Epic Real Estate Investing - Top 10 Creative Financing Techniques | 1032

Episode Date: May 28, 2020

You hear all the time about old gurus, teaching stuff today, that they have not done in decades! Hence, Matt decided to check if there is any truth to that and pulled the Top 10 Creative Financing Techniques from Carleton Sheets’ program, No Money Down, from 1989! Tune in and find out how much these old strategies differ from the modern ones that Matt teaches! Learn more about your ad choices. Visit megaphone.fm/adchoices

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IAase.com. Here's Matt. Hey there, Epic Investor. It's Matt Terrio from Epic Real Estate. Coming right back at you from my mom's closet here in Oregon. And this is the show where we show people how to invest in real estate with an emphasis on retiring early. So if this is your first time here, glad you found us. If you like what you hear, make sure you hit the subscribe button before you go.

And if this is not your first time here, welcome back. Love that about you sharing this with your friends and family. You are the best. All righty. So I am on my way back right after I record this from my Memorial Day weekend. And we took a long drive originally from Vegas to Central Oregon just to get out of the house. You know, I've got a nice house. I'm blessed.

I'm very grateful for it. But just had to get out. You know, in my neck of the woods, not a lot of options other than getting in your car and going somewhere. But you can't stop anywhere because nothing's open. But slowly starting to open up. But anyway, just had to get out and go. And I was digging through my old stuff as we're just kind of cleaning up mom's house. And found buried in the back of the closet, literally, in not this closet that I'm in, but the guest room closet.

And found none other than a program by Mr. Carlton Sheets, no money down. And it's amazing what the, I'm finding all the things that my mom saved and took care of for me while I was gone. But there was a little flyer in the front cover titled Top 10 Creative Financing Techniques. And this was printed back in 1989. By the way, I'm not looking for sympathy or empathy, by the way. I'm actually having a really good time when I find a lot of comfort here at my mom's. and I just bring you along for the experience because it's been eye-opening and intriguing

and just a way to get away and refresh. And so just inspired with some different and new ideas for the podcast and just wanted to share them with you. And I'm just kind of giving you my story and what's going on right now as the big giant personal picture. All right? So anyway, I found this top 10 creative financing techniques from Mr. Carlton Sheets.

It was like a little handout or a little flyer that they stuffed into the program. And I noticed it was printed in 1989, which was way before, way before I ever got serious about investing in real estate. But I did buy the thing off the late night infomercial. And so many of you might be able to relate. But I bought this and I was digging through the stuff and I saw it. And it got me to thinking that, you know, you hear all the time about the old gurus teaching stuff today that they have, haven't done themselves in decades.

It's kind of like almost a cliche now, right? You don't want to learn from that old guy that hasn't flipped a house in 30 years and everything he's teaching is old, right? Teaching old strategies that don't work anymore. So I thought, well, let's see if there's any truth to that, right? I thought it would be fun to see if there's any truth at all to them teaching old outdated stuff that doesn't work.

And so let's go through the 10 creative financing techniques of 1989. It was more than 30 years ago. And, you know, this was, it's fitting because we just got done going through, you know, almost two months of creative financing and real estate investing strategy stuff. So let's see what they were talking about then, see how it differs from what we're talking about today. And I'm looking at 1989. It doesn't seem like that long ago.

But it was over three decades ago. So it's a long time, half a lifetime for sure, at least or just under a half a lifetime, I guess. It depends on how long we're going to live. But anyway, all right, let's take a look at Carlton Sheets. top 10 creative financing techniques of 1989 and see how they differ from epic real estate creative financing strategies, my personal strategy is of today. All right. So top 10 creative financing techniques, sometimes a loan from your bank isn't going to meet

your needs below are 10 techniques to get your creative financing wheels turning. All right. So number one, interest only loans. If you are an investor looking to purchase rehab and sell a property quickly, an interest-only loan may make sense. This financing allows you to make small payments at the beginning of the loan, leading more money for renovations. When you sell the property for a profit,

you can pay off the loan in full having paid only a small amount of interest. All righty. So that's number one, interest-only loans. That's their definition or the explanation. So so far, so good. Still a very viable financing technique today, whether buying or selling, interest-only, it creates a smaller payment, as they mentioned,

and leaves the principle, untouched. So when selling, that could be a good thing. When buying, it could be a good thing. It just depends on the circumstances and your intent and goals of the money borrowed or loaned. All righty? So good to go. Relevant 30 years ago and relevant today. Number two, seller carryback, also known as owner financing. The seller of the property agrees to finance the property outright. They transfer the title to you in exchange for a promissory note and deed of trust for the full purchase price of the property. Again, still viable, still valid.

And my personal favorite form of financing. All right. So, Carlton Sheets, two for two. Number three, seller second mortgages. Now, if the buyer can obtain a loan, but not for the full price of the property, sometimes a seller second mortgage is what is needed to make the transaction possible.

