Epic Real Estate Investing - You Don't Need No Stinkin' Money to Invest in Real Estate - Epic Wealth Wednesday | 302

Episode Date: October 4, 2017

Epic Real Estate Investing presents Epic Wealth Wednesday and even more opportunity to shift your mindset towards financial freedom. Discover how currency actually comes in many forms and why the real estate investors that can leverage more than money are the investors that create wealth-building opportunities for themselves and others. Are you ready for this kind of leverage? Start shaping your real estate offers for increased flexibility to achieve monthly cash flow AND long-term wealth. Keep growing your intellectual currency with Epic Real Estate Investing and watch your fortunes bloom. ______   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

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Creditbump.com. That's creditbump.com. This is Terrio Media. It ain't what you don't know that gets you into trouble. It's what you know for sure. That just ain't so. You don't have a money problem. You have an idea problem.

problem. Welcome to the final frontier where the average person has a legitimate shot at creating Epic Well. Your host, Matt Terrio. Ha ha! Yeah, hello and welcome. Welcome to the Creating Epic Well show. The revolutionary new money show disguised as a real estate show. As real estate, you know, it's the final frontier where the average person has a legitimate shot at creating Epic Welles show. epic wealth. You really just don't have a chance at any sort of financial freedom unless you incorporate real estate somewhere into your financial plan. And if you just don't have the time to do it, nor the desire to take on all of the heavy lifting, then this is just the show for you. So glad

you found us. All right, let's pick up from our last episode on creative real estate investing. I went over five different ways to do that. And there are more than those five. And we're going to get to them. We're going to get to a bunch of them. But the five I covered were conventional financing, seller carryback, subject to, seller seconds, and lease options. And I went over each of those very generally. And now over the next several segments, maybe several episodes, we're going to dive into deeper detail into those individually. So creative real estate investing. One thing I guess I failed to mention, but it was just general overview anyway, but I'll bring it up now, is that creative real estate investing, it's probably not going to happen for you

without some level of negotiating prowess. You know, negotiation skills, they lie at the center of creative real estate investing. And as you may know, real estate, it's not free, right? No kidding, right? You do need currency to transact real estate. but currency can take many shapes, many forms, and many sizes. But just to keep it simple, I'm going to group currency into two categories for you. First, there's hard currency, like money, okay?

Like that mula, cash, dollar bills, money. And second, there's what I like to call intellectual currency. Like what's up here in your brain? What do you know? Okay. Now, both currencies can be used to transact real estate. and the relationship between the two, it's a rather unique relationship.

It's counterbalanced, I guess you could call it. Meaning, if you have a bunch of the hard currency, you got a bunch of money, the less of the intellectual currency you're going to need. And vice versa, the more intellectual currency that you have, the more that you know, the less hard currency you need, the less actual money you're going to need. Also, the more hard currency you use in your real estate,

the more intellectual currency that you will receive in return. And the more intellectual currency that you use, the more hard currency you'll return. Basically, the more educated you are around real estate, deal structuring, and finances, the less actual money you'll need to transact real estate. And the greater your profits will be. Conversely, the more money you use in your real estate investing, the more experience in education you're going to receive. And those experiences, they may be good ones, they may be bad ones.

But either way, you are increasing your education, your education, your education, your an intellectual currency. It's growing. See how they work together? See how they go hand-to-hand? You're either getting paid or you're getting an education in my world. Both are good. So, keeping those two different currencies in mind, let's say in your left pocket, okay, your left pocket, you have your hard currency. This is where all your money is in your left pocket. And in your right pocket, you have your intellectual currency. And at every turn of a real estate transaction of which requires you to trade some currency, you get to decide which pocket you're going to dip into. In most deals, regardless of how much intellectual currency you may have in that right

pocket, in most deals, you're going to need some hard currency. You're going to need some money. And the first step to finding that money is to reduce how much of it you need to find. And we do that through negotiating. So your negotiating skills, they make up a significant portion of your intellectual currency. And the negotiation portion of your intellectual currency can be used to either One, reduce expenses and costs, or two, create income or profit. If you can do both, hey, even better. Either way, from this point forward, I want you to view your negotiating as currency, as money. It is indeed currency.

