The Science of Flipping - Episode 24: Interview with Dean Edelson the Master of Subject To Deals | Real Estate Investing Podcast

Episode Date: February 14, 2014

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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 24. I'm incredibly excited about this podcast. I am your host, Justin Colby. I am the host of the Science of Flipping podcast and the creator of the number one house flipping mentorship and consulting program in the country, aptly titled, you guessed it, The Science of Flipping. To get more information on how you can work with me personally, simply go to thescienceofflipping.com. Again, thescienceofflipping.com. And while you're there, go ahead and download my absolutely free ebook, The 15 Most Costly Mistakes a Real Estate Investor Can Make

in This Real Estate Market. Now, if this is your first time to the Science of Flipping, guys, welcome. You are in for a treat. See, this podcast is all about being able to take a fix and flip business and systemize it and organize it so you can make the same profits while sitting on the comfort of your own couch, traveling to a different state, or even on vacation out of the country. This is the podcast, the number one podcast, to help you systemize your fix and flip business so you are not in the business swinging the hammer, but you are high level, entrepreneurial, managing your managers, consulting your managers, and running a true business. So guys, welcome again.

This is a treat. I'm incredibly excited. We have a very, very special guest here at the Science of Flipping podcast. This is my guru. This is the subject to guru. This is the man that knows how to get creative deals done. What we will be talking about specifically will be the subject to deals that we all come across. I'd like to give Dean Edelson a great introduction because he is the creative guru of all gurus. Dean, how are you? I'm great. I hope I live up to that stellar introduction, Justin. That's great.

I'll tell you, after I heard your introduction and what you offer is just tremendous about just being as a business owner and flipping houses and wholesaling and rehabbing completely, what you've got completely removing yourself from the equation just so you're overseeing all your managers and contractors so everybody else is doing, like you said, all the work and all the heavy lifting. It's a fantastic business model and something everyone should embrace. Yeah, you know, I feel the same exact way. And that's, quite frankly, why I built the Science of Flipping podcast and I also have that Science of Flipping mentorship coaching program that I built because I truly believe what most investors get caught in

is they start doing every aspect of their business. And I learned very early on and I'm sure you've read the e-myth but it teaches you to remove yourself as quickly as possible out of each division of your business and replace yourself with someone else to do that task. And as real estate investors, so often we get caught doing every single part of our business. Yeah, and it's true.

We end up micromanaging and running around like a chicken without a head and like you said with with the e-myth uh a great book highly recommend everybody read that book because you can learn how to make quote-unquote mcdonnellize your business yeah that i mean that's exactly it and so um i, get out there guys. Go get the E-Myth. It is an incredible book. I know a bunch of my students, I make read it. It's like mandatory reading because the reality is my students tend to be high level.

And one of their biggest frustrations is they go raise the money. They go find the deal. They go find the contractors. They manage the contractor. They list the property. They go find the contractors. They manage the contractor. They, you know, list the property as a real, you know, they literally will do everything. I even have students that literally are the contractor in their own deals. And I think it's crazy. I just think it's crazy. It is. I just hearing you talk about all those things. I need a nap. Yeah, exactly. That's exactly right. That's exactly right. Well, thank you again, Dean.

I'm so excited for this. I really am. And I think we spoke earlier today and I'm sure you could even hear my excitement then that this was going because this subject, the subject to deal, the creativity that needs to be well that you just need for these type of deals I can't tell you the importance of having someone like you on you know you've done 50-plus deals in this manner you've done over 700 short sale deals you know again like I say you are my guru when it comes to these things. You've been an investor since 2001. You've had large portfolios of rental and lease option properties. And I'm sure I could have you on every single week and you'd have some great golden

nugget. So I'm just truly excited to let my listeners get a piece of what you know in doing over 700 deals and get a piece of what you know with the subject to type of deal. Because let's be honest, it's creative. It really is and it takes a special mind to be able to get a deal like that done where it can be beneficial for both the seller and obviously you, the investor. Well, I couldn't agree more. And the more strategies you have in your tool belt, the more effective you will be as a real estate investor. Although it always pays, since you're talking about the flipping properties, if you're just starting out,

