Epic Real Estate Investing - How to Protect Yourself from Overpaying in a Shifting Market | 976

Episode Date: April 2, 2020

“The name of the game right now is control!” Matt Theriault In today’s episode of Creative Acquisition April, Matt shares the key points to protect yourself from overpaying a property in a currently shifting and unpredictable market! Hence, tune in and learn how to get your real estate investing under control during the crisis! Learn more about your ad choices. Visit megaphone.fm/adchoices

All righty, I called it yesterday. It is Creative Acquisition April, and I'm going to show you how to protect yourself from overpaying for property as we shipped into this new market. This is Terrio Media. Success in real estate has nothing to do with shiny objects. It has everything to do with mastering the basics.

The three pillars of real estate investing. Attract, convert, exit. Matt Terrio has been helping real estate investors do just that for more than a decade now. If you want to make money in real estate, keep listening. If you want it faster, visit rei-aise.com. Here's Matt. Hey there, Epic Investor. It's Matt Terrio from Epic Real Estate, where we show people how to invest in real estate with an emphasis on retiring early.

This is the Epic Real Estate Investing Show. If this is your first time here, really glad that you found us. You're going to want to stick around the entire month of April. We've got a very special theme going on. I'll tell you more about that in just a second. And if you like what you hear, make sure that you hit the subscribe button before you go. That's how you stick around. And if this is not your first time here, welcome back.

Really glad that you're back. Thank you for sharing this with your friends and family. Please continue to do so. I'm very grateful for that. But you guys do that all the time without me even asking. But I really, really appreciate it. It's not going unnoticed over here. All righty.

So today, how to protect yourself from all right. overpaying for property in this shifting market. And it is shifting, right? We can all see it, we feel it, how big it's going to shift or how deep it's going to go or how long it's going to last. Nobody knows. But what I do know is things are shifting. The opportunities are showing up here each and every day just out of the blue.

I mean, there's just coming across the desk. Hey, can you find me a buyer? Well, I'll take that. And so that's happened a couple times already, even since yesterday. So the opportunities are changing. I think they're only going to become more abundant, particularly when our social distancing measures are lifted. And I think there's going to be huge opportunity on the other end of this as there's

huge opportunity right now. I wish it was for a different reason. I'm not celebrating what we're going through. I would love this to be over as much as. anybody. Yeah, I told you yesterday. I went to the park with my son just to play catch, and that wasn't even allowed. That's apparently a danger. So we had to come home. Anyway, it's going to pass. And here's kind of what I'm predicting, and this is my guess. I don't have any inside information. I don't study charts and study the economy and all that

stuff. I just don't. I probably should. I should have a bigger view of, like, the macroeconomics at play. But I'm just so good at the little houses, and we do so well with those. That's kind of where I'm focused. And that's, anyway, here's my prediction. The economy. It was booming just a few weeks ago, right? And it came to a sudden halt. And what's been really eye-opening is to see how just a couple weeks of no work can really just rip open the fabric of America, like the economy.

Like everyone is just, everybody, we're really starting to see how much people are living paycheck to paycheck. and a lot of those people living paycheck to paycheck own property. And they're going to be looking to and turning to real estate investors because a traditional sale through real estate agent is just not going to be viable options for them. So the motivation is going to be much higher. There's a strong sense of urgency. People need to pay their bills. And even if it's at the sacrifice of, you know, selling a property fast,

selling a property for a discount. that's coming. But my point being is, I think we're going to bounce back relatively quickly. I do. I mean, and the relative, I guess, is the strong word. Again, we don't know how long this is going to last, but, you know, let's say, for example,

it did end on April 30th, and, you know, all of a sudden we can start letting portions of the country and sectors of the population go back to work and maybe another month after that, we start to see some sort of resemblance of normalcy when that happens, I think whenever it does end to the time we do get back to normal, that little space right there, the social distancing measures end and we get back to normal. That I think is going to be a really good window of opportunity for a lot of people.

If you know how to play this game, and that's what we're spending this entire month on, is the creative acquisitions because I don't think we're going to need a lot of cash to go and make all this happen. This is where the real, no money down real estate, comes from in this type of market. We've just been in such a strong seller market for so long that people kind of lost their, I guess their awareness for what they have available to them as a real estate investor that most people just don't know about. All right. So that's what I'm to talk about. And the big risk right now is overpaying. Like what you pay for a property today, you know, the news is changing so quickly. Something could happen tomorrow that impacts the

the value of the property you just bought today. So that's where probably the big risk is right now, just overpaying. As long as you buy it the right low price, there will always be a high price to exit at. But finding that low price that's right for the market and right for your exit strategy, that's key. That's going to be the trick. That's where the experience comes into play. That's where the knowledge comes into play.