In this case, the bank mortgage pays, pays the seller for the bulk of the amount owed, for example, 80%, and the seller deeds the property to the purchaser in exchange for a promissory note for the amount of the balance remaining. In this example, 20%. All right, so this one, it comes and goes, right? It's a great strategy when using private money. So you can borrow money from two sources, right? You can get private money and then the seller to bring in the balance.

It works good for subject two. so if you're taken over the loan from the seller, then they can carry a second, right? So there's the seller's second mortgage. Or seller financing for the first. You have a first loan and a second loan with different prices and terms. Or, yeah, different terms.

But I can't think of a bank, a conventional bank at the moment. That would do this unless you got a smoking deal that was just packed with equity and it was a no-brainer for the bank because they were secured by all the equity in the property. or you could prove you actually don't need the money from the seller in the first place. So, but for most places, for most banks these days, unless it's an FHA type loan for your

primary residence or a special program to help people without means or lesser means to get into a house and get into homeownership, unless you fit in that situation, most banks are going to want to see you bring some money in. So, I don't know, I'll give them a half on that. So we're like two and a half for three, but still works really well with all the other creative. Now, he's three for three. He's fine. But he kind of used it as with a bank mortgage, a conventional bank mortgage in his example.

So the seller's second mortgage still works, probably just not as well as it used to when a bank is involved. Right. Number four, contract for deed. Similar to seller, carryback. A contract for deed is another method of owner financing. The difference under a contract for deed is that the seller retains title to the property until the mortgage has been paid. paid in full. Yep.

So that's still viable. Talked about this one just a few times over the last few weeks and just a couple days ago. So that's good. So, yeah, we're four for four. Why not? Private mortgages. So private mortgages work like mortgages from a bank, but since the lender is an independent

entity, they can follow different guidelines for lending. Interest rates are often higher, but this creative mortgage technique allows more borrowers to qualify for a loan. So we don't really hear about private mortgages too often. And I'd say it's lumped in with either private money or hard money. But if it's your primary residence, the Dodd-Frank Act has put some strict guidelines around this and we'll make it difficult to use for that.

But for an investment property, still viable. It's just referred to differently, more often as private money. And I guess you could probably put hard money in there as well. All righty. So let's see. Mr. Carlton Sheets, I say we're five for five, right? We're five for five. Why not? It might be you take off a quarter on each of those.

But for the most part, we're five for five. There's just some nuances in there. Okay, number six, assume payments. If you can find a seller who needs to sell a property quickly and has financing in place, you can assume the seller's payments, often with little or no money down. That is very different today. I would say that doesn't really. come in a play too often.

We refer to that a little bit more of subject two. See, that's why the subject two clause. I think it came in, what, in 1970 something? So this was, so there are probably still some mortgages, because this was in 1989, so there are probably still some mortgages around that did not have due-on-sale clauses in them. But today,

I'd say pretty much all of them do. There are not too many loans anymore that are assumable. I think VA loans might still be. I think they were the last ones. I'm not sure if they've put in a due-on sale clause. I haven't seen one in a while. And you could insert the clause into your private money and your seller loans to make those private loans and seller loans assumable. But I'm pretty sure for conventional lending, this is no longer an option.

Used to be, but not anymore. Always exceptions, though. I would say that one doesn't count. Yep. So that one is disqualified. So we are now five out of six. Now, number seven. Short sales. A short sale is when a seller markets the property for less than the amount owed against it,

and the lien holder agrees to accept that amount as payment in full. This is often done to avoid the credit implications and costs of foreclosure. Purchasing short sales allows you to purchase property at a discount of price. The resulting immediate equity in the property makes this a wonderful creative financing strategy. All right. So this is going to be very market specific. This is when things really picked up from Mercedes and myself back in 2008, 2009, 2010. And we would probably still be doing it today because that's how lucrative it was and how amazing it was. But there's two reasons that we stopped. First reason is there was a bunch of us doing it and we were making a boatload of money.

And the banks took notice and they said, not so fast, you private entrepreneur, you're not allowed to make that much money. They started putting strict guidelines on the flipping of short sales. And so the bank stepped in and squashed that because, you know, we were making too much money and they didn't like it. Second thing is the appreciating market bailed out all of those that were left

that we didn't get to and others like us didn't get to. Might be a viable strategy again, though. Maybe soon. You know, as the market shifts, It's going to have to shift a lot, I think, though. But I think who do we have? We had someone on the show just a while back who said that they were still doing really well with these today.

So there might be some out there, right? I mean, there has to. I'm sure there's some. Maybe we don't know about them because we stopped marketing for them. We started marketing for high equity properties or free and clear properties, and we ignored these all together. So something to think about might make, for, some good sub two deals as we move forward.