It has a monetary value, a cash value. And I'm going to prove it to you. For example, you know, if a seller tells you they want $100,000 for their property and you reply with, hmm, yeah, I understand. I can see how you'd want $100,000. I wish the market would allow it, but you know how it is. Mr. Seller, what's your bottom line?

And they respond with, after they think about it for a second, not a penny under $95,000. See what happened right there? See what happened? That one question, what's your bottom line? That one question just made you $5,000.

That's what I mean by viewing your negotiation or you're negotiating as money. Now, you might still have to find more money to complete the transaction, but you did just find some money. There are no ifs, ands, or buts about it. And once you get this, embrace it and implement it, you're going to start noticing the many different places your newly found intellectual currency is accepted. It's everywhere you want to be.

Here's another negotiating tip. And you might have noticed it in this example that I just gave you. When structuring your deals and presenting offers, understand that it's not a huge. you versus the seller conversation. No, it's always a you and the seller versus the market conversation. That's your negotiation position. You're building rapport and trust with the seller for a reason to make a friend, to make an ally. You want to be the good guy. You want to be their ally. You never want to be the bad guy. The market, that's the bad guy. You are the solution. You're there to help. Don't be the problem. The market is causing the problem for the seller. And it's the seller's problem. You're there to

help the help the seller solve their problem. Got it? All right. So, based on what we've covered so far, the intent of that, that was just to establish the first step to finding the money is to reduce the amount of money that you need to find. And as I mentioned in the introduction, money, it's everywhere. Okay, it's everywhere you want it to be. And you need to complete your real estate transactions, all that you need to complete your transactions abundantly available. Now, the caveat here is all the money you'll need to find is rarely going to come from one source, unless it's all from your left pocket where all your hard currency is. So what I'm going to do is I'm going to lead you through multiple sources of where you can find the money for your deals.

And I'm going to lead you through in the order of which I look. Now, depending on your situation, your financial situation, your network, your credit score, your resources, you may choose to look for the money in a different sequence. And that's okay. There's no right or wrong here, nothing wrong with that. There's no one way to do this. It's just that I prefer to not use my money. Okay?

In every deal, I try to spend every cent of my intellectual currency before ever going into my pocket for my hard currency. So with that in mind, the best place to find the money for your real estate is the owner of the real estate itself, the seller. I first reduce the amount of money that I need to find by negotiating the price with the seller, and that's ongoing. The negotiating, it doesn't stop for me until the deal is closed. And you'll see that as we progress through the lessons.

The second place that I like to look for the money is for the seller to finance the deal for me, what we call seller financing, also known as carryback mortgage, private mortgage, seller carryback. And it's appropriate often when the seller wants a specific market price and just won't budge. Yet they have no takers. And they're open to the idea of a fixed rate of return over a long period of time. That's kind of when it fit. That's a perfect situation for it. And I love seller financing.

It's how I hold most of my own portfolio. And I'll take it just about any time that the seller is going to give it to me. The only real exception would probably be if the seller failed to provide a title insurance policy. Other than that, I'm typically all in. If they're open to carrying back, I can typically make something work. So there are many ways a seller can participate in financing the deal for you. From lease option to subject two or straight seller financing. You see, the seller can finance some.

or all of the equity, or the seller can let you tap into the existing financing that they already have against the property. And if you have no idea what I was just talking about there, no worries. We're going to cover it all. I'm just kind of giving you an overview real quick. And for now, what we're going to do is we're going to focus solely on straight seller financing in the form of the seller carrying back a note, specifically a promissory note. A promissory note? That's a promise to pay. and what that does is the note it defines who is borrowing defines the payor and who uh the lending who's lending the payee so we got the payor and the payee and the note details the terms of the financing

in other words how much is being borrowed and how is it going to be paid back okay so that's what the promissory note does it says who's the borrowing who's lending and how much is being borrowed and how is it going to be paid back and that's what i love most about seller financing is the how it's going to be paid back part because you can pay just about anything that a seller wants for their property even if it's double what the property is worth. But as long as you control or have a say in how it's paid back, you can turn just about any deal into a real deal. Do you get that? I mean, if I had this $100,000 property and I said you can have it for $200,000, twice as what it's worth, would you take it?

