Epic Real Estate Investing - The Deal After the Deal | 984

Episode Date: April 10, 2020

In today’s episode, Matt explains why the REAL DEAL is actually after the deal and how you can use this strategy to make REAL MONEY from your real estate investing! Tune in and find out more! Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, it's the 10th. One third of our way through this month. It's Creative Acquisition April. And I've got the real deal for you today. Actually, no, it's the real deal after the deal. That's where the money is really made. 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, they're Epic Investor. It's Matt Terrio from Epic Real Estate,

where we show people here how to invest in real estate with an emphasis on retiring early. And if you play your cards right, early might be right around the corner. It's the epic real estate investing show. And if this is your first time here, really glad you found us. Make yourself at home. Pull out a chair. Have a seat. And take a listen. If you like what you hear, make sure you hit the subscribe button before you go. If this is not your first time here, welcome back. Good to see you again. And thank you. Thank you for sharing this with your friends and family. And it's creative acquisition. April. What does that mean? Well, the entire month, I'm filling in your creative financing toolbox for this shifting market because there's going to be a lot more tools available to you,

as if they're available to you right now, and moving forward that you might have not ever knew you had access to. So I'm giving them to you. So you got them because you're going to get greater deal volume using them. You're going to be able to create more cash flow. You're going to mitigate your risk. There's going to be less money needed. So there you got less money at risk. So we got a huge protection from overpaying because that can be a real big risk in a downward shifting market.

You got this inflation hedge because the quantitative easing is at work and they're injecting money into the economy. That's deflating the or depreciating the value of your dollar, reducing the buying power of your dollars. What I'm trying to say. I just use all those. words interchangeably, and I forget which one is which. Is it deflation, depreciation, just your dollar is going to be weaker.

And these types of strategies with real estate is going to preserve the power of your dollar. And you're just going to have options. And we're going to talk about options today, what you can do and how the freedom is created when you've got these options. Because the more property you control, after all of this is said and done, the more options you're going to have to establish and bolster your financial position. And if you do it all right, you do it correctly. You'll never have to work again.

because options equals freedom. Control creates options, options creates the freedom. And these are all the benefits right now of incorporating creative acquisition and financing terms into your offers. And if that's important to you, freedom, you're going to want to go grab the two cheat sheets that I created just for you. The 21 creative financing terms and templates every investor needs for a shifting market. You get free, quick, downloadable copies at Epic Breakthrough. Epicbreakthrough.com. Moving on.

Yeah. Boy, quarantine. Not all what it's cracked up to be. It's funny. Mercedes and I had this conversation, I don't know, maybe once a month. Just kind of wishing and hoping. Gosh, I wish the world could just stop for a couple days so I could go and catch up with everything. I could just clear out my inbox.

I mean, that could take two days. But I need the world to stop for me to put that on any sort of priority list. But when I log into my inbox, I'm like, looking at it. I got 3,500 unread emails. So if yours is in there, I'm getting to it eventually. But the world has stopped. It seems like we're busier than ever. But, you know, I told you about the seller finance deal that I got this week.

That was Wednesday's episode. I went through the actual details, the whole conversation of a real deal. And it's a really good deal. Even though I am paying essentially market value right now at a time where, you know, Once this crisis shakes out, once it plays out, it's probably going to be worth a lot less. I'm probably going to take a hit for that. And I'm okay with that. I'm okay with that for two reasons, because I am an educated, trained investor.

The creative acquisition strategies and these tactics, they protect you. If you know what you're doing, if you know how to use them. Because first, I have an escalating interest rate. So if I happen to overpay, I can make up some good. ground in the principal paydown in the first couple years. But even that might not be that important or might not want to do that after you hear what you hear today. And even if I do, though, it's not going to be a lot. And it does depend on how far values might drop. But it'll be some, and that helps. All right. Second thing, and this is the big reason why I'm okay with overpaying.

And you've heard me talk about this here and there. And that's the deal after the deal because that's where the real money is made. And I haven't really gone into detail as to how that works. And that's what I'm going to do today. Because the initial deal is essentially a starting point. And it's really the part that solves the seller's problem. You know, the actual deal is what solves the seller's problem. And you do your best to create a win-win scenario so you can get control.

