Epic Real Estate Investing - Transactional Funding, Epic Intensive and MORE on Seller Financed Wraps | Episode 213

Episode Date: July 18, 2016

Following up from our last episode, Matt is answering some questions regarding seller financed wraps including how to finance 4 or more deals this way, how to avoid loan origination fees, and how to promote the idea to your sellers.  Also, learn how to access transactional funding for your deals and get instant proof of funds.  Enjoy! ------- The free course is new and improved!  To access to the two fastest and easiest strategies to a paycheck in real estate, go to FreeRealEstateInvestingCourse.com or text “FreeCourse” to 55678. What interests you most? E.ducation P.roperties I.ncome C.oaching Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terrio Media. Broadcasting from Terrio Studios in Glendale, California, it's time for Epic Real Estate Investing with Matt Terrio. Hello, and welcome to Epic Real Estate investing, the place where I show people how to escape the rat race using real estate. Shift your focus from making piles of money to making streams of money, change that one thing, just one time, and you are on your way to financial freedom. It's not the most exciting path. No, it's rather dull. and boring, but it is the fastest. And once you get there, life then becomes exciting.

And speaking of exciting, it's summer. Yeah, perhaps a little too exciting over here. I mean, the sun's out and the temperature is great. And I just, I guess that's the reason that I skipped last week's episode. Because I woke up on Monday and I was like, oops, I forgot. I didn't even read, I forgot to totally record the podcast. I didn't even tell Courtney, my content manager, I didn't let her know. My apologies to you, Courtney, because it was much of a surprise to me as it was to you probably.

And my apologies to you. You know, my mom was in town visiting. So we were going all over the place showing her and having a good time with her. It was 4th of July. I had a huge party there. That was so that big three-day weekend. And then I went to another party on Wednesday. And we've gone to the pool, going to the beach.

And then was my son's birthday. And we had a giant shin dig at our house then. And I was just like, I totally got sidetracked. So my apologies. but we are back on track. All right? So I want to talk about last episode. It was two weeks ago.

Very exciting episode. Really resonated with a lot of you. I got a lot of response, a lot of thumbs up, a lot of questions, and a lot of excitement. So if you missed it, go back and listen to episode 2212. So based on the feedback, I thought, why don't I just go ahead and respond to this feedback right here on the show? And, you know, so you can all benefit from the answers because there were some really good questions there. But before I do that, I got a couple announcements for you. A new Epic Pro Academy members benefit.

I've been working on this for a while. It is now in place, transactional funding, unlimited transactional funding for all of the Epic Pro Academy members, for all of you that are struggling with concurrent closes, with the double escrows, with assignments, and especially for those of you that are concerned about the impending regulations coming down on wholesalers. Transactional funding that makes all of these challenges

just disappear for you. and also there at uh you can get an instant proof of funds letter for your for your transactions for those sellers that request one um so just type in your information there you type in the details about your deal you type in your information you press the button and boom you've got your proof of funds letter just like that backed by unlimited funds for your deal membership yep it's got its privileges so i've been working on that so i'm announcing that to you um epic pro academy members you can go to epicfunding solutions dot com Epicfunding Solutions.com for an instant proof of funds letter, transactional funding for your

back-to-back deals, and business lines of credit. There's more to come there, but that's what's there now. Epicfunding Solutions.com. Second announcement, save the date, all of you, everybody. September 23rd, September 23rd, 2016, here in Los Angeles, Los Angeles, California, I'm hosting this year's Epic Intensive Live event. So if you are a real estate. investor, and that pretty much means everybody, because you probably wouldn't be listening to the show

unless you were, or if you want to be a real estate investor, if that's your, that your aspirations are, and you're struggling or looking for relief from the constants, the restraints and, you know, the struggling to getting a decent return on your marketing dollars. If you're frustrated that your sellers don't seem that motivated, if you're discouraged about finding money to close your deals, if you're uncertain on how to navigate the shifting market with the shrinking inventory, if you're just ultimately worried about whether or not this real estate thing is really going to work out for you or not? Maybe you feel like you're too late to the show or you know, you got your friends and your family. They're talking in your ear, increasing or raising

doubt. If that's your situation, the Epic Intensive eats challenges like these for breakfast. Many more details and announcements to come, but registration is open right now. Super early bird registration. We're going to have an early bird registration, but right now we've got the super early bird registration is open right now for a very limited time at 90% off the regular That's the super early bird registration. Save 90%. Go to epicintensive.com and reserve your seat because it will not be unlimited seating. I think we just dialed in and nailed down and confirmed the venue.

