiming in with their predictions at every chance that they can get. For example, despite President Biden's lack of concern, Mark Zandi, chief economist at Moody's, as well as one that is frequently cited by the Biden administration, said last week in a White

House talk that he believes that odds of a recession within the next two years is somewhere around 35%. And then on the other side, you have LPL Financial's chief market strategist, Ryan Dietrich, who is much more optimistic about avoiding a recession. He's citing some early signs of inflation hitting its peak, you know, with used car prices having dropped significantly the last two months in a row, and shipping prices globally are down 30%. He also notes that a 1.4% drop in the GDP is small and has not always resulted in a recession, so it's not a given. And he's predicting a second quarter bounce back with an overall GDP growth of 3% for the whole year. But I get it. It's tough to be optimistic when the common sentiment is so negative and bearish. But has general

Patten once said, when everyone is thinking alike, someone isn't thinking. There very well could be opportunity staring us straight in the face. So what is one to do? Downturn or not, it's probably not a bad idea to get your wallet in shape for whatever the economy may throw at us. And here are seven places for you to look in evaluating your financial health. Number one, pay down high interest credit card balances. Because if the Fed follows through on multiple interest rate hikes this year, that's going to have an influence on many forms of short-term borrowing, like adjustable rate credit cards. So if an emergency hits, these could be your most costly, monthly expenses. Number two, assess your finances before paying off other debt, whether that be

mortgages, student loans, or auto loans, because it might not make sense to use up all of your cash to pay down long-term debts that have relatively low fixed interest rates. Number three, add to your emergency fund. No, assembling six months of living expenses, that can seem like a daunting task, but don't underestimate the power of small contributions. Automate them if you can. You know, this book right here, profit first and changed my life around small automated savings contributions. So check it out. Number four, identify ways to cut back. If you're at a loss of how you can actually build on your emergency fund, it's a good idea to go through your monthly expenses and identify which items are discretionary and which items are necessary. Eliminating. Eliminating. Eliminating. Eliminating

some or all of the discretionary items that you can live without for a while. Number five, don't make knee-jerk reactions with your investments. You know, whether you're 20 years old or 20 months from retirement, resist with all your might from making changes that jeopardize your long-term financial security based on a short-term economic event. I mean, even if you're on the cusp of retirement, retirement is going to last 25 to 30 years for you. A recession might just last a year or so.

maybe less. Number six, think about your career and earnings opportunities. You know, to recession proof a career, many will pursue additional or higher education. You know, that's the traditional advice. But the recession is almost certain to be over by the time that that new degree is in your hand. So consider a part-time business or side hustle instead, or in addition to. Because in the days of the internet, it's never been easier to do. I mean, you can pick at garage sales than resell on eBay. You can teach or tutor and you can do that online or off. You can become a freelance writer. You can become a ride share driver.

You can put your car up for short-term rental on the app toro. Or you can flip sneakers or flip houses. If you like the sound of that one, go ahead and meet me over at rei-aise.com. Answer a few questions that we can hop on the phone to discuss and brainstorm some ideas about that for you. And number seven, don't panic. Recessions are inevitable and it can be a scary thought, especially for Americans who have lived through Two, back to back once in a lifetime recessions, the coronavirus pandemic and the great recession before it.

I mean, think back on all the other times in life that you were worried about the future, where you had major concern, whether it be something really big like the economy or something small, like what the kids are going to say Monday at school about your new haircut. You made it through each one of them, and here you are, alive and kicking. So whether this is another historic event or just a blip on the radar that we experience, it's going to be just like that. It's going to pass. So the bottom line is nobody knows what's going to happen. The complexity of the macro economy is just that complex. And if recessions were easily predictable and preventable, we'd be doing just that. So there's never a bad time to evaluate your finances and check in with yourself. So I gave you seven things to look at to get you started. So don't focus on what's happening. Focus on what you want to have happen and everything's going to be all right. Please stand by. We've got overhead to pay.

We'll be right back. Hit pause on whatever you're listening to and hit play on your next adventure. This fall get double points on every qualified stay. Life's the trip. Make the most of it at Best Western. Visit bestwestern.com for complete terms and conditions. Remember that person that gave up on their real estate investing dreams? Neither do I.