Remember that's the name of the game. You've got to get control. But it's okay if you don't get everything that you want out of that. because of the deal after the deal. And, you know, I've always talked about the deal after the deal, and I've always known about the deal after the deal, because, you know, I've always said that I'll put, every time I get a seller of finance offer accepted,

I'll just put on my little calendar, a little reminder every six months where I will follow up with the seller and offer them a discounted payoff of whatever the balance is. and we get a lot of those accepted within a five-year period. I'd say 65 to 75% or so. I'd say about, I haven't kept real track, but I'd say 60 to 70% is really, really accurate. At least it's on the conservative side. It might be a little more than that, but I'll just say that.

So we get those early payoffs at huge discounts. I mean, the seller's totally detached from the property emotionally. They're tired of receiving their little payments. And quite honestly, life just happens to people. It happens to everybody, every day. And people need money. And so that's what we kind of, we kind of play that in our favor.

Life happens and that works out for us. And that's, so that's the deal after the deal. But my good friend, Eddie Speed, has become a little bit of a mentor to me. He's a good friend, for sure. Really like the dude. Fun to hang out with.

Good beer-drinking buddy. If you know who he is, then you know what I'm talking about. Good old boy from Texas. and that guy, he knows his stuff when it comes to numbers. And we sat down, we were in a few years ago. We were in, I think Tampa. We were at a mastermind event.

And he kind of just explained to me, he says, Matt, I like what you're doing. But you know, you're, not you're going to try and copy his text as an accent. But he says, you're leaving a lot of money on the table. Let me show you what I mean. And what I'm about to share with you right now, just, I had no idea. And so the deal after the deal just took on a whole new meaning after that conversation with Eddie

on that little bar napkin that we wrote this plan out on, or at least he explained it to me on. But let me explain to you why I'm so confident in this strategy. Even if the market gets hit really hard, that's okay. You see, when you borrow money from a conventional bank to buy a property, they present the terms of the loan to you. you and you got two options. You either take it or you leave it. That's what you call uncreative financing or conventional financing. But when you negotiate with an individual, like the owner, the private owner of a property,

the terms of the loan are much more flexible. And we've been talking a lot about that. And you're probably starting to get a really good idea as to how they are flexible because you can negotiate everything. That's what makes it creative financing. We take our ideas and place them. in place of money. That's the creative part.

And it's a lot more fun. And a lot more beneficial to you as well than having to have the bank dictate the terms, to take it or leave it terms. So, you know, just every loan as you're starting to gather has so many different things, umpteen things, if that's a word, to negotiate. And you can be sure that a conventional bank,

they stack every single one of them in their favor when you go to the bank. You're on the wrong side of that agreement there. But it's how everyone does it. They just accept it. But when you're buying a property with creative financing, you'll be dealing with an individual instead of a department with a division within a corporation, within a conglomerate.

You know, a traditional mortgage company will never agree to the same things a private party will agree to. And by dealing with an individual, individual, you can negotiate dozens of things in your favor, or at least as many as possible, but you have to know what you're negotiating for in which terms are most important to you, because the terms that are important to me might not be the same ones that are important to you. And Eddie, with his deep mind in 40 plus years of experience, what's important to him is different than what's even most important to me.

So you have to know what you're negotiating for and what's most important to you. It's why I really want you to be clear, particularly in the beginning, is be clear what your minimum deal standards are. You've heard me say that before. You know, what's the minimum cash you're willing to take if you flip a property?

And what's the minimum cash flow you're willing to take if you hold a property, right? So those are really important. And so based on your own personal, numbers, you'll know which levers to pull so you get what you want. So you get your minimum cash or you get your minimum cash flow. And when you're negotiating, it's not critical, though, that you get every single thing the way you want it if you're thinking about the deal after the deal. Because that's the deal on paper at closing. And it's really, though, the deal after the deal

is where the real good thing is. You know, you've heard me say that a bunch right now. So let me just give you an example. Let's say, if you're a golf, offer. You know how you might aim your drive toward the trees, right? Instead of toward the fairway because you check the wind and you know the wind is going to correct the shot as it flies and the ball will ultimately land where you want it to, even though it didn't start out going in that direction. Okay. Now, I'm not saying that you're not going to stick with the terms of the original agreement. What I'm saying is that by sticking strictly to those terms, you're going to benefit later through a number of additional terms that'll be in your documents.