I don't have the actual number of how many tickets we'll be able to sell, but that you can go and get that right now. Reserve your seat. Epicintensive.com. Epicintensive.com. All right. So let's get into today's podcast. this episode. Got a few emails

and so I just pulled these questions straight from those inquiries and decided to answer them right here today. And I'm not going to do a bunch of recap of the last episode's subject matter. So if you missed it, it's all still there.

For today's episode, though, to make sense to you, if you miss that one, you're probably going to want to go back and listen to that first. That would be episode 220. This is 213. Sheesh. 213.

I've been recording these. It's amazing now that I'm in these 200s. So episode 212 was how to have your cash and cash flow, have your cake and eat it too. So go back and check that out. And then these questions are probably going to make a lot more sense to you. So this series of questions comes from Hugh Nelson, who I met on a property tour, probably, I guess, over a year ago in Indianapolis. Really cool guy. We got along well.

And he's a big fan of the show. He wrote this to me. He says, hi, Matt. I'm a huge fan of your podcast and an Epic Pro Academy member. We met at your last Grub and Grow Rich property tour in Indiana. I've learned so much from you about real estate and entrepreneurship. Thank you. The seller finance wrap around a seller finance strategy you mentioned in the podcast is really

cool. He's talking about last episode. And I've recently been doing something along this line. We've got some really great REOs here. But my generally forward-leaning attorney raised an issue. That's good. You got a forward-leaning attorney. You want someone that's a little bit progressive and not someone that's telling you what

you can't do all the time. You want that attorney that's going to tell you what you can or how you can do it, right? So good. So he's got a forward-leaning attorney and he asked, this is essentially a contract for deed. No. The issue was that with the attorney was that the Dodd-Frank legislation forced banks to do a lot of due diligence to make sure the borrower or the buyer can pay back the loan. Bottom line, Dodd-Frank restricts private sellers a little bit using this strategy. So the attorney said there was a question about possibly being limited to doing this just one time or possibly three times a year. He's looking into it. I got this from you almost two weeks ago, Hugh. You probably already have the answer, but I'll give it to you anyway because maybe someone else is thinking that as well. So it's a great strategy and if I can only do it once per year, that's okay, but I wondered if this issue had come to your attention. So yes, it has come to my attention. So let's go over this.

First, yes, I use a contract for deed in this strategy on the B to C transaction in the states that allow it. Most states do. In fact, I'm using it in every state that I'm operating in right now, so I know it's legal there. But some states actually, they do not. I mean, I think Texas is the only one that I know for sure that it's a no. But you could use a note with a trust deed or a mortgage and accomplish the exact same thing. Okay, so you don't need the contract for deed. I just like the land contract, the contract.

Land contract and contract for deed, you're going to hear those used interchangeably. They are the same thing. Okay. I just like that a little better, that tool a little bit better for an added level of security and typically a much faster foreclosure process should the borrower default. That's where the real strategy comes in. They're not real strategy, but the real benefit is in most place, like using that land contract, it takes what would be a real estate transaction using a note and a trust or a note and a

mortgage. That's a real estate transaction. If you use the land contract or the contract for deed, now it's a business transaction. So you can, in the event that your borrower defaults, usually that foreclosure process can be expedited a bit because it's not a real estate transaction. It's a breach of contract. Make sense? Okay, cool. Now, the Dodd-Frank legislation, and if you don't know what Dodd-Frank is, and Hugh actually, he summed it up pretty well, the Dodd-Frank legislation that forces banks, any really lenders of real estate or lenders of money to purchase real estate, just to do a lot more due diligence to make sure that the borrower and the buyer can actually.

pay back the loan. They don't want those crazy loans. Again, that's going to, you know, they're going to pop on you or adjust on you in five years and all of a sudden you can't afford that house anymore. They don't want that to happen again. And so, um, Dodd-Frank, it impacts private sellers, right? But not too much. Um, your attorney is on the right track, Hugh, okay? He's, he's thinking the right way. You can execute this strategy. You can do it three times a year as a private seller, okay, when you're selling to a resident owner. Okay, so you can do it three times a year when you're selling to a resident owner. That's the limit. On the fourth transaction, because you can do it more, but on the fourth transaction, you must involve a registered mortgage

loan originator, an RMLO. Okay, so that's the caveat. Basically, you just have to have a professional come in and look at it and make sure that you're not getting, um, It makes sure that your lending practices are fair to the resident owners, the people that are purchasing their property. Now, most brokers, they qualify to perform this service for you. It's going to be, I don't know, anywhere from $500 to $750. It's likely what that's going to run to have a loan originator, a registered mortgage loan originator involved.