And that's why I'm glad you're here. So let's go over that. Number one, when something sold is as a, important right now than what it actually sold for. Okay. When something sold is as important, if not a little bit more right now than what it actually sold for. So when we're determining value, we look at houses that have sold that are similar

to the one that we're looking at, right? That's how it's comparables. We go and we compare the price, the sales price of other properties that are comparable in location, size, and condition to the one that we are analyzing. That's how we find it. And then we just kind of take an average. So we can go back in a normal market. We go back 60, 90 days.

It can typically give you a decent estimation of what a property is worth. But right now, with the market changing so quickly, and particularly having it changed so quickly just three or four weeks ago, the when that property sold, that comparable property sold, is just as important than what it actually sold for. So I would say you don't want to look at anything more than 30 days old. I mean, you can use reference points at 60 days, 90 days of what something might sold for.

But that was an entirely different world that we were in, entirely different. And what most people don't realize is when you see a sold today, that's actually a snapshot of what the property's value was. when the escrow period started, when they went into contract. So if a house sells today, that's really a snapshot of the market and its value 30 to 45 days ago. So the win is so, so important. So if you're looking at properties that have sold 90 days ago in your comparables, that's really probably 120-day-ago value. Okay, so now you're getting way out there, totally different market then.

Now we want to see this stuff. I would say just focus on anything in the last 30 days and give weight to the most recent sales. So if you found three properties that sold in the last 30 days that are comparable to yours, you got the earliest one, that's a value. And then you got the next one, say it was a week later, you want to maybe count that as two houses. And then you got one that sold yesterday. you might want to count that as three houses. And then average on those five.

That could be how you weight this. All right. So give weight to the most recent sales. Nothing more than 30 days old. So that's number one. When something sold right now is as important, then what it actually sold for. A second thing to protect yourself is what's not selling is as important right now

as what did sell. What's not selling is as important as what did sell. And so this is really important because we know if we have comparable properties that are on the market that are not selling, the market isn't validating that value for that property. We know that property is not worth that. Make sense? So you're taking your comparables of what's sold. So we take those averages, right? Take three to five properties, try to get them all in the last 30 days, give weight to the most recent ones, and take your average.

and then take that price and then go look at the market of what's not selling. And if your price that you came up with on your sold is higher than the properties that are on the market, then you know you have to come even lower

with what your comparable is. Make sense? So you want to kind of look at what, I mean, you definitely want to look at what the market is validating as far as value. But if there's a bunch of stuff on the market that's not selling,

you do not want to be, if you're going to try flip this property, you don't want to be in the middle of that cluster. You want your resale price to be at the lowest end of that cluster. Okay. So what's not selling is as important as what did sell. That's number two. Number three, how to protect yourself is to start buying with terms. Terms, you've heard me say it here. As an epic investor, you purchase property in one or two ways. Your price, the seller's terms, the seller's price, or your terms. And we've been an environment where we're one-trick ponies.

You know, that's all you had to do. You just had to come in with the price and you had to, and the seller always wanted cash. That was their terms. And so you just had to control the price. And so that's where our negotiations come in and that's where the discounts come. But if you're going to be doing that, there might be a shortage or not, I wouldn't say a shortage. That was a wrong word to say.

I'm not going to say a shortage because I don't believe this at all. there's just not going to be the same players in the market that were buying your properties before are probably going to shift. The money's coming out, right? So the money you might be familiar with is going away. New money, sources of money are coming out. All right. So there's still no shortage of money in the market in the system for a good deal.

So don't, the news is already talking about escrow's canceling and loans being pulled. And yes, Wells Fargo might be, right? But there's other money out there. We're not talking about Wells Fargo or Bank of America money or Chase or anything like that. Okay. So don't let that dissuade you. But the key is you have to determine the right property value. Okay.

So that with a shift in the players that are coming into the market, being able to flip those properties to all cash buyers, there might be a little lull there. Who knows? I don't know because I don't do a lot of flipping. Everything I've just purchased recently has been with terms. And I'll explain to you why I'm using terms. Because I want a lot of cash. I want to control a lot of stuff.