Because there's three real sales going on here. We've just talked about price and terms, price and terms, price and terms, right? But there's actually a third element to this that really increases the profit for yourself. See, there's the terms of the sale, there's the terms of the loan, and then there's the terms of the documents. And it's within the documents, the details within those documents where the money is really made. For example, if you got something in your note called substitution of collateral, that's why I want you to control a lot of property because the substitution of collateral clause that's in your note documents, it's where you may substitute any property where you have a total amount of equity equal to or greater than the amount of equity that exists in the subject property.

So basically, I can take the note on one property and move it to another as long as there's enough equity over there to hold it. And if I take that note and move it from one property to another property to where that equity is, what that does is it leaves me with a free and clear property. Ding, ding, ding, you get it? So without paying anything off, I can have a free and clear property. And the more you control, the more options you have in doing that, the more likelihood you can make that happen. And now with that one that's free and clear, I can go sell it and cash in.

If that was $100,000, $200,000 property, boom, I just put $200,000 on my pocket. Or I have a free and clear property and I just went and refinanced it all, which I like even better, refinanced it all. And you put $100,000, $200,000 in your pocket that you just refinanced out tax free. Because now you didn't sell it, right? So it's not income. It's a loan. So that's just one example. and that's something that could be in your, or should be. It's in every one of mine, substitution of collateral. And it allows you to move that around. So you've got that.

And then another one, like I said, control is the name of the game. And it's why I'm not afraid of balloon payments. Everyone says, well, what are you going to do about the balloon payments? Well, it's because of something like substitution of collateral. I'm not concerned. If there was a balloon payment on that, it was move us somewhere else. And then I could take that money, refinance it out, and then pay off the loan payment. So now substitution or excuse me a subordination clause is another clause, right,

inside your documents where you do a refinance and insert a loan ahead of the sellers. So you can take private money against a property and put them in the first place. It's really tough to do a refinance if you have another loan already in existence. I mean, banks certainly won't do a refinance on a property if they're going to be in second position. Right? Or you can't have a private lender, any smart private lender wouldn't come on and give you a bunch of money if they're going to be in second position. So as long as it doesn't impact their equity position, you can go ahead and take the seller

and put them in second position and put your new money in first position. It's kind of one reason why the amortization can play into your favor. So if you start buying that down, buying it down, buying it down, and you got a bunch of equity there, and now you can go ahead and put a private lender in front of that seller finance. and put some money in your pocket that way. Right? Options. Right?

You're not going to do this with every single deal, but you just have options. That's why I said it's much easier. If you got control of a bunch of stuff, it's much easier to manage all the financing if you got a bunch of them to do it with. And you got these clauses in your documents. And then you got an assumption clause

where you can just flat out sell the property to someone else, let them assume it and give you some money for it. It's kind of like an assignment, right? While keeping the sellers financing in place. Like you're kind of doing subject to. but per the contract, there's no breach and there's no due on sale clause. And there are other clauses like making it wrappable or adding provisions for extending the note. And my favorite one, though, and this is the one that was really where the light bulbs and fireworks went off with Eddie when we were sitting at that table,

was where you have the first right of refusal clause, should the seller receive an offer to buy the note. First right of refusal. This one must be in your docs if you're doing seller financing with your deals. It must be. And I ask for all of that other stuff, all that other cool stuff I just shared with you. I ask for all of that. And it's great when I get them all. It's not uncommon to get them all.

But you'll get pushback. I mean, you'll get pushback here and there. And you'll have to admit one or two. That's why I like to ask for more than I need so I can make concessions and give the seller stuff. And so you will have to admit one or two every once from a while. but this one, the right of first refusal or first write of refusal, should the seller receive an offer to buy the note? That one right there, that one's non-negotiable.

No. Unless maybe the front-in terms are just super strong in your favor. It doesn't matter. You got such a huge discount up front. But that one, that one is a non-negotiable. Because, I mean, you've heard me say, and I put, I mean, like I said up front, you've heard me say I put an alarm in my calendar to call a cell every six months to make a kind of offer on the balance.

And we get those accepted about 70% of the timeish, within a five-year period. But here's the deal. Understand that as an epic real estate investor, time is on your side. Because a smart investor, and this is where Eddie kind of let me in on the little secret that I'm not smart, well, at least it was a secret to me. A smart investor, like Eddie, plays the long game. So for a loan with payoff terms that are 12 years or longer, here's what he let me in on.