stick with one thing because it's easy to get distracted. That's one thing I learned early on when I first started investing. My mentor would just say, you know, that shiny penny is going to take hold because everything's going to look attractive, especially in terms of what excites you, what can help you make money, grow your profits and revenue, and grow your business. But stick with one thing for six months or a year, get it down, and then pick up another strategy. I think that's some of the best advice I ever got because it really got me off the ground in terms of a real estate investor. And subject two is actually the way that got me started. So yeah, I stuck with it and I was not going to be swayed from that. And that's great. I mean, that really is good advice.

And, you know, I happen to be kind of that entrepreneurial mind, right? And there's so many, what I like to say, there's so many different hustles in real estate or shiny objects in real estate. I mean, there's a lot of different ways to make money as a real estate investor or even in real estate, right? And I know you're a real estate investor yourself. You're here. You're about an hour away from me. You're in Sedona, Arizona, which is very close to Phoenix. And I know you live there with your wonderful wife of over 18 years, and you have a 14-year-old daughter. But you've also been a realtor, right? And so there's so many ways between being an investor, wholesaling, fix and flipping,

doing subject to short sales, lease options, wraps. I mean, let's face it. You can make money every which way but up in real estate. And if you don't focus, you can never make money, right? I mean, that's the reality. And it's so, absolutely. And it's so easy to get distracted. Just know that those strategies will always be there. They'll always be houses and commercial properties and land. They'll always be out there. So there's no rush to get to the party. Focus on one thing, get it down, learn it, master it. And it's not that hard to do. You just need some just focus and it comes to you. It really does. If you've got a mind for it

and if you enjoy what you're doing, you're a little bit passionate about it or a lot passionate about it, stick with it and don't let anybody, your friends, other opportunities, lead you astray.

Don't let them distract you. Get to the plan. Stay in line. Get in line and stay in line. That's exactly it. Again, you're saying the right things absolutely and more people than you know. Or maybe you know what? You do know how many people need to hear those words. And I just wanted to mention one more thing before we get really into the meat of the subject too. But I know Bloomberg News did an interview with you, right? And it had to do with the legitimacy of flipping for profit and whatnot. Maybe tell our listeners a little bit more about how that interview went and what that was all about. Yeah, I got a call from one of the main journalists, the real estate journalist from Bloomberg News in New York City.

And at the time that short sales, when this was in the market, had already crashed, and the banks were changing their policies on how to handle the short sale problem. This was at the time where there was all those robo-signings, and banks needed somebody to blame. And they started to blame investors for the problems, and that investors were coming in and getting, buying and flipping houses, buying and flipping short sale properties and pre-foreclosures for a profit. And banks were pointing the finger and saying, investors are the pariah. We're the problem. And my stance with them, so they interviewed me on this because the interviewer, the journalist,

had just come back from the National Banking Convention, a huge national convention, and that's what they were touting there. It was very one-sided and saying that a lot of investors are stealing these properties away for the song and the banks are taking a bath, which is just totally goofy, which I pointed out to them. I said, how many houses do you think investors are buying on a short sale? How many do you think they are? Realtors are most of your business.

They're negotiating, and they don't know how to negotiate short sales. They don't know how to give a true BPO of the property. They're the ones. We're such a minuscule part of everything. However, just about everything that an investor does, when they know what they're doing, they get that property, and this was my stance, they take a house, they get to it right away, they help the homeowner from having a foreclosure on their credit report, they get them out of an extremely stressful situation, they negotiate a deal, they also put their own, the investor puts their own money into the deal to buy the house and then to flip it. So what are they doing? They're preventing a house from sitting on the market at a value that the bank thinks it is, which is always overinflated.

