Epic Real Estate Investing - How to Get Wealthy Acquiring Balloon Payments | Episode 106

Episode Date: May 19, 2014

What do you do if your balloon payment comes up and you don't have the money to pay it? Get wealthy, that's what! Listen how on today's episode. ------------------------- Download Matt's free real estate investing course "How to Do Deals | No Money Required" at FreeRealEstateInvestingCourse.com or text FreeCourse to 55678 "Click" what interests you most:  Education Properties Income    Coaching Learn more about your ad choices. Visit megaphone.fm/adchoices

Broadcasting from Terrio Studios in Glendale, California, it's time for Epic Real Estate Investing with Matt Terrio. Uh, yeah. What's up,ers? Hello, and welcome to another episode of Epic Real 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 teach people how to escape the rat race by investing in real estate. You see, I changed just one thing.

thing, I changed this one thing just one time, and I escaped the rat race forever. I changed my focus. That's what I changed. I changed my focus from making piles of cash to making streams of cash. And that right there, that focus changed me forever. And it changed my life forever. You see, no longer do I work for money. My money works for me.

And ironically, something else that I discovered is that it doesn't necessarily take money to make money. You've heard that all of your life probably. I certainly have. And it's actually not true. I mean, there is some truth to it. Money will and can make you more money, but it doesn't take money to make money.

It takes problem solving to make money. If you're a good problem solver, you can make money. And if you adopt those two mindsets going after the streams of cash versus the piles of cash and then focus on solving problems, and then you follow them up with relentless correlate action, financial freedom will be yours, and a fraction of the time is taking 95% of the population to do it.

And guess what? Most of them are not even going to make it. Only 5% actually make it there. 1% actually make it to financial freedom wealthy. 4% just barely get by. And 95% of them, you know, by the time they hit age of 65, nope, they're dead or they're dead broke. And when they do make it, they probably don't make it until 10 years later.

And then, gee, your life's behind you at that point. Who wants to be financially free at 75 years old? Not me. I want to be financially free at 45, at 35, at 55. When I'm still vibrant, when I'm still young, when I'm still active, that's when I want to be financially free. Not when I'm 75. Not even 65. Even 55 is not too much of an exciting proposition.

So if I had to do this all over again, if I had to start from scratch, if I were to do it all over again, I'd do it exactly the same way. I wouldn't change a thing. I do it exactly the same way whether I had money and credit to work with or not. You see, while I was finding my way, I stumbled upon these 12 different strategies of investing in real estate with little to no money. And in hindsight, being forced to invest this way, I believe it made me a better investor. And I want to make you a better investor. And what I mean by that is most people, they just never get started investing in real estate because they think they don't have the money to do it.

And those that do have some money to invest, they don't have an idea as to a little. what to do when they run out of it and what to do when they hit their maximum loan amount you know the banks are only going to give you so many real estate loans and that's such a a small very small box that people reside in i mean your money and your credit are just two ways to invest in real estate there's just two ways i've got 12 other ways that don't require money or credit at all i don't i know there's probably even more ways to do it but those are the ones that i know about so don't that's something like the absence of money or or a good credit score getting your way i mean there are there are more ways to invest in real estate without your money or your credit than there are with it.

Just takes a little bit of know-how, followed up by a little bit of sweat and action. And I say all that to say, I want to make you a better investor. So I put the first two strategies of the 12 that I use regularly. I put those two of which I believe are the easiest and the fastest strategies to a paycheck in real estate. I've put them into a free course just for you. And you can access that free course at free, real estate investing course.com. Or if you're listening via your smartphone,

go ahead and text free course to 55678. Free course, all one word, text that to 55678, and that course will be right there on your phone. Okay, doke. So, whew, it started off a little too, a little too strong, a little winded, because I've got a really great show for you today.

I'm very excited about this show. This show was, today's show was inspired by an Epic Pro Academy member who signed up for my virtual coaching. That's just a fancy term that I came up with for getting access to an exclusive email address that goes to my priority inbox. It's the first inbox that I check every day. And my virtual coaching clients, they get my undivided attention there,

and they get my immediate attention. It's where they can get their questions answered by me, typically, first thing in the morning. So this client asked a question that I do get every once in a while. And I actually love this question because the answer opens up a new creative world of real estate investing for most people, something that they never really think about. There's other parts that, you know, they start like a subject to or a lease option. They start thinking about that creative aspect, but they don't think about this. And here's this question. It says, hey, Matt, I've been racking my brain on the whole balloon payment concept

after interest only payments for 10 years or whatever. How does that pan out when the balloon payment comes due? Do you just sell or refinance at that point? Great question. And I'm going to answer that today. And I think the answer is going to get you extremely excited about balloon payments. I mean, that can really be a scary idea for some, very scary, in fact. But I'll tell you why you should be jumping for joy when you get control of a property with a balloon payment. Right. But before I go there real quick, if you happen to be in L.A. on June 4th, you were invited to join me, my team, to talk about cash flow.