And I had no idea about this. You can bet that the chances of that loan becoming available for purchase at a discount before it's paid off are close to 100%. Here's what I mean by that. You know, just as you are out there marketing for property to buy, there's a whole other industry out there marketing for notes to buy. I mean, you go over to an epic property finder and pull out your data and pull out your lists and you got your vacant houses owned by your absentee owners that live out of state

and their own free and clear and they've got liens on them and there's a bankruptcy and a divorce in their history and those are who you target, right? That's what we do as investors. That's what we do is property buyers. Well, there's a whole other sector of people like us. There's probably a podcast on it of people talking this talk right now talking about us. Well, we're talking about them because they're out there pulling those same types of lists trying to buy those seller finance notes that you have with the seller.

So it's a guarantee with a note longer than 12 years that they will get an offer, if not multiple. and most untrained investors, as Eddie gave, was explained to me, focus on negotiating the price and the interest rate, which are the price and the terms. And so that let me in on that Eddie thinks I'm an untrained investor. But I was like, I did pretty darn well by negotiating the price and the terms, right? Because we think that those are what determine how much money that they're going to have to pay to settle the debt. and I've been really changing my tune about this over the years,

and I'm totally bought in now. But if we start here, then it becomes a little confusing up front. Because I don't want you to get so confused or so focused on what I'm talking about right now that you don't get the part up front. All right? I'm trying to break you into this nice and slowly

in one little bite at a time, so we'll paint the big picture, right? Because this is really an elephant. It's a giant elephant. And how do you eat an elephant? Yeah, one small bite at a time. But they think the huge mistake of not asking for the right of first refusal for when the note comes up for sale down the road.

That's the big mistake that I made for probably the first six or seven years of myself doing this. And what happens when you make that big mistake of not asking for that right of first refusal is you miss the opportunity to buy back your own debt. at a big discount. You miss out on the deal after the deal, the real deal after the deal. Because, you know, as I was mentioning, life happens. So there's an almost guaranteed certainty

that the seller will want to get their cash early. Almost guaranteed certainty. They're going to want to get their cash early before the long payoff date so that they can start a business. They can pay for college for their children. They can settle a financial problem. They can buy a new property.

I don't know. They can take a cash. they can cover health expenses, they can retire early, or they can get divorced or whatever. You see, life is full of twists and turns. So let those twists and turns work in your favor. Getting the right of first refusal, it should never be an afterthought. It's your first thought, because I'm always thinking about the deal after the deal. I was always thinking about that, but now I'm really thinking about it, now that I have that conversation with Eddie.

Now that's my first thought. Okay, let's just get control. That's the name of the game is control. Let me just get control because I know about the deal after the deal. That's my first thought. It's the top box on your checklist during negotiations for if or more likely when the note becomes available for sale to get an early payoff. That clause, non-negotiable for me now. And when you do this, when you ask for this first rider refusal, there's no need to specify the price that's going to be paid in the future because nobody knows when that date will be or how much will.

still be owed on the loan when it happens, or what property values and interest rates might be at the time, I mean, you'll cross that bridge when you come to it. So the price you pay will be negotiated at that time in the future. And so I've been buying back my own debt for 10 years by making those semi-annual calls. But now I've got a safety net in place because of this first right of refusal, thanks to my good buddy, Eddie Speed. That's his real name. name. It's a good name, right? But I've got this safety net in place. If I miss a call or two, now it's not so important that I put on my calendar. No worries. I mean, someone else is going to call. That's what I can count on. Someone else is going to call and negotiate that deal for me.

And then per this clause, that seller has to call me before they can sell it. And I've got the option to then buy my own debt at a discount that somebody else negotiated for me. So I think I'm pretty good at it, right? Within five years, like we're hitting about 70, So I typically get somewhere between 20 and 30% discount when I call on my own. And I think that's pretty good to buy my own debt back at a discount of 20 to 30%. But the first rider refusal calls, those guys are a little bit better because we can buy back at 30 to 40% at a discount. They're just better negotiators. I mean, there's just people out there that are much better at it than I am, I guess, right?

This is what they do for a living. I buy houses for a living. And unless specified in the contract, note owners, they almost never contact the property owner when their note goes up for sale at a discount when they get these calls. They almost always go to a third party. But if you put that first rider refusal, they'll always go to you. It's the deal after the deal where the real money is made. And with this additional dynamic in place, when you have that clause in place, typically be someone a whole lot better of a negotiator. than you negotiating your deal for you.