And it's just going to stay and remain vacant for months, if not years. And we've seen this. We have data to prove it, and I gave them data to prove it. The investor is helping the situation. We're aiding and abetting the problem. And this was a very different point of view that the journalist had from what he had gotten from all the bankers. And it was also the time where a group of our investors were also lobbying Washington

before the Dodd-Frank Act came out. I don't want to go off to Grandma's house on the tangent, but that's what we did. So we negotiated so many of these short sales. We really helped a lot of homeowners out of a very tough stressful difficult situation and and buying i'm buying these houses all over the country and i'm what it's called like you where you teach people how to flip homes anywhere virtually all over the country i'm an armchair investor so i was buying houses all over the country all over the country and we knew that what we were we knew what we were doing was good for the community it was great for the homeowner

it was great for the banks because we took a defaulted asset off their books as fast as they would allow it on an approved short sale as opposed to a home that sat on the market at a value that they thought the house was worth and no one was buying because it was overpriced. Everyone would sit there, and all these homes, as you know, were getting stripped of their copper wiring. There were floods, pipes bursting, especially in the cold climb states. Yeah. No, I'm very familiar. I was definitely in the real estate game in those days. In fact, I got in in 07 right when those scenarios were happening.

I couldn't agree with you more. Couldn't agree with you more. But let's just get to it. I think everyone out there wants to hear more about this subject to the deals that come as subject to. And what is subject to? And what does that actually mean subject to? So I'm going to allow you to get out there and start to educate my peeps and let them know how good you are. But let's just start with what does subject to mean and what does that type of deal look like? Let's start there.

Sure. So subject to is a short, it's just a phrase meaning you as the investor are buying a home from a homeowner subject to the terms of that loan agreement. So let me explain further. So that's where the phrase subject to originates. So when you buy subject to, what you're actually doing is the homeowner is deeding you the house. They're giving it to you for the warranty deed. They're deeding you the house. So you own the home.

However, the homeowner still owns the loan. The loan remains in the homeowner's name, and you simply make a promise and a commitment to make payments on that loan. And you can do that. A lot of investors who are just starting out are not familiar with it. This strategy, which is a fantastic strategy, by the way, you can own the home but not own the loan. And that's how I describe it. Subject to it, you own the home but you don't own the home but not own the loan. And that's how I describe it. Subject to is you own the home but you don't own the loan because the loan remains in the homeowner's name.

That's subject to in a nutshell. So that's brilliant, right? I mean, you know, we're speaking to all our listeners out there. And as a fix and flipper, part of my business is I'm constantly raising money. I can never have enough, right? I mean, if I went and did, I did 96 flips two years ago. Last year, I did over 50. I can never have enough money.

So what you're telling me here is this is going to be subject to loan. The loan stays. I get deeded the home in an agreement of sale, correct? That's the paperwork and you could do it which is uh and if you're on an agreement for sale is what's called generally it's called a land contract here in arizona it's called something else it could be called a land a land contract or a land sale contract and that's where you have, and I'm just doing this for clarification again, an agreement for sale or a land contract is you have what's called equitable title to the property,

but not legal title to the property. Got it. Got it. And a lot of people, an equitable title would probably ring a bell for a lot of people out there because a lot of people get equitable title when you just simply tie up the property before you even take title to the property, right? For all you wholesalers out there, a lot of the argument to make wholesaling your business is because you get equitable title, which allows you to market the property to other buyers and so on and so forth. So the land contract, the agreement of sale,

gives you the same equitable title of the property without taking over the loan. So for the fix and flipper, man, does this make sense, right? I mean, that cuts down how much money I need to raise by hundreds of thousands, if not millions, right? Correct, because when you take over a lot of subject to uh... you have to come out of pocket anything all you have to do is keep the loan current make that promise and committed to the homeowner say all right

i will help you out of your situation and that's a great people with people are saying to them self well why would a homeowner do that that's just goofy that's the next question i was going to ask you so you're just i'm telling you you've got to be ethical you have to be a man or a woman of your word if you make a promise to that homeowner that you are going to buy their property subject to, come hell or high water, you do what you say you're going to do. Bottom line, or don't do the deal, no matter how attractive it is.