Talk about investing long distance. We're going to eat some wings, we're going to drink some beer. We're just going to hang out and talk about whatever you want to talk about. So for details, go to grub and grow rich.com and sign up. Seats are actually filling up fast for this, which excites me. I'm looking forward to meeting all of you that can make it. And coming up on July 31st, the team and I will be in Cleveland for our next cash flow savvy property tour. So if that's something that you might want to look into, you can go to epic realestateor.com for the details.

and you can register there as well. And I love these tours, by the way. I mean, those in attendance, they get to view before property, a mid-rehab property, and a couple finished rent-ready properties. They get to meet the entire team, my whole team. They get to get all of their questions answered by my team and myself. And then there's a whole lot of eating, a whole lot of drinking, a whole lot of having fun. And if you don't know, downtown Cleveland has lots of opportunities for fun these days.

So, again, I love these tours. I love hanging out with you and talking shopping. I love it. And if you've never heard me discuss the Epic Real Estate Tour before, anyone is invited. Each and everyone is invited. But it's really designed for those that want to invest in cash flowing real estate, but just don't have the time and or the desire to do it themselves. So it's the opportunity to leverage my team's expertise that's made available to you via this tour. There's no sales pitch or anything.

It's a very low-key social environment, a lot of fun, and it's just very low-key. and it's basically just an information gathering opportunity to determine whether or not it makes sense to you for you and my team to work together. That's all. Okay, that's it. So check your calendar for July 31st. Go to Epic Real Estate Tour.com. And if it makes sense for you, reserve your seat.

And I'll see you there. Okay. Oh, and if you were wondering what happened to Financial Freedom Fridays, don't sweat it, no worries. Got some emails, what happened? They will resume this week. So plug in your device of choice this Friday. get that new episode. Now, let's get to answering the question of the day coming from an Epic Pro

Academy virtual coaching member. And he wrote, I've been racking my brain on the whole balloon payment concept after interest only payments for 10 years or whatever. How does that pan out when the balloon payment comes due? Do you just sell or refinance at that point? So the quick answer is, yes, sell or refinance. There you go. Episode is done.

No. That is the quick answer, though. But that's so boring, isn't it? I mean, this is the creative real estate investing show, right? And this is supposed to be the exciting part about real estate. So let's come up with something better than a simple sell or refinance. Not that there's anything wrong with that, not that there's anything wrong with those actions,

but you can do a lot more by selling and refinancing to build your wealth than just selling and refinancing. Might be confusing right now, but it's going to open up for you. Okay? So let's put the opportunities of a balloon payment into perspective and how you can actually get wealthy acquiring as many of these as possible. So the balloon payment, a lot of people get hung up on this concept. And it's understandable. And we're going to go into that.

Let's define the balloon payment real quick, though, in case you have no idea what a balloon payment is. And I understand because it's a couple years before, while I was into real estate before I knew. what it was either. So a balloon payment is an oversized payment due at the end of a mortgage or a commercial loan or another amortized loan. Because the entire loan amount is not amortized over the life of the loan, the remaining balance is due as a final repayment to the lender. Basically, at a predetermined time, the loan balloons. There's a large payment due at the end of the term. It pops. Like everything is due, right at that point to satisfy the loan. And when that balloon pops,

it's predetermined before you even get into the loan. Okay, so it's not a surprise. You know it's coming. So that's what it is. Now, why would you put one in place if you're requesting seller financing? Why would you want one of those? Well, most sellers would rather have their money now

as opposed to later. You see, it takes a high level of sophistication, a highly financially educated mind, say a bank. to truly understand the value of long-term amortization of a loan. But see, like with a bank, that's their business. It's their job to deploy money in that fashion. They understand the wealth of it.