Okay. Short sales, yes, they still exist, but depending on the market is going to determine how abundantly those are available. And then with the new bank guidelines, I don't know, there's always ways to work around that legally. There's always a gray area to play in there. But, yeah, I'd say that's still good. It's just going to depend on the market.

So we're still, we're six out of seven for Mr. Carlton Sheets on these top ten creative financing techniques. Number eight, lease options. A lease option allows the buyer to rent the property for a given amount of time with a portion of their rent credited toward the purchase price of the home. At the end of the lease, the buyer has the option to purchase the property at the amount agreed upon when the lease was created. So still, very viable.

We talked about this a few times recently as well, and actually just a couple episodes ago, and something I've kind of shied away from mostly. I've done a couple, and there were a couple. and they were a long time ago and actually reached out to Joe McCall recently last week, two weeks ago. I'm thinking about doing some more of these. I think there's going to be a lot of good opportunities for this

and, you know, answer a few questions for me so I can brush up on it. And Joe, as good of a guy as he is, helped me brush up on that and answer some questions. Yeah, I'm just starting to change my tune a little bit on these now that I live in a market where I can cash flow and where I can find lease option buyers. I could probably find those.

pretty darn easily in a market like Vegas. Not like, I could find a lot of places, but for this to really work and to work in abundance and make it part of your operation, I think you need to be able to acquire on lease option and resell on lease option for this just to be a hot strategy. And I feel like that could be coming up. So, thank you, Joe McCall for keeping me in the loop and keeping this fresh atop of mind and answering my questions. So that is seven out of eight, okay, seven out of eight that I think are still.

relevant. Seven out of the eight are still relevant from 30 years ago. Number nine, retirement accounts. Now, most retirement accounts will allow you to borrow from yourself and repay the funds over time at a low interest rate. What a great creative financing resource. All right. Just like the 1031 exchange we talked about yesterday, these rules and stuff, they change all

the time. So yes and no, it's a great creative financing resource because the amount you can borrow for personal use has its limits, I believe it's only $50,000, but even that might have changed to borrow from yourself outside of your retirement account and pay it back, which are still really good funds because you're paying yourself back and you're paying yourself back with interest.

The interest goes into your retirement account, and I believe that interest that you're paying yourself is also tax deductible. And the reason you'll hear about retirement accounts a lot, It's because gurus like Carlton Sheets in pretty much, they still do it today, will push retirement accounts as creative financing sources, mostly because they want you to open up a retirement account with them, particularly in the self-directed arena.

Now, it's not a bad idea, but they push it and mention it consistently because it is an extra revenue stream for them also. I mean, you can self-direct your retirement account, which is a solid strategy. But in my opinion, it's a solid strategy as long as you've retired yourself from cash flow first. I just don't like it as the primary retirement financial freedom option that everyone promotes it to be. Retire yourself first before you retire your money. Because that's what happens when you put your money into that retirement account.

That money is retired until you yourself are retired at the age of 62. Retire yourself first. then you can put all of that excess that you make into that tax deferred or tax-resistant environment. And you could borrow. So this is a going. You could borrow from other people's retirement accounts. But I'd really put this in the category of private money.

Still very viable. I just have mixed ideas about it. And there's a lot of variables that come into play. But for that most part, the way that they're describing it is you borrowing from yourself. I'm going to say probably not. And if you can, it's going to be very limited as to what you can do. But borrowing from other people's retirement accounts, absolutely. All right.

So I'll give them a half there. So if we were eight out of nine, now we're seven and a half out of nine. Now, number 10, loans from family and friends. Friends and family may be willing to invest in your business in the form of personal loans. Talk to the people around you. Share your enthusiasm and your needs and perhaps. Jan's loan will be the next option in your creative financing approach. Yes, private money is what they call it absolutely.

So I will give Carlton Sheets out of his top 10 creative financing techniques of 30 years ago, of the 10, 8 and a half, are still viable today. So, I don't know. What do you say? How do you feel about all of those strategies of them not working anymore? Those old outdated strategies. I'd say eight and a half out of these 10 absolutely would. And I bet if they were teaching it today,

they would have made modifications to this little handout. So just something to think about. I don't think it's always the information that you can hold or make responsible for whether you are or aren't getting your results. It's what you do with the information and the action you take behind it. All righty. So nonetheless, I think eight and a half out of the 10 are still viable and doable today. So not bad, Carlton.

All righty, so that was fun. If you found this episode valuable, who else do you know? That would also find it valuable. And their name comes to mind, share it with them, and ask them to click the subscribe button when they get here. I'll take great care of them. That's it for today. God loves you.

And so do I. Health, peace, blessings, and success to you. I'm Matt Terrio. Living the Dream. Take care. Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow. Yeah, yeah, we got the cash flow.

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