And so I don't want to pay full price. I don't want to exhaust all of my financial and money resources and my connections. I want to use small amounts of money and get control of as much as I possibly can. Because remember, what we do here is we focus on real estate investing with the big emphasis on how to retire sooner. This could be it. You could create your cash. flow and your retirement right here in the next 90, 120 days if you play your cards right.

But you got to buy it with terms. That's how it works. All right. So let's go through this. Everyone knows cash fast is the terms at low ball. Price is the price. Let's talk about the rest of your toolbox, which is so robust. You have no idea how much is actually in your toolbox.

So here's the thing. You want to leverage your ability to use the terms to create the deals for yourself. Okay. So it's not necessarily finding good deals. you can create good deals and you put those together and you're going to have more deals available to you than you can probably handle. And if you get to that point, call me. All right. But here's the thing. Motivation is going to be high. We've kind of established that earlier, right? People are just a couple paychecks away from totally losing it. And we go a couple months out that's going to be a much

bigger pool of distressed property owners that are going to need our help. So motivation is high. The market is going to be more receptive right now to terms than you've experienced in the last several years. A lot of people might not have tested terms or tried terms because they just keep getting to know, right? Or they didn't know how. They didn't know how to present. That's another way because they didn't have to. But you're just not going to know unless you start asking. And a really good testing question when you're discussing price with a seller, nothing will change from how you're currently doing it.

but at some point just insert a casual nonchalant question once it's kind of narrowing in our price. It's okay, well, you know, the market might allow that. You know, it's kind of finicky and there's a lot of uncertainty. We'll see if the market will allow that. But let me just ask you this. How much of that do you need right now? That's the introduction question. Make the market the bad guy.

It might give us this. I'm not sure. Let's see if we can make it happen. But let me ask you this. How much do you need right now? Because people need fast money right now. That's why they're selling their house. They need it fast.

And if you can't give it all to them fast, and right now, I don't think you want to because you want to be able to seize as many of these opportunities as you can. Ask them how much they need right now. All right. So three things that are going to increase your ability to get your terms, offers accepted. Okay, number one, do not veer from your normal interview process.

you are a problem solver. You are here as an investor. You're to buy properties, but you can't solve all the problems and you can't buy all the properties. So that's why you're interviewing them. That's your stance, that your position, that's your posture. You are interviewing that seller to see if this is going to be a good fit for you.

You can't solve the world's problems. I know we all want to. We want to take advantage of every single opportunity that comes our way. but it's better to miss out on a good one than it is to buy a bad one. And there's a new dynamic in the market that just increase the odds of you potentially buying a bad one. That's getting the value wrong, right? So I don't want you to get that wrong.

I don't want you to overpay. So don't veer from that. It is an interview process. And be the good guy with the solution to their problem. You're the good guy to their solution. That hasn't changed. you align yourself with a seller. They got the problem.

You got the solution. We're going to go take on the market to see if we can create a win-win scenario for us. But, you know, I'm not sure if I can help because, you know, the market is going to have more to say about that than I do. But let's give it a shot. You're the good guy, all right? Number two, make the market the bad guy. Don't veer from that either. Nothing is changing at this point.

It's still an interview process. You're still aligning with the seller. You're still teaming up with the seller. You're still going to be the good guy. Two, you're still making the market the bad guy. The market determines the value. Mr. Seller, you don't determine value. I don't determine value.

The market tells us what the value is. Don't veer from that. The market is really finicky right now. It's not being nice to us. And, you know, it's just kind of the state that we're in, but we can only do what the market is going to allow us to do. The market is the bad guy, all right? Don't veer from that.

Then number three, you got to start asking for the terms. How much do you need right now? but go through your normal process. Don't walk away from this podcast and just start asking every seller, how much do you need right now? How much do you need right now? Okay?

You still got to build the rapport. You still got to build the trust. You've got to demonstrate that you are competent and that you know what you're doing and then there are good hands and you're genuinely interested in them and you're genuinely interested in and solving their problem.

That can't change. So don't lead with how much do you need right now. Hey, I just got this trick question, this great question from Matt. It's going to work like magic. I'm going to go ask and you ask five people and they'll say, buzz off. Oh, Matt, that doesn't work.

Now, it's part of the process, but it still comes way down the river in the process. Then you got to make the market the bad guy, and then three you've got to ask eventually. All right, once you're narrowing in at the price, you're getting close to the price. Okay, so the market might allow us to get that. There's a lot of uncertainty right now.