They understand the long-term security of it. They understand what it means for a business to deploy money that way. The motivated sellers, however, that you'll most commonly cross-pass with, they don't care about the 30 years. They don't want to wait 30 years like a bank to get paid. So you have to kind of think about a compromise. I mean, if they don't want to wait, but you don't have the money today, seller financing is always a good option. And by putting a balloon payment in place, it's often much more enticing to the seller because they still want their money now.

But, you know, if they can't have it right now, then, you know, maybe 30 years isn't going to be that appealing. But maybe 20 years or 10 years. Okay. So it's just often much more enticing to the seller, which means you're more likely to get a deal done than if you didn't propose. pose the balloon payment. So when you're putting together the terms of the seller financing, you can use this dynamic to your advantage of the faster you pay, the seller, the lower the purchase price becomes. And vice versa, it goes both ways.

So most sellers, though, they just, they don't want to wait. So shortening the loan can be a good negotiating tool for you to bring the price down. So obviously, in all cash offer is going to be the lowest possible price you can get. and if you need terms, then you're going to probably have to start, you're going to have to give and take, and you're going to have to give a little bit for that, for that, for that, for, to get those terms. Now, if you and the seller agreed on a 10-year term, let's say, and you amortized the loan over 10 years, so there would be no balloon payment. The, the full loan will be paid off in 10 years.

That's what that means. If you do that, the payment is just going to be way too high. It's going to be way too big. And it's going to be virtually impossible. no, it's going to be impossible to cash flow. In almost every single case, it's going to be impossible to cash flow with a loan like that. So you've got two basic options. There are others, but these are the two basic options.

You can amortize the loan like a traditional 30-year loan, so the payment stays low. That's why you'd want to do that. You'd amortize it over 30 years. But then you'd say the loan balance is actually due in 10 years. That would be a 10-year balloon payment. So the payments would be the same as if it was 30 years. so you get that low payment for 10 years, but then at the end of the 10 years, then you actually have to pay the balance. Okay?

So structuring it in this way, you'll have paid some to the principal and some to the interest. So not too bad. But in reality, most of it went to interest. That's just how amortization works. The interest is essentially paid first. So if you're going to have a balloon payment in place, you're really not going to chip away too much at the principal, at least the example I've made there. it's going to take you the last 15 years when you're really chipping away at the principal. So in that case, I recommend actually, you know, not paying anything to the principal.

I recommend working an interest-only payment into your financing terms because that payment will be the lowest payment it could be resulting in maximum cash flow for the property. So that's going to maximize your income while you're holding that property. So that part's logical, maximizing the cash flow. But what isn't logical for most people is that at the end of the 10-year term, the entire purchase price is going to be due. So if you purchase a property for, say, $30,000, and it was agreed that you would make interest-only payments for 10 years,

how much do you owe at the end of 10 years? There are interest-only payments, so you've paid nothing off the principal, so you owe the full $30,000, right, at the end of 10 years. You see, that right there, that is what scares people from incorporating a balloon payment into their seller financing terms. I mean, the obvious question and fear is, what if I don't have $30,000 in 10 years?

then what do I do? That's what scares people away from ever offering a balloon payment. And they walk away from deals, really good deals that they could have had if they just presented that option. So let's take a look at a few things here. Let's take a look, I mean, when I'm saying, the few things, like the dynamics within a deal,

a dynamics within the deal if you took the balloon payment option, even if it scared you to death. So let's look at this. Let's put everything in a perspective. What's your cash on cash? ROI on this deal. First thing to look at. Remember, you've got your minimum deal standards. What's your cash and cash ROI? Let's say it's 20%. Let's say you're getting a cash on cash return of 20%, which should be relatively easy

to hit getting seller financing from a distressed seller, from a motivated seller. That should be pretty easy. You know, with the leverage, your ROI goes up. So in five years, let's say it's 20%. In five years, five times 20%, that's 100%, right? So in five years, you will have received all of your original investment back. You've got all of your money back. You have no money in the deal. You have no risk at this point. The second five years is 100% pure profit. Pure profit.

So who cares if you have to sell the property to satisfy the debt at the end of 10 years? You got all of your money back and you received five years of 100% cash flow profit. There's nothing, absolutely nothing on Wall Street that you could invest in that would generate even close to those types of returns with so much certainty. Nothing. So that right there. Oh, well, duh. Okay.

I'm sold, Matt. I'll take the 10-year balloon. I'm sold. It gets so much better, though. But that right there is enough. That right there is enough. Now, if you can't sell the property, though, let's say you can't sell the property.