If you can't raise the money or don't have the funds to keep that loan current month after month, whether it's occupied or not, don't do the deal. And that's all you're doing. You're just simply making the monthly loan payment. So you are no money out of pocket except the monthly loan payment. So we can give some real numbers so that we can get a grasp of the situation. So let's say there's a $100,000 home out there, and it's leveraged. Let's say it's got, you know, the homeowner's been in it for about five years, got an FHA loan.

He did it at the time. He put no money down. Five years later, so let's say he owes, for numbers' sake, $95,000 on the loan. But in the market now, in today's current market, because things are climbing in a lot of markets right now let's say that house is worth one pat

okay will use very very conservative numbers so we got a lot of work with hundred thousand five years ago which was bent toward at the time of the crash and now it's worth one pat but without the property but what did I say, $90,000, $95,000? I can't remember. Yeah, I think you said you bought it for $100,000. Let's say $95,000. Okay, $95,000.

Okay, $95,000. Okay, let's say $95,000. So it's still fully leveraged. It's a fully leveraged home. And let's say the payment on this FHA loan, if it was originated five years ago, which would have made it when interest rates were at their lowest, let's say, I'll be conservative again, let's say it's 5%, and it was lower than that for FHA. So let's say it's 5%.

So with taxes and insurance, the monthly payment on this house is $650. Okay, we'll round. $650 in loan payments. So you say to the homeowner, I can buy your house right now. I can buy your house, and all it will take is 30 minutes. I've got the contracts and the paperwork right here. And this homeowner has been stressing out because they have to move. They have to move from Arizona to Missouri because there's medical issues.

The parents need help. They need home care. So the kids who have this, who just bought this home five years ago, they live in Phoenix, they've got to move. They're desperate. And it's not selling on the market because it's fully leveraged and nobody's buying it and they have to move fast. Because in this business, remember, we're always working with motivated sellers.

Don't ever try and convince somebody who's not motivated to sell their home you're beating your head against the brick wall. So now you've got a house for $650 a month and this is something you want to, since this is your audience, you want to fix and flip it and this house might need some work or maybe you might need a little work. So you say, hey, this is a great deal. If worse comes to worse, if I'm stuck holding this house, I've got some options here. I'm looking to flip it.

However, if I get stuck, I know I could rent this house out in this neighborhood for $900 a month. Easy, easy. So now there's a $250 cash flow spread because you've got a $650 loan and you can get $900. So these are options here to say, you know what? I just keep lowering my risk. So you say to the homeowner, I will buy your house. And they say, wow, this is fantastic. Great. What do I have to do? Here's what I have to do. Sign this paperwork. The loan is going to stay. You're going to deed me your home.

You're going to give me a full warranty deed for the property. We can go through title to do this. We can fill out a HUD if we need to, or you don't. You can do a kitchen table closing. And you don't have to do it if you know what you're doing. And you say to them, and the homeowner says to you, well, how do I know you're going to make my loan payment? I said, very easy. How about if we said that we could set it up on automatic bill pay? We can set it up through a title company, a third party,

where I pay the title company the $650, and you can call every month and find out, or they can notify you that your loan's been paid. And they say, this is fantastic. This is great. And aren't there third party, sorry to interrupt, aren't there third-party servicing companies, right? That's what we would use. A third-party servicing company does the same thing. Absolutely. Whoever, it could be a title company, third-party servicing company,

and the monthly service fee on something like that is $7 to $10. It's nominal. It's just nominal. So now you've allayed the homeowner's fears that it's going to get paid because if they ever miss a payment or they're late, the homeowner can give you a call and notify you and say, what happened? And you say, oh, my gosh, I didn't know a payment was skipped. I'll get on it. Maybe something happened with my bill pay, whatever.

But you take care of it. So now you've got a house. It's worth one pen. Ninety-five is owed on it, and you have all these options on what you want to do with that property. You can go in, fix it up so it's in cherry condition, so that once it's fixed up, it'll be worth $112