It's not being nice to us. If I could get that, how much do you need right now? All right? So that's the terms. Now, I gave you some examples of terms that you can use to protect yourself yesterday, right? I used the example of just extending the escrow period alone can really protect you from overpaying. Extending the escrow period in your contract, going out 45, 60 days. And if the seller says, well, that's too far out.

I said, well, Mr. Seller, I'm telling, you know, there's a lot of uncertainty in the market. I'd love to get you your price. But, you know, who knows what's going to happen tomorrow. so I just want to make sure that the value holds up. Okay? So you're blaming it on the market. Well, I need my money sooner. Okay, well, if I'm going to have to take on this risk,

then I'm going to ask with the market right now, then I'm going to ask you to share in that with me. How much of that would you be willing to share? Okay, so now the price comes down if the escrow period gets reduced. Another term that you can use is extending the inspection contingency. And extend that period. traditionally we get 14 to 17 days whether those are calendar days or working days that's all part of the terms you can negotiate all of those but there's no reason why you can't extend the

contingency terms also to protect yourself that's another term okay there's lots of terms lots of terms another term that you might want to put in is if you get a seller to start entertaining the idea of taking some money now and some money later is using what we call moratoriums on payments. Okay, Mr. Sell, I see you need 20 grand right now to get to your next stop. What if I could give you that and I'll make payments on the rest, but let's put a moratorium on the first payment until, and you can say for three months, for six months, or contingent on the U.S. lifting the social distancing guidelines. That's part, that gets a term. You can write that into a contract. Okay. So a moratorium on the,

the payments can really help you. It can help you get control of a really good deal right now and then not having to pay for the rest for a determined set time in the future. Okay. So that's one way. Another term that you could start using or start considering is profit share. Profit share with the seller. Payments to principles and a transaction that depend on the profitability of the transaction. Okay. So I'll give you an example of that, but it's like I can give you a little bit of money now. know you want more, but I'll give you this now to help you out now. And then when I resell the property or refinance, if I do it above this price of what we kind of think the market value might be, then I can split that profit with you. And then what you split it for is even a term and you can

negotiate that. I give it, we'll do it 60, 40, 70, 30, 80, 20. So I can put a little bit of extra money in your pocket. And if the market balances back, then there'll be a little bit of an upside for you there too. Okay, profit share on the back end. Another one. Deferral. a postponement of an action or event like deferred interest or deferred profit or deferred down payment. So a deferral, I can give you a 20 grand down, Mr. Seller. I'll give you 10 at closing and I'll give you another 10 in six months. We'll defer the second half of the down payment. That can protect you from overpaying.

It can get you in a position where you're controlling property with a great deal and reduce your financial risk and reduce your cash out of pocket to get control of all these deals that are going to come. All right? But unless you use them, then you're not going to be able to use them. If that makes sense. But the big question, the leading question is, how much do you need right now? After you've built your trust and rapport, please do not lead with that question. Okay.

So I got a couple examples of deal structures. We could do $30,000 down. $60,000 for this $100,000 house. We're going to offer them $60 grand for this $100,000 house. We'll just assume that there's no mortgage on it. There's no repairs on it just to give you an example of what these look like. So for $60,000, I can give you $30,000 down right now, do it closing. Because that would be a big discount.

That'd be $40,000 of market value. We'll do a 30-day escrow, 21-day inspection contingency. The seller is going to carry back the financing of $30,000, the second half, at 6%, amortized over 30 years. We'll do a balloon payment in two years. Okay. And then we can do a profit share of 80% to the buyer, 20% to the seller when the property is resold or refinanced at $80,000 or greater. Okay? So that's one way to do it.

We've got our down payment. We've got a huge discount with the price. We got 60% of market value. And this is after you've determined market value in the way that I showed you, right? When the property sold is as importantness of what it did sell for. and what's not selling is just important. So that's the market value. So that's where you're starting.

That's where the assumption is. Fair market value of this house would be $100,000 after we did all that work. So $60,000 of 60% of that, this is like, that's a good deal, right? Now if you've got the terms, you don't have to come out with all $60,000 out of your pocket, you can do $30,000 down. And you go ahead and you calculate this, and whatever that ROI is, which would be handsome because this property that I have in this example, rents for $1,100 bucks.

you know, that would be a really high ROI. And in this time that even if you had to borrow that 30 grand down, you would be able to pay a really good interest rate on that. It would be secured by real estate. Okay, so you just want to get control of these deals. We got a balloon payment due in two years. That might have thrown up your antenna, right? Like, well, what are you doing two years?