Just give the property back to the seller. No big deal. Just give it back. No big deal. But that's not going to be your situation. It's not going to be your situation if you're following along here. I'm just saying that now to point out the worst case scenario of you not being able to make that balloon payment, it's not that big of a deal.

Certainly it's nothing to be scared of. And I'm not saying to ignore it. I'm not saying be irresponsible. I'm not saying to disregard it altogether. I'm just saying that there's nothing to be afraid of. Okay? So follow along and you'll see why. Let's get back to the selling of the property to satisfy the balloon payment.

Now, if you do sell the property, it's been 10 years when you do sell it, right? Because you are working, though, with a motivated seller, you better have purchased it at a discount initially. So you bought it with equity in it. You bought it at a discount, and you've almost certainly, based on history, received some sort of appreciation over that 10-year period. So if you do sell, you're almost certain to experience a profit from the sale. Nothing wrong with that either, right? So that's five years of cash flow profit, and you get the equity profit too. You get all of that at the end of 10 years.

What does it be afraid of? Right? That's a good deal. That's even better than the cash on cash return, because now you got some equity. You got a balloon payment at the end, right? Exactly. Now, these are interest-only payments, remember? They're interest-only payments, of which are tax-deductible.

Now, this can offset other individuals. of yours during that 10-year period, of which you get to keep money that you would have otherwise had to hand over to Uncle Sam. More profit. Oh, and keep in mind, it's not you making these interest-only payments. It's your tenant. Your tenant is making these payments, and you get to keep what's left over. So you essentially don't even have a payment to make, do you?

The tenant pays it via their rent. They pay it. and you get the tax credit for it. Sick, right? It's going to get better. It's going to get better. I know you're sold already. I know you're like, okay, cool, Matt, I get it.

No, it's going to get better. Also, you get to depreciate the property for 10 years. Another huge tax deduction. And more of the other income you get to keep that, you would have had to hand over at Uncle Sam also. You see, when holding real estate, you've got control of this property for 10 years. When you're holding that property for 10 years, you can literally make an actual profit, meaning you put money in your pocket each and every year that's profit.

Yet you can show a loss on paper in the form of your tax returns. And you can do that legally, honestly, ethically, morally, and even with the government's blessing. That's tax-free money. And they tell you right there in the tax code that you can do it. and they tell you how to do it. They told you how to do it. So why wouldn't you? Right?

Now, depending on how much equity you have in the property, you could refinance, pull some money out, and buy another property. Maybe a couple more. So that's another option. You can sell. You can refinance. And then you can go and build your portfolio even more that way. But here's the thing.

Here's a 10-year balloon. But you don't have to wait 10 years to do this, right? No, you don't have to wait the 10 years. What if after two years, four years or six years? Maybe one year. Your property experienced some significant appreciation that you would like to get your hands on. Don't freak out about what could go wrong exactly 10 years from now when you put the deal under place and in place. Think of all the things that could go right between now and then.

Think of all the things that go right next year in six months or four years, five years. Ten years is a long time. You know, we only have seven, eight, ten year periods in our life. So that's essentially one seventh, one eighth of our life. If the market, after six years, experienced some significant appreciation and you want to access it, you can do so by either selling or refinancing. That's the simple way. That's the easy way.

But what if we could get a little more creative? What if you were to contact the seller who's holding the note and renegotiate the note just before you did sell or refinance? Could you not create even more equity by doing that? Of course you could. It might go something like this. It might go just like this. Mr. Seller, or Mr. Seller, Mr. Seller, it's been a few years that I've been making these monthly $200 payments to you.

And because it's such a small monthly amount, you know, it's actually a little bit of an annoyance for my bookkeeper. It's just one more thing for us to have to remember to pay each month. And I'm pretty sure that this isn't a life-changing amount for you to receive every month either. I mean, there's probably some things that you like to do in your life right now if you only had a bigger chunk of money to do it with. Maybe, maybe not. I mean, you know your situation better than I do. So I don't know if this is going to make sense for you or not. But I know the balance on the note right now is $30,000.

Now, that's a little more than I have available right now. But I was wondering if you'd be open to just terminating this note, putting it all behind us if I were just to drop a check in the mail to you for $20,000. Would you be open to that? That's plausible, yes? Of course it is. You know, after six years of receiving this measly little payment, You don't think the seller wouldn't mind a lump sum at that point.

