The Science of Flipping - Episode 14: Subject to (On Steroid) | Real Estate Investing Podcast

Episode Date: November 22, 2013

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Welcome to the Science of Flipping Podcast. I'm your host, Justin Colby. Welcome, welcome, welcome everybody to the Science of Flipping Podcast episode 14, guys. I am ready to roll. I hope you guys are too. Today, guys, our subject matter is going to be how to purchase or do a deal subject to the loan. What I'm going to tell you guys, this is what I call subject to on steroids, guys. This is unbelievable information I'm going to be sharing with you guys because it's a way for you to do a deal with no money down, no credit needed, and you're able to make good chunks of money finding the deal and finding the buyer, guys. That is what we are going to be reviewing today

with what I call subject to on steroids. Now, if this is your first time ever coming to this podcast or hearing me for the first time, make sure you get over to our website, thescienceofflipping.com. There you will find our number one ebook. This is the best ebook ever to be put on the market because it is the 15 most costly mistakes a real estate investor can make in this market right now. Guys, how do I know? Because we've been through it. And if we haven't been through it, we've seen our friends and colleagues go through it. These are mistakes that most investors will make and that are very costly.

Pick up this e-book. Go to the website, thescienceofflipping.com, and make sure you get this e-book so you don't make the same mistakes that I have made and our colleagues have made here in the real estate investing world. Guys, again, if this is your first time listening to us, I wanted you to know who we are. I am your host, Justin Colby. Happy to be here today, guys. Right now, we have done very, very well over the last several years, and I wanted to be able to share this knowledge with you. You see, it wasn't always puppy-dosing rainbows for us here at Phoenix Wealth Builders. We started off very rocky, took us quite some time to get our first couple deals done. In fact, guys, it's taken us

nine months to do our first deal back in 2007. I'm sure many of you guys are out there, have some sort of similar story, or even if you're a rookie, you might be feeling the same effects of, man, I got to get this first deal done. Well, trust me guys, you know, we did 96 flips last year. We did 50 flips this year so far and we're also developing 79 town homes here in Mesa, Arizona. But it wasn't always that great. It wasn't, we weren't always making the money we're making now. We weren't always doing the amount of deals we were doing. We've gone through our lumps. We've gone over the years and the reason why this podcast is this is because I want to give you guys the systems

to live the life that you want to live. You see, a lot of times, people in a fix and flipping world do all the work. They do all the work. They swing the hammer. They find the deal. They fund the deal. They sell the deal. Well, you never really get to enjoy your life if you're doing all that work. They do all the work. They swing the hammer. They find the deal. They fund the deal. They sell

the deal. Well, you never really get to enjoy your life if you're doing all that work. And this podcast, specifically revolving around flipping, is meant to make sure you understand how to systemize your business to a point that you're able to flip two, four, 10, 20 deals a year from the comfort of your own couch, from a different country, from a different state while you're on vacation. See, guys, we learned with our mentors and people that we look up to that life is very short and that our business a lot of times can take a lot of time

if you don't start looking at it as an entrepreneur. Because you basically are creating yourself a job if you're doing all the work. And the idea is here on this podcast, The Science of Flipping, is to give you the science of how to systemize your business so that you don't have to be in your business. How to raise money, how to market, how to find deals, how to buy deals, how to sell deals with systems that you can replicate and duplicate and hire and outsource people to do so that you don't have to be doing them yourselves, guys. Again, we went from doing one to two deals a year to last year we did 96, this year we're doing 50, and we're also developing 79 townhomes here in Arizona. Guys, it is a beautiful picture right now,

but I'm here to teach you how to systemize your business so you guys can get to that point. All right, guys? Well, I'm excited. If you can hear it in my voice, I'm ready to go. Today's subject, again, podcast episode 14 is about subject two on steroids. This is an unbelievable way for real estate investors to get into real estate and to get

into investing without using their own capital, without using their credit score to get a loan. Now, if you're familiar with Subject 2, that is simply buying and or selling a home subject to the existing loan that is in place. So, the example would go as this. Homeowner A needs to sell their home. And homeowner B needs to buy their home. but homeowner B can't qualify for a loan. Homeowner B doesn't have very good credit. So what is a way to buy that home without having the ability to get a conventional loan or an FHA loan? Well,

they may have a lot of capital, but they don't have the credit to get a loan. You see, they might have, after the economic times, they might only have a 580 credit score. Maybe they lost their current home in short sale or foreclosure, but they want to buy this current home. And they have the capital to do it, they just don't have the credit score to get the loan. Well, then you're able to get into what we call subject two. You can buy that home. Buyer B wants to buy seller A's home subject to their existing loan. So they will put down the same percentage, 20% down, goes to seller A. Buyer B then gets the home deeded into a trust and they start making the current mortgage payments that is owed from seller A. Now, a lot of people out there may be used to