Right. So the whole thing is getting control of these deals. This is the deal, and then there's always the deal after the deal. Once you're in contract, you can go back and start negotiating early payoffs, discounted early payoffs. And this is going to work better than it's worked in the last several years because most people that are coming through this distress and are willing to entertain this offer and sell this property at a discount.

They're not on a winning streak right now. And if it doesn't turn around for them, they're going to be looking for some more fast cash and you're going to be in a position to give it to them in exchange for some more equity on the deal. So there's always the deal after the deal, right? So that's number one. Number two, say we gave them a little bit more. I'll give you five grand more. So we'll do 65,000 bucks. I'll still give you 30 grand down, but I'm only going to give you 20,000 do it closing. We're going to do a 30-day escrow period, 30-day inspection contingency. So the contingencies are going to stay intact, the entire escrow period. And there's $10,000, $10,000, do

deferred in six months. So I'll give you 20 grand of that down payment at closing, 10 grand at six months. And then after six months, the seller will carry back the 30 grand, the remaining balance at an amortized, 5% amortized over 30 years with a balloon payment due in five years. Okay. I'm off five grand on that one. So it carried back 35,000 at 5% amortized over 30 years. So the whole point being is, I can still give you the same down payment if you want some more money, but I'm only going to give you this much, do it closing, and then six months I'll give you a little bit more. And then we'll start the carryback.

We'll do that at 5% amortized over 30 years with a balloon payment due in five years. So you gave them a little bit more in price, but the terms got extended longer. See how that works? So if they wanted more, say, nope, I need $80,000 for this house. Well, Mr. Seller, okay, let's see what we can do.

This is a, if you want a higher price, then you might have to wait a little. bit longer. We have to get a little more creative worth of terms, but, you know, the market still might allow me to do that. So I'll give you a 20 grand down, do it closing, then $30,000, divided into 48 equal monthly payments, then $30,000 at 6% interest with payments commencing on year five amortized over 15 years. Okay, so that was a big mouthful. And you know what I'm to do? I've got these examples in front of me. I'm going to go ahead and put these, I'll load them up to the cloud, to the internet somewhere.

and I'll give you a domain name tomorrow because I've got 21 of these creative financing terms for your real estate investing toolbox that you can have. And then I got 10 creative deal structures of just an example of how the price and terms work hand in hand. You know, as the price goes up, the terms get longer. And it's going to protect you from overpaying for property if you have this. And the name of the game right now is control. Get control of as much real estate as you can.

And then you can sort the financing out later. I know that sounds risky. That sounds, whoa, that's a little bit wild, wild west for me. No, it's much easier to organize and arrange and manage the financing on a bunch of properties than it is to find these types of deals in when the market shifts back. Okay? You're going to have a lot of leverage. You're going to have control of a lot of stuff.

And if you do it this way, the higher the price goes, the longer you extend the terms, you're going to be safe, right? You've got all of these protections in place. You've got deferments. You got moratoriums, right? You got profit sharing. You got extended escrow periods. You got extended inspection contingencies.

You're protecting yourself all the way through this. And if you have a control of a bunch of these properties, mind you, they are deals, right? They are below market value because we've now used our new criteria for determining value. So we've got, we're accurate there as accurate as we can be. And then we're protecting ourselves with all these. different terms in place. Okay? And so we want to get control.

That's the initial deal. And I'm telling you, stick with me here. And we'll start discussing the deal after the deal. But control is the name of the game. All righty. So I'll upload these for you tonight, both of these sheets for you. I just notice I had one little error here. So I go fix that before people start freaking out.

Hey, this doesn't add up. All right. Hey, I've heard it all before. I know you guys on the internet. You internet types. But I'll upload these for you tonight. check back tomorrow. I'll give you a domain name where you can go to grab a copy of these terms and the examples

of these deal structures. Yeah, just check back with me tomorrow and I'll have that for you, all right? So if you found this episode valuable, you're going to want to stick around. And if you found this episode valuable, there's a good chance you know someone else who might find it valuable as well. And so if it makes sense, go ahead and share it with them and ask them to click the subscribe button when they get here. I'd really be grateful for that.

And I'll take great care of them. All righty. So that's it for today. God loves you and so do I. Peace, blessings and success to you. At Terrio, Living the Dream. Yeah, yeah, we got the cash flow. Huh.

Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow. You didn't know home for, we got the cash flow. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.