You don't think he's tired of receiving that small little $200, whatever it is, each month. He wouldn't mind. You know what? Just give me $20,000. Do you think this emotional, emotional attachment to the whole thing has dissipated a bit for that seller? Maybe it's dissipated a lot. Maybe they don't even care about the thing anymore. They just want the money?

Absolutely. You know, it's worked every time that I've proposed it. Sometimes they counterback, sometimes not. Either way, I get a discount on the payoff. I mean, these are private citizens you're dealing with. They're not banks. There's so much more flexibility available to you with seller financing. Don't think of it like a bank.

You're dealing with people here. You're not dealing with some faceless, emotionless, sterile entity. It's people. And people work well with each other. And they negotiate. and they can solve each other's problems. And sometimes a little negotiation like that would solve a problem for both people.

Okay, so don't think of it like a bank. Okay, it's not some faceless entity. You're dealing with people. Let's say you purchase the property for $30,000, of which represents your $30,000 upcoming balloon payment. And after a few years, you have a buyer ready to pay you $40,000 for it. Okay, so that would be a $10,000 profit to you, right?

But because just before you close the deal with your buyer, you made that phone call to the seller and got $10,000 trimmed off the debt. Now, that's a $20,000 profit for you, isn't it? Indeed. And you could just as easily do the same thing with the refinance situation as well. And everything I've gone over so far, everything I've gone over to this point, I mean, I haven't pulled it out of some obscure or, you know, remote random situation. No, everything I've discussed is possible. I mean, it's very possible. The opportunity is likely to present itself somewhere in that 10-year time frame

and probably multiple times. It's not going to be some sort of brass ring scenario that you only got one shot at it. I mean, there's no big tricks here. It's just normal everyday life happening between people. You just have to think about what you've got when you've got control of a property. When you've got control of a property, you've got options. You've got power.

Don't let a balloon payment distract you from the big picture here. Here's the other thing. Here's the other thing where people miss the point. They're focusing on this one property all by itself. They're looking at this one little property in a vacuum, so to speak. And what I mean by that is, is this the only property you'll ever acquire between now and when the balloon payment is due. Is this the only one?

No, of course not. Let's say, okay, you're going to acquire a lot of properties within 10 years. But let's say that you moved really, really slow. I mean super slow with building your real estate portfolio. And if you purchase just one property in this fashion every other year, you now have five properties of which to execute the above scenarios, right? Now, the creative possibilities here are endless. You've got control of five properties.

You've got options. You've got power. So don't sweat so much what could go wrong. Focus on buying right and focus on keep buying. The more you have to work with, the easier it will be to manage the risk and profitability of your portfolio. You know, this current window that we have right now, and I talk about this a lot.

And I talk about it on this podcast. but I have this conversation frequently face-to-face with people when I meet them and when we start talking about real estate. The opportunity that we have right now, it's not going to stay open forever. Once it closes, it's going to be much easier for you to manage all of this debt on your properties,

to manage all of these balloon payments. It's going to be much easier to manage all of those than it will be to find new discounted properties. You shouldn't be, fearing not being able to pay off your balloon payments. What's more frightening is not being able to find any more deals. To look back and think, wow, I wish I would have bought more. I had no idea what an opportunity I had.

That's what should scare you more. That's what scares me. That's why I promote buying as much as you possibly can. If you go to any of these Real Estate Investor Club Association meetings, any of those meetings, go look for the salty guys, go look for the old crusty guys that have been doing this for a while. Ask them what's their biggest regret.

Eight times out of ten, they're going to say, I wish I would have bought more, I wish I would have held more. I've heard that over and over and over again. And me, you know, having been hitting 44 years old now, I know that I'm not going to be here long enough

to make all of these mistakes on my own, so I know it behooves me to learn from other people's mistakes. Their biggest regret over and over again, I hear, I wish I would have bought more, I wish I would have held more. And we've got this opportunity right now to do just that. So while you're building your wealth, while you're in the building phase, the building phase and the sustaining phase, very different. I'm talking about while you're building your wealth. You want to get control of as much real estate as you possibly can, as quickly as you can.

Now, I'm talking about buy a lot. I'm talking about buying it quickly. but I am not talking about. I'm not saying being reckless. Still exercise good deal analysis. Still buy right. Stick to your minimum deal standards. Don't waver from that.