this. They may think this is old hat, this is nothing new and that is true. But what I'm going to teach you guys today is what I like to term subject to on steroids. You see, what we teach here and what we're able to do here is we go find a list, okay? And there's a lot of list providers out there that will give us and provide us a list of 30, 60, or 90 day late homeowners. What this basically means is they're in trouble. And I'm sure most of you, if not all of you, have heard of the 30, 60, 90 day list. Now a lot of realtors market to those people to get short sale listings. But what I'm going to teach you today is as an investor, you want to market to them, not so that you can put an offer and necessarily buy the deal, which you can, but so you can line up the buyer B and I'm going to show you how to find a buyer B. There are list providers out there that will provide you with the list of people that have been turned down for loans. Not because they didn't have enough money,

but because they didn't have the credit score to get the loan. There are list providers, I'll say it again, that will provide you a list of individuals who have been turned down for a loan, not because they have enough money or don't have enough money, but because they don't have the credit score to buy the home. So now what am I telling you here? Well, I'm telling you to go find that list. And again, there are many list providers with a 30, 60, 90 day late individual. I want you to send them a direct mail piece saying, hello, my name is Justin Colby or your company, Phoenix Wealth Builders. I see that you may be in need to sell your home. If you are interested to see what I have to say,

please give me a call or shoot me an email at this address, and I'd be happy to give you a free consultation on helping you getting out of this current position you're in. You can use that word for word, you can edit that, but ultimately, that's the idea that you want to come across to that home seller. You then also go after the list that I spoke about with the buyers who did not qualify for a loan. They have plenty of cash, they don't have the credit score.

You need to find those buyers. And guess what? They're out there. And guess what? Those sellers also need to sell their home. So, what do we do here? Well, you have an ability to find the buyer first. You go shopping for the buyer first, right?

A lot of people when I teach this, it's called reverse wholesaling. And you go shopping for them. You know they want a certain zip code. You know they want a certain zip code. You know they want a certain house in a certain area. And you simply take a look at the other list that you have that are 30, 60, 90 day lates. And you market to them.

Again, saying I know you're in a specific position. I'm happy to give you a free consultation. I think I can get your home sold without putting it on the MLS and you needing to go through a short sale. I think this is get your home sold without putting it on the MLS and you needing to go through a short sale. I think this is going to be a good scenario for you. I will give you a free consultation so we can discuss alternate scenarios than doing a short sale or you losing your home to foreclosure. In fact, I'll even show you how you can take a little bit of money out of

the deal rather than a short sale or foreclosure. See guys, the 30, 60, 90 day lates are people who really don't have a whole lot of options. If you're new to real estate, then you may have heard of something called a short sale. And one of my friends and mentors, Todd, tends to term that the long sale. Because they're long. They take forever to get done. And today, they're a little bit better than they used to be. But still, it is not a quick 30-day transaction. Now, you take the buyers that you're shopping for and you say, okay, I see that you want to

live in Arcadia, which is a sub area of Phoenix. and I see you want to have this many square feet. Well, let me see what I can find for you. And you send a mailer out to the 30, 60, 90 day lates in that given area, in that given zip code. And you have that because it's provided by the list, right? And now you have a great scenario where you're able to sit down with the seller, knowing in the back of your mind you have a buyer ready to buy this home because they could not finance a loan, again, not because they don't have the money, but because they don't have the credit. And you say, hey, listen, let me give you an alternative to a short sale.

Let me give you an alternative to losing your home in foreclosure. You see, what we're able to do is we're able to take over your loan. All you have to do is deed the home into this trust. The trust is obviously named the address of the house. I will ultimately own the trust. Now I own the home. The home is no longer in your name and we are going to be able to also potentially give you anywhere from $10,000 to $20,000 upon this sale. I will keep your loan intact. I will make sure the monthly payments are made. And I'll also give you money to walk away from this deal because in a short sale, you won't be able to get that. You're shorting the bank. You will not be able to get money out of the transaction. In a foreclosure, you also will not be able to get money out of the transaction,