Let's keep going. Back to the show. How to buy a house with seller financing. As seller financing, that's a question on many people's minds. Many people don't know what seller financing really is or how it works. Other investors wonder is owner financing a good idea? And still others think owner financing is a good tool that rarely works in the real world. I understand.

These were all questions I once had as well as things that I thought about all the time. And after more than a decade of experience buying property, with seller financing, I'm going to cover it all right now. Seller financing, also known as owner financing. It's a way to buy real estate without having to go to the bank. As a real estate investor, it has been an incredible tool for me to pick up both rental and flip properties. I almost always get better interest rates, lower down payments, more beneficial terms,

and most importantly, a long-term win-win relationship with a real person instead of a corporate bank. So I'm going to let you in on what seller financing exactly is. and isn't, and then I'll walk you through how it works, and then I'll let you in on the types of sellers that are most likely to consider your seller-financed offer. Oh, and by the way, if you're still looking to get that first deal under your belt, I put together a free training just for you to help you get that first deal done,

and then how to earn $5,000 a month flipping contracts and properties working in as little as one hour a day, and you can access it at matsfreetraining.com. Cellar financing defined is a real estate transaction where the seller extends credit to the buyer. You can think of it as a loan, although initially no money actually changes hands between the buyer and seller.

Instead, the buyer usually makes a down payment and then the seller receives the rest of the purchase price and installments over time. Exactly like how a traditional loan with a bank would work, there's going to be a down payment and then you make monthly payments to the bank until the loan is paid off. This is just like that,

but instead of making payments to the bank, you're making them to the seller. So at its most basic form, seller financing just means the seller of real estate waits to get all of his or her sales price. Instead of getting the entire price and cash at closing, the seller carries back part or all of the price. Now, there are many variables at play, but the general process will look something like this. One, you find a seller with equity in their property. In other words, they've got no debt or a relatively small amount of debt that can be paid off at closing. Two, the seller deeds the property to you, the buyer.

Then three, you then give the seller a promissory note or a contract, if you will, that outlines all of the terms of the seller financing. And then four, the buyer also gives the seller a mortgage or trust deed in some states to secure the promissory note against the property. Your purchase of a property using seller financing will look very similarly to a purchase that uses bank financing. But there are some nuances that you need to know. In your typical real estate transaction, the bank brings the money,

money, the seller brings a property in the form of a deed, the buyer brings a down payment, and a promise to pay back the money to the bank that they're borrowing, and the closing agent brings a promise that the property has good title, and a title insurance company backs up that promise. A seller financing transaction is similar, but the key difference is there is no bank or third-party lender. And it looks like this. The seller brings a property in the form of a deed, the buyer brings a down payment and a promise to pay the seller, the entire purchase price, and the closing agent brings a promise that the property has good title, and a title insurance company backs up that promise.

This time, no loan is actually made because the seller doesn't physically give the buyer money like the bank did. Instead, the seller lets the buyer pay on credit over time, like an IOU. That's what seller financing really is. And everything within that IOU is negotiable, like the interest rate, the payment amount, the term, the collateral, so much more. You can get really creative with seller financing if you want, as long as the seller agrees to it. For example, you don't even have to pay the seller money. I mean, you could barter.

You could pay by providing a service. You could pay in cryptocurrency. Or you could pay in goats or chickens. This is one of my favorite aspects of seller financing. As long as you and the seller agree, anything goes. You don't get that type of flexibility with a bank. Try stuffing a chicken in the envelope and mailing that in is your payment. Now that you have an idea of what seller financing is, I'll let you in on the magic of actually making it work in the real world. And that has to do with finding the type of sellers that will play ball. So here's the deal.

Not every seller will be open to seller financing. In fact, it's the few that are. So how do you find the ones that are open to it? Well, to find them, you have to know essentially what they look like and what would drive their decision to accepting a seller-financed offer from you. You know, a while back, I looked through all of my seller finance deals to try and identify a common denominator amongst them all so that I could go out and target my marketing to find more of them. And here's what I found. The vast majority were burned out landlords.