Now, if you create a relationship like anything else, you could probably get that cost down quite a bit. But either way, this is what we do. We just pass that fee onto the buyer as a part of their closing cost. So it doesn't cost us anything. Actually, it just costs the buyer. If they want to come in and use our money to purchase the property, they want us to carry back the loan for them. Then they've got closing costs.

And those closing costs, you've got to pay for the loan origination. Loan origination fee. Every lending document, I think, probably has that aligned just for that, loan origination fee. So pass that on to your buyer and it doesn't cost you a thing. All right? So, Hugh, you can run this transaction as many times a year as you want, actually. You can just do three times a year is the limit without the loan originator. But you can keep on going as long as you have a loan originator involved.

and I bet your attorney could probably do it for you. And oh, and get this, though. Here's where it gets fun. If you sell to another investor, someone that's not going to live in the property, then there are no limits. There are no restrictions on how many you can do or what you can charge via Dodd-Frank guidelines. Okay, so really that Dodd-Frank is only going to affect you

if you are selling to somebody that's actually going to live in that property, if they're going to be the resident owner. If you're selling it to an investor as a cash-flowing asset, asset, Dodd-Frank doesn't even apply. Got it? Perfect. So this, uh, yeah, okay, so cool. We got, he's out of the way. Now let's look at Phil's questions.

He's an epic pro caddy member. He's a follow-through crew member. He and his partner, Sean, um, awesome dudes. They've got some questions about last week's episode as well, or two weeks ago, episode 212. So Phil is writing when completing a seller finance deal is the note drawn up by the title company. So it can be. That's usually my quick answer. Just go ahead and have the closing agent, whether it's an attorney or an escrow officer or a title officer. Just have them write it up for you.

But I would recommend that you have your own drawn up as of the release of this episode today. You listen to my voice right now. There is now a note inside of the academy under contracts and paperwork. I've put an example there. And you could use this note, the one that's there in most markets, but I'd recommend that you take a look at it, have your legal advisor look at it, and run it by your closing agent just to make sure everything in there is compliant for your market. Okay. And it'd probably be a good investment for your own legal counsel to use my note, say, as a guide and then have them tighten it up to create your own custom one for you.

So it works in your market and for your purposes. Okay. So number two was you mentioned the note should have an assumption clause that doesn't require the seller's approval for another buyer. to assume the loan. Can you provide a sample of this clause that you use in your seller finance contracts? Yes, that clause is in that note that I just referenced. Perfect. Number three, can you provide a contract sample for the contracts used on the sell side from B to C? Oh, okay, so the A to B contract, that's in the academy. And the B to C contract, the contract for deed, yes, that contract is now

in the academy as well, in the exact same location under contracts and paperwork. All right, so let's see. Number four, other than the seller getting their full asking price or close to it, can you provide more selling points that we can share with the seller that will show them how they will benefit from a seller finance transaction? Perfect. Good question. So what Phil is asking there is when they've adopted the strategy, I'm going to purchase in one or two ways.

Either my price, your terms, or your price in my terms. So if you're going for this all, their terms being all cash almost all the time, then you're going to have to get your price. You're going to have to drop that price down so it's actually a deal for you. But if they're going to give you the terms to play with, then you can get that price closer to there. But Phil is looking like, how do I sell this to the seller to make it look like it's a good deal for them? So great. Now, there are really just two reasons. Most sellers are going to entertain the idea of carrying back a note on their property.

Just really just two. The two that I can think of right now. There might be another one later, but that I've come up with. but right now I think it's just two first, is there's something, something's up with the property. Something's up with the property that disqualifies it for conventional financing. And if they want to get full market value, then they may have no other option then to comply with your terms, with seller financing terms. Okay, so it could be something up with a property. Maybe it's functionally obsolescent.

It's in a zone where that can't get insurance. And there could be all kinds of things. Maybe the price point is too low and there's not a bank that a loan on that price. point. It could be all kinds of things that make it difficult. So that's first. Second, they don't necessarily need the money now. That would be the second reason. They don't need the money now. Now, there are sellers that don't need the money and will still not be too excited about seller financing. Okay, so there's probably many different ways to go about this. And if I sat down longer, I could probably come up with some other ways to approach this.