Well, it depends. If you can control the terms, then certainly you can make that a really good deal. I'd take it. I'll pay your $200,000 if you're going to accept my terms. And that's what we're going to talk about, okay? And we're going to go over some really cool examples of exactly how to do this. And we're going to do that right after this. Real estate has produced more millionaires and billionaires than anything else.

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Cashflow savvy.com. And now, back to creating your epic wealth. What I love most about seller financing is the how it will be paid back part. Because you can pay just about anything that a seller wants for their property. Even if it's double what the property is worth. As long as you control or have a say in how it's paid back, you can turn just about any deal into a real deal for yourself. So with that said, when you're looking into acquiring your next.

property. I want you to go into the deal with the objective. This is your mission. Your mission is to go in and control either the price or the terms. You got to get control of one of them. As long as you can control one of these, you can create a good deal for yourself. So assuming that our example seller, say they rejected your $50,000 all cash offer for that $100,000 property we're talking about, and that $50,000 being your price and the all cash part being the seller's terms. The seller is stuck on their $100,000, their price. So if they're stuck on that price, if they're sticking to that price, what do you have to work with?

Yeah, you've got the terms to work with. If they're seizing control and they're not letting go control of the price, then you've got to take control of the terms. So let's create some terms in how we're going to pay $100,000 for this property and have it still be a good deal for us. It's kind of tough to pay as an investor to pay $100,000 for $100,000. thousand dollar property and still make some money. But if you got control of the terms, we can do it. Okay. So, uh, we're going to need some more information though to complete this exercise.

So let's say fair market value of the property is indeed $100,000. Let's say it rents for $1,200 a month. And after taxes, insurance, vacancy, maintenance, and property management, we're probably left with a net monthly cash flow of, it would be $720 is what the number would be. And my quick and dirty math, how I got to that number, it's just taking 60% of the gross. So we took 60% of the $1,200, and we're left with $720. That's the income that this property would produce. So with our terms, we just need to make sure that the terms that we create fall below $720 a month. Got it?

All right. So let's start working with the terms. What's one way we can pay the seller $100,000 for this property, and it's still cash flows for for us, so we can still make some money? Well, if we went conventional, we'd put 20% down. and we'd have borrowed the rest, say, at 6%. That monthly payment, if we did that, that would be $480. So would that work?

We have to make sure that our debt service is below 720. So if we just went very conventionally, like with 20% down, 6% interest, that'd be $408. Would that work? Yeah, it would work. So whether we got that money from a bank or we got the seller carried it back, it would make no difference. That would work. So how about if we put 10% down and the seller carried back the rest at 6%?

Well, that payment would be $540. Would that work? Yeah, is that less than $720? It is, right? So yes, that would work too. So how about if we offered the seller zero down? And the seller carried back all of it at 6%. That's a monthly payment of $600.

Would that work? Yeah, that would work too. So these three examples are extremely basic. I'm just working with one variable here, the down payment, right? That's the only thing I changed in the whole scenario was just the down payment. But let's start pushing the creativity here. And this is going to be your homework. I want you to take a blank piece of paper.

I want you to write $100,000 at the top of that page and practice. I want you to write down at least 10 different ways you can pay someone $100,000 keeping the monthly payment below $720. I'll do a flu. I'll do a few with you. All righty. So how about I just, I'll pay you $500 a month until it's paid off. Would that work?

Yeah. You don't have to deal with the down payment. You don't have to deal with interest rates at all. If you don't want, right? Just 500 bucks. So what if the seller came back with, I'll be dead by the time I collect all of that money? And you reply with, okay, what's the longest you're willing to collect all of your money? And the seller replied with, well, I want it all within five years.