We've talked about that a lot here. Stick to your minimum deal standards and make your decisions based on the numbers. But put the pedal to the metal right now. Put the pedal to the metal. Stop sitting around thinking that you've got time. Stop thinking that the market's going to wait for you. Stop thinking the market's going to wait for you

to learn everything you need to know before you decide to get going. Travel as far as you can see, and when you get there, you will see further. There is no faster path to your financial freedom than that philosophy right there. Travel as far as you can see, and when you get there, you will see further.

Here. Okay, imagine this. Imagine this right here. Close your eyes if you can. If you're driving, keep them open. Imagine acquiring in the next few years, just few years, three or four years. Imagine acquiring 30 seller finance properties

all with 10-year balloons. And in four or five years, you sell 10 of them to pay off 20. So you sold 10 of your properties to pay off the other 20. That would be 20 free and clear homes, right? That'd be pretty cool, yes? Well, that's a really good scenario. What if it was reversed?

Would it be so bad if you had to sell 20 of those properties to own 10 free and clear homes? Would that be so bad? Would that be more likely? Just imagine your life right now with 10 free and clear homes paying your rent every month with no debt service. Or if you had to sell 29 of those 30 homes, what if you had to sell all 29 to own one free and clear? You know, whatever the ratio would be, you'd be better off then than you are now. And here's the thing.

You didn't buy the home, did you? You didn't buy the home. Regardless of how many you do end up with, you didn't buy any of them. Your tenants did. All you did was manage the asset and manage the debt. And you got the tax credits for the payments your tenants made to boot. Just get control of as much properties you can, then manage the equity and debt of what you control. Hopefully you're starting to see the opportunity here.

Let's get more creative with this debt management. Let's go deeper. Let's get kind of fancy with it, okay? Here, here's a technique that I'm incorporating right now for the first time. And a very wise investor just shared this with me, and I was like, that's brilliant. I can't believe I never thought of this before. Let's say you get a seller-financed offer accepted. Mr. Jones, say, sells you his property for $30,000.

And he's going to take interest-only payments, and it has a 10-year balloon. The same deal we've been talking about this whole episode. but within your loan terms, your own S-Corp or your LLC, whatever it is, your company, it's going to take out a $500 first trust deed on the property. And the seller-financed trust deed of $30,000 is going to be placed in second position. And within that note, you write in that you have the right to move that debt to a property of equal or greater value. You follow me? You put the seller-financed note in second position.

the seller gave you financing, but you put that financing in second position. But it's only in second position behind a small little $500 note that your company holds. Okay, so structuring it this way, this hasn't minimized the seller's security at all, not at all. It's only a $500 note. But what you have done is giving yourself

a huge amount of flexibility in managing your debt. You've given yourself additional options. and here's what I mean. Now you've got that deal with Mr. Jones in place, right? And you go on about your business. You just go on, you're wholesaling properties, you're fixing and flipping properties, you're acquiring more, buying-and-hold properties.

You've got some other seller-financed properties going. You're just going on about your regular real estate investing business. And all the while, you're receiving the positive cash flow from Mr. Jones property. And then, and then one day, maybe, I don't know, two or three years down the road or just one year, or maybe even just six months down the road. You come across a really good deal, a deal of a property valued at $100,000,

and Mrs. Smith, the owner of this property, she extends to you seller financing. But because you were marketing to and only dealing with the people that need to sell, motivated sellers, in this case, it turned out to be Mrs. Smith, you got the deal seller financed for $60,000. Great deal.

So that's $60,000 on this $100,000 property that gives you potentially $40,000 of equity if you were to sell it, right, potentially. So now you have two properties here. You've got Mr. Jones property with a $30,000 note, and you've got Mrs. Smith's property with a $60,000 note. But you'd really like to access that $40,000. That $40,000 of equity is really burning a hole in your pocket.

And maybe you're maxed out on your banks or your bank loans. Maybe you just don't want to deal with a bank. Or maybe you got a bad credit score and you can't get a loan, whatever it may be. but you still want that $40,000 that's burning a hole in your pocket. So the issue here is, though, you'd rather keep Mrs. Smith's house. It's a nicer house. It's a nicer area. You'd rather keep that one.

You don't want to sell that one. You'd rather sell Mr. Jones' house. Because Mr. Jones' house, you know, it's on the other side of the tracks or, you know, it's just not as nice of a house or you've had issues with that particular tenant or whatever it may be. You'd just rather keep Mrs. Smith's house. and you'd rather sell Mr. Jones' house. But Mr. Jones' house has that $30,000 seller finance note on it, right? Bummer.