Now, there were plenty of exceptions that were willing to carry financing for me, but the majority were burned out landlords. So if you want to give yourself the best chance of buying properties with seller financing, I recommend that you focus on these burn. out landlords first. So what is a burned out landlord? Well, it's basically an owner of an income property who has become fed up with tenants and all the other details of owning rentals and dealing with tenants. And if you don't study the best practices of landlording, it's easy to become burned out. For some examples, landlords that I've dealt with became burned out due to living too far away to self-manage their properties, to leasing to a friend or a family member that takes advantage of the relationship when it comes to paying or not paying at all their rent. It ain't easy or pleasant to

evict someone close to you. Also, inheriting a property and attempting to become a landlord and doing it all wrong and losing money and then managing in a lower income neighborhood where management can become challenging or just flat out retiring from the landlording business and looking to take it easy, yet still needing the passive income. The common theme here is that all of these burned out landlords were motivated. This doesn't mean, though, that they were desperate or unaware of what was going on. In many cases, they had more business and investing experience than me, but there was enough motivation in place for me to negotiate win-win seller financing terms. So if Burndout landlords are your number one source for seller finance properties, how do you find them?

There are many ways to do this, and I've tried them all, but here are a few ideas that have worked best for me. Start looking for absentee owners. Absentee owners are property owners who don't live in the property by sending letters or postcards or text messages to absentee owners. Some of them may fit the burned out landlord profile. And I get my list of absentee owner landlords from propstreamepic.com. Or you can sometimes get lists from your local county tax assessor for free. It just takes a little bit more work, that's all. Then eviction records.

Eviction court cases are public records in most markets. So look up the owners in those records, and then you can contact them by mail or phone and ask if they'd like to sell. This is often the peak time of motivation after being frustrated with enough to file eviction papers. Also look for vacant houses. You know, when you drive or walk around your target neighborhoods, also known as driving for dollars,

you're going to see vacant houses. Track down an owner and ask them if they want to sell. Some owners will be landlords, and this vacant house can cost them money and create stress. So you will be offering a solution to their problem. You can also pull lists of vacant houses all across the country from propstreamepic.com, too. And then networking.

Participate at local real estate meetups, real estate investor associations and online forums. You will sometimes beat rental investors who are motivated to sell a particular property. Also, tell everyone you know that you buy properties from people tired of managing their rental properties. And then look for properties for rent. Find for rent size. Look for those and ads in the classifies both online and off and contact the phone number. Give them a call.

I mean, after gathering initial information, ask if they'd be interested in selling. You know, they just might be a burned out landlord too. After all, their property's currently vacant. and they likely just had to put some money into it to get it ready for a new tenant. And once you find one of these burned out landlords, set up a time to view the property, build some rapport, and present your seller-financed offer of price, the down payment, and the terms to pay that balance. When you understand the benefits of seller financing for the seller,

negotiating a win-win deal will be much easier. So keep these seller benefits in mind. The seller, they'll have the ability to save on closing costs. They can produce significant capital gains tax savings over time. They can sell faster. and often with the ability to and as is condition what they won't need to make the repairs

and they'll be released from property tax, homeowner's insurance, and various maintenance expenses. They'll also have the option to sell the promissory note to another investor. If you'd like to go deeper into investing in real estate using seller financing and other creative options, I've got a series of free lessons

that break down a number of different strategies in great detail. And you can get them all for free at creativefinancing. U.S. And that wraps up the epic show. If you found this episode valuable, who else do you know that might too?

There's a really good chance you know someone else who would. And when their name comes to mind, please share it with them and ask them to click the subscribe button when they get here and I'll take great care of them. God loves you and so do I. Health, peace, blessings, and success to you. I'm Matt Terrio. Living the dream.

Yeah, yeah, we got the cash flow. You didn't know home for us. We got the cash flow. Okay, only 10 more presents to wrap. You're almost at the finish line. But first, there, the last one. Enjoy a Coca-Cola for a pause that refreshes. This podcast is a part of the C-Suite Radio Network.

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