And you replied with, great, I'll pay you $500 a month. And at the end of the five years, I'll pay the rest. I'll pay the balance. Would that work for you? Would that be a good deal for you? Not sure? Well, let's add it up. since it's just $500 a month,

we already know this deal is going to cash flow at those terms or at that payment, so we're good there. Now, what about at the end of the five years and it's time to pay the Piper? What position will be in when you've got to pay the balance? Well, with five years of $500 monthly payments, that's $30,000 you've chipped away at the equity, right?

So on this $100,000 house, at the end of five years, you're going to owe $70,000. That would be a good deal for you at that point, wouldn't it? Or would it? I mean, it's up to you. Maybe, maybe not. Do you think in five years that house would still be worth $100,000?

That's something else to consider. What if you experienced the average annual appreciation rate of 3%? Would it be worth it then? So that house would probably be worth about $115,000 at the end of five years. And you owe $70,000 on it? Would that be a good deal for you? Maybe. I mean, what if you applied the cash flow to the principal as well during those five years of $250,000?

a month. That's another $15,000 chipped away at the principal. Now you owe $65,000 on $115,000 house. Is that a good deal? Sounded a lot better, though, right? It's sound a lot better. Again, it's up to you. So that was the second way to pay $100,000. $500 a month, yeah, $500 a month and then the balance in five years. So let me give you a third way. I'll pay you $100,000 in 250 equal monthly payments. That's just how I'm going to phrase it. So that's $400 a month. That works, right? Yeah, we're still way below the 720, so that works and that cash flows.

Or how about I'll pay you $300 a month. And then if and when I sell it, I'll pay the rest plus 25% of the profit that I get above $100,000. Would that work? See how you can play with all these different variables and come with all these different solutions and you're paying $100,000 for this $100,000 property and you're still making money. So, or how about 10% down payment, $200 a month, and I'll pay the balance off in 10 years. And that payment at the end of 10 years would be referred to as a balloon payment.

We're talking about balloon payments when we say we're going to pay the balance off at a certain time. Maybe the seller doesn't like this flat payment going 100% to the principal. They want interest, right? Okay, fine, I'll give you a 5% interest only payments for 10 years and $100,000 balloon at the end of the term. that would still be a smoking deal with payments at $416 a month, right? That would be a nice cash flowing property. Yeah, but how are you going to pay off the $100,000 balloon payment? Where is that money going to come from?

Well, we're going to talk about balloon payments soon in great detail coming up. So I'm going to just keep it simple. First, in 10 years, how much do you think the property is going to be worth? I mean, I'll keep it super conservative and propose just an annual 2% appreciation. The property will be worth $122,000 at the end of 10 years. and you owe $100,000. If you absolutely had to, do you think you could sell the property

for $22,000 below market value to get you out of that situation? Would it be such a bad thing to dump the property like that if you had to? I mean, you cash flowed $300 a month for 10 years. You made $36,000 off that deal. Not a great deal, but not anything near terrible.

I'd do that deal. I'd do that deal every day. Anyway, you can see how you can play with the terms here in many different different. ways. And I could do this all day long with you. But I think you get the picture, right? So just keep playing with it. I want you to practice. Practice makes perfect. I want you to take that piece of paper. I want you to write down at least 10 different ways. You could pay $100,000 for a $100,000 property and still make a profit for yourself. Okay? That's your homework. And it's only going to work for you

if you do the homework. Okay. It's practice makes perfect. That's the mother of all skill. Get over there and practice. Once you've got those 10 ways, down, those will be in your head. At least half of them, you're going to have at a moment's call. And when that situation comes up, you can recall on that and you can present an offer, one that actually works for you and the seller at the same time. Now, I can hear the wheels turning already. I mean, these balloon payments, right? A question I almost always get is, what happens if you don't have the money once they are due? What do you do then? Easy. I'm going to tell you exactly what there is to do right after this. If opening up your financial statement each month

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Epicwealthfund.com. Real estate investments involve a high degree of risk. Residential income and returns may vary and are not guaranteed. Past performance has no indication of future performance. Nothing herein shall be construed as investment, tax, legal, or accounting advice. That's it for today. We'll pick up from where we left off right here next week. See you then.

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