Kind of stuck. Looks like you have to sell Mrs. Smith's house if you want that $40,000. Looks like you have to keep Mr. Jones's house, right? Wrong. Because the note you put on Mr. Jones' house is in second position, remember? And you have the right to move it to another property of equal or greater value. So you move that $30,000 note you have on Mr. Jones House over to Mrs. Smith's house. And now you own Mr. Jones House free and clear.

Oh, wait, wait, wait. It still has a $500 first on it, right? So you don't own it free and clear. But that first is owned by your company. So you pay off the first, meaning you write yourself a check. And then you sell Mr. Jones House for, say, $40,000. And you put it all in your pocket. You now have the best house, Mrs. Smith's house, and it does have two loans on it now.

It has $60,000 first and a $30,000 second. But you have the right to move that $30,000 note at the next opportunity. So I don't have to stay there forever. So you have the best house, Mrs. Smith's house, with the $40,000 in your pocket. So now, what do you do with the $40,000? Well, whatever you want. It all depends on what your portfolio looks like. I don't recommend you go out and go on a shopping spree or travel the world.

I don't recommend that you do that, not until you've built your wealth to the level that you want. Take that $40,000 that you just created, basically out of thin air, and look at your portfolio. What can you do? Maybe there's another property you have that you can pay off. Or there's two properties you own with low loan balances that you can pay off. Or maybe you negotiate with Mrs. Smith in a few months and pay off that $60,000. loan for $40,000. Or you go simply buy another property.

Or you fix up another property in your portfolio and you sell it to a retail buyer for full market value. You sell it on the retail market on the multiple listing service and you double your $40,000 and now you've got $80,000 in your pocket. See, the possibilities here are endless. And the whole while you're here positively cash flowing while you're managing your assets, while you're managing your assets debts, all of which may have these skills. scary 10-year balloons on them?

Well, what if they're all five-year balloons? Could you not do all the same things? If you decreased your balloons from 10 years to five years, could you not possibly get better pricing? Could you not do all the same things with five-year? Yes, you could. What if there are three-year balloons? Could you do the same thing?

Absolutely. What if there are one-year balloons? Ah, Matt, now you're pushing it. That's scary. No, you could do all of this. You see, when you have control of properties, you have options. The more properties you have, the more options you have. So, use the balloon payment as a tool.

It's your friend. It's not your enemy. Nothing to be scared of. It's a tremendous negotiating tool to get deals done that you might otherwise not. You know, as long as a property comfortably cash flows, I'll take just about any seller finance deal that anyone will give me. I'll manage the debt later. It's easier to do that than it is to find another deal,

especially when this nice window of opportunity we have right now, especially when that closes. So if you're thinking about this one property with this giant balloon payment that will eventually be due, you're missing the big picture. You're taking your eye off the prize. You're selling yourself short, and I'm not going to let you do that.

You may think that you're mitigating your risk by passing on a seller finance deal that contains a balloon payment, even if it's a one-year balloon payment, but you're not mitigating your risk. You're mitigating your options. You're limiting your opportunities. Embrace the balloon payment.

Use it to its full potential. Get control of as many properties as you can. This window of opportunity that's open right now, it will not be open forever. Real estate is not going to be on sale like it is right now forever. When that window closes, know this. And now you've been told.

So you'll have no one to blame but yourself. Know this. It will be much easier to manage the debt on everything that you own and or have control of than it will be to find new discount deals. Look at it this way. The one with the most balloon payments in their portfolio when the window closes, wins. Acquire, acquire, acquire, acquire. Control, control, control.

Manage, manage, manage, manage, and get wealthy, wealthy, wealthy. The balloon payment. It's another tool in your toolbox. to get deals done, to get smoking deals done, to create options and opportunities for yourself. It won't apply in every situation, but don't hesitate for a second using it when it does apply. If that's what it takes to get control of a cash flowing deal,

do it and do it with a smile and do it with comfort, knowing that you've given yourself another option down the road. It's not a risk down the road, it's an option. And at the end of the day, you know what options are? You know what options equate to? Options equate to freedom. Without options, you're stuck. You're the opposite of free.

Without options, you're stuck. With options, you are free. That's it for today. 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. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.