And it goes, there's another level to this. Like, it just gets better and better and better. And perhaps it's too much to explain now. I'll take a quick stab at it just really quickly, just so I don't leave you totally hanging. And anyway, I don't know, we disagree on this part, maybe a little bit still. I mean, he thinks, you know, I'm a little dumb for doing this.

But I, and I see his point. He makes a really strong argument. But I feel like either my way or his way, it's just one's great and one's greater, right? Eddie prefers it his way, but I see it as actually two options, regardless of what the seller agrees to up front. I mean, some investors think a loan with short length of time that has like a zero percent interest to pay it off amortization.

It's better because you pay less interest, which I kind of, I don't mind that, right? You know, you look at someone like Corey, you know, he paid off all kinds of stuff, right, all kinds of principal with all of his principal-only loans and refinanced a million and a half bucks in one year. And he got put a million and a half dollars in his pocket tax-free. That sounds like a pretty good deal, right? Well, Eddie thinks Corey really sold himself short. And it's a surprise to a lot of investors because paying zero percent interest for five or six years can just, he thinks it's a terrible deal for you from, from his perspective. He doesn't think it's even average or good.

I mean, I just explained to you, well, it's wrong with a million and a half bucks. Particularly when you get to go and retire your family like Corey did, and you get to build your dream home at the age of 26, and you get to put a fireman's pole that comes from your master bedroom on the second floor and goes all the way down to your garage in the basement. Passes right past the first floor. I mean, I guess that's what you do when you're 26 years old and you got a million and a half bucks. That don't sound like such a bad deal. But Eddie's like, no, he could add two of those houses with two bat poles. So, because Eddie doesn't like it because you're going to pay off the full

loan amount in that short of a term. And he doesn't like to do that because he likes the greater opportunity of buying his debt back at a discount. Instead of agreeing to a five or six year loan with no interest, he'd much rather agree to the 15 or 20 year loan with some interest. I mean, he wants to lower the market rate for sure, but somewhere around two or three. 3%, but he'd rather have that 15 or 20-year loan with some interest than the 5- or 6-year loan with zero interest. I think they're both good, right? I like them both.

And that's what this first rider refusal does. That's what the deal after the deal does. That's what your loan documents do for you is it gives you options. So it can correct whatever mistakes you make on the front end, or it can enhance what you did good, what that you did on the front end. Anyway, in my loan docs, with my deal that I shared with you on Wednesday, I've got all of that in that loan. I've got the first rider refusal. I got the assumable clause.

I got the wrappable clause. I got the substitution of collateral. I got the subordination clause. And I got the extension of note. The extension of note's kind of cool, too, especially if you got a balloon payment in there. Where if I reach the term of my note and a balloon payment is due and I don't have the money to pay it, I can pay a very small, tiny balloon payment to extend my note and give me more time. I like that one too.

Basically, I've got options, right? I've got a lot of options. And then when you control a bunch of property with all of these options, you've got huge options. And you get stinking wealthy in a down market. Because in a down market, you're going to have the ability and the opportunity to control a lot more.

All right? Control equals options. Options equals freedom. Now, do the best you can up front to get control. Okay? I like the price of terms and now you know how they work hand in hand. The term of the sale, that kind of helps the seller. And then the term of the loan that helps you hold on to the property,

make some money while you're holding it. But the terms of the document is where you get paid. All right. So the first step, go to epic breakthrough.com and download those list of 21 creative financing terms and 10 creative deal structures, those little templates. They work and they'll get you in the game so you can start playing this game on the back end too. But they'll only work if you know what they are and use them. And if this is all hieroglyphics and Swahili to you at the moment,

go to Epic Breakthrough.com and just start at the beginning and work your way through. How do you eat an elephant? One bite at a time and that first bite is available at Epicbreakthrough.com. If you found this episode valuable, there's a good chance you know someone else who would too. And if you think about it, if it crosses your mind just in the middle of the day and you go, oh yeah, I think they would like that too. Go ahead and share it with them and ask them to click the subscribe button when they get here. I'd really appreciate it. And I will take great care of them. And I'm going to make you look like a star for referring them here. Ready? So that's it for

today. God loves you. And so do I. Peace, health, blessings, and success to you. I'm Matt Terrio. Live in the dream. You didn't know home for us, we got to dash low. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.