at least not a substantial amount, maybe a couple of dollars for moving, but also will not be able to get money out of the transaction, at least not a substantial amount. Maybe a couple dollars for moving, but you won't be able to get $10,000, $20,000, $30,000 for doing a deal. Now, you already have the buyer. Remember I told you you have your buyer sitting there that you marketed for and you found someone who has plenty of cash but doesn't have a loan because they have no credit score. So you say, hey buyer, I have this home here in Arcadia. I know you're looking for it. Put down your 20%. The home, let's just use an example that the home is a $500,000 home in Arcadia in Phoenix. Put down your 20%. Give me your $100,000 as a down payment. You will then be taking over this loan. And there is a one-page document that title companies have

that you're able to make sure that the loan is not due on sale. Now, that is the key. Most investors who are familiar with subject to will make the argument, but yeah, but then the loan is going to be due on sale because the transfer title. Well, we have a document that simply states that the loan is going to be continued to pay your monthly payments. And if you have two loans, your both loans will be continued to be paid as long as you do not go after a due on sale clause. And guess what? In today's market, in today's economy, the banks want the monthly payments. They're not going to chase someone down to pay them in full. No one has that type of capital anymore. Banks know that. So you get that document signed.

Now the bank can't come after the due on sale clause. The home is in a trust and you simply deed over that trust. You sell the trust to the end buyer. That's it. Now, that's $100,000 in the middle there. So, do we make the whole $100,000? No. No, we don't. Remember, I did tell you. We were going to give the seller a good chunk of money to do the deal. Now, the seller is motivated by a couple reasons. One, this will not hurt their credit. They're already one month behind, two months behind. It will not continue to hurt their credit because the money will be caught up with this $100,000. So let's say they missed two months of

mortgages, of mortgage payments. So we will take, let's call it $10,000 and we will catch up the loan. Now the loan is no longer in default. The loan is caught up. And again, doing that, we will have the bank sign a statement saying that now that the loan is caught up, we will not put in a due on sales clause. And we're bringing in a buyer to take care of the monthly mortgages. Right? So again, the seller's motivated. They're going to catch up their loan. Their credit's not going to be hurt. They're not going to up their loan. Their credit's not going to be hurt. They're not going to have to go through a short sale or a long sale. Or they're not going to have to go through a foreclosure.

And on top of it, they're motivated because you're telling them you're going to give them $25,000 to move, to do the deal. Okay, hold on. Now think about that. If you are a seller and I'm telling you, you have no income coming in, you can't afford your mortgage anymore, you're going to lose your home for a short sale or a foreclosure. And I tell you, I'm going to make up the payments. I'm going to stop the short sale. I'm going to get your home sold for you. And I'm going to get $25,000 into your pocket. Tell me a homeowner

who's going to say, no, I don't want to do that. Tell me a homeowner who's going to say, no, I'd just rather go through a short sale or foreclosure. It just won't happen. It will not happen. You see the $100,000 the buyer brought in, 10 of it is going to go to make the loan current. 25,000 of that is going to go to the seller to make them do the deal. So you have $35,000 gone. The middle $65,000 is all yours. Guys, this is genius. This is working. This works all across the country.

I don't care what market you're in. This works. The the country. I don't care what market you're in. This works. The seller is motivated. The buyer is also motivated. They cannot buy a home. They need to rebuild their credit. But you're going and finding them a home that they can buy with no credit and with only cash. And they can walk into a home that they want because it's in the area

that they're looking to buy, and then you have a perfect deal. Guys, everyone wins. The buyer gets the house that they want without having to go qualify for a loan. The seller gets to sell their home without doing a short sale or foreclosure and ruining their credit score. And you walk away with $65,000 in your pocket by putting the two together. This is subject to on steroids. This is incredible, guys. It works in every single market here in the United States. There are not enough investors doing it.

There are not enough investors utilizing these tools. You need to be doing this in your market. This is a no brainer. Guys, as you can tell, I'm very passionate about this. This is a great tool for real estate investors. I don't care if you're a wholesaler. I don't care if you're a fix and flipper. I don't care if you're someone who likes to buy and hold. You put this into your portfolio or you put this into your business plan and you're going to be doing twice the amount of deals you did last year. Or if you're a rookie investor, this is a way for you to invest in real estate without having to have your own capital or even go raise private funds. All you

have to do is market for these individuals and you can get deals done. This is awesome, guys. Get out there and start doing Subject 2 on steroids. It puts money in your pocket. It's incredible. Guys, that's all the time I have here at the Science of Flipping. Happy to have you guys all. I keep getting great correspondence. I appreciate you all. I look forward to the next podcast. I'm going to blow your mind again with this next podcast. This was podcast episode 14. Go to the website, thescienceofflipping.com. This has been Subject to On Steroids.

I've been your host, Justin Colby. Peace.