But how I approach this is in wielding some influence and how I approach this to really influence the sellers is I ask them in a very curious manner. I go, wow, you're about to make $200,000 on this deal. Congratulations. You know, I happen to have a good chunk of money sitting on the sidelines and have been thinking of different ways of investing it. If you don't mind, may I ask what the plans you have for your money are? And then I just listen.

And what I'm waiting for is an opportunity to offer them something with a stronger return. I mean, for the most part, we know as real estate investors, we can structure a deal all day, every day, that's going to put Wall Street to shame. We know we can do that. But you got to open up the door for yourself first before you really present this. At least it's a path of least lesser resistance is how I look at it. So all I really need to hear is I'm going to be putting it in the savings account. I'm just going to save it for a while or I'm going to put it in a money market account or a mutual fund. I'm going to invest in the stock market, whatever. And once they answer where they're actually going to put their money, my follow-up question is, okay, so what type of

return are you expecting from that? And then I just stop and I listen. And what are they going to say? What type of returns are out there via a savings account or a mutual fund or a money market account or a certificate of disappointment? I mean, a certificate of deposit, a CD, right? What type of returns are available out there? I mean, what's a savings account now? A half percent? Maybe you get 0.6 percent, you know, something really aggressive out there might get you three or four percent. And when I hear that number, there's my opportunity. So if they said one percent, my question would be like, well, how would you like to double that and be secured by a tangible asset?

Would you be open to something like that? Who's going to say no to doubling that? That's secured. And then the conversation just goes on from there. And that's when I would propose, well, if we could, if you left some of that money in the property, carried it back. I made payments, blah, blah, blah, then I could pay you a lot more than what you could make by putting it in that certificate of deposit, that CD. Make sense? So just conversations goes along that line. So along this line of thinking, though, also, if you happen to get your

lowball all-cash offer accepted and it happens to be on a property that you would like to hold onto for your portfolio, like this is a property I don't really want to wholesale, I like this property. I want to keep this one for my own investment. It could be Mr. Seller, would you be open to receiving payments for a while if it meant you would make 15% more? So in exchange for those terms, yeah, in exchange for those terms, you're going to offer them a little bit more of a price point. So those are two scenarios of how you could sell the seller financing to a seller. And still, some days, you can do the best that you could possibly do. You could have the greatest sales pitch and they're still just going to say no. Right. So just keep that in mind.

Let's see, number five, you mentioned in the podcast that doing a seller finance on top of a seller finance wrap deal, that's not going to work for every property for this type of deal. Does it need to be high equity and low rehab for it to work? Cool. All right. So first, no structure is going to work for every deal. Okay? So that's first. Second is it doesn't need to be high equity and doesn't need to be low rehab either.

What really needs to be in place for this strategy to work is that you can sell it for. for more than you are paying for it, which is kind of how it works with every strategy, right? You want to be able to sell it for more than you're paying for it. And you can carry back your portion to your end buyer at a higher rate than what you're paying the seller for them carrying their portion back. Ideally, you'd also like to get a bigger down payment from your buyer than the one you gave to the seller.

And for that down payment, you've got to factor in all the rehab work that you're going to plan I'm doing on the property too. So if I gave them $5,000 down the seller, I gave him $5,000 down and there's going to be $5,000 of rehab, I have $10,000 into the deal, right? So ideally, I'd like to get, when I sell this property via seller financing, I'd like to get $15,000 so I can get back all my rehab money, and get back my deposit, and I can put an extra $5,000 in my pocket. That doesn't have to be there.

Okay, doesn't have to be there, but that's something that I look for when I'm putting this deal together. And then if I buy it for 100,000, can I reasonably sell that for 125? Can I do that and carry that back? And if I can do that, that makes it a good deal. And if I'm borrowing it that the seller's carrying back that $100,000 at, say, 5%, can I sell it at the 125 and charge the buyer 8% or 9% or even higher? Okay, so those are the different variables that I'm looking at to make sure that this is going to fit.

So that's the type of deal that would make this all fit. All right. So great questions. That turned out actually to be basically a complete episode because we're kind of out of time. So Epic Pro Academy members, go to Epic Funding Solutions.com for your instant proof of funds letter. Unlimited transactional funding is there for you and business lines of credit. And any and all. If you like to attend the Epic Intensive on September 23rd, go to Epicintensive.com.

Do that right now. take advantage of the super early bird pricing of 90% off, 90% off. All right? More details and announcements to come, but reserve your spot right now at this special 90% off price because it's not going to be available too much longer. Epicintensive.com. So until next week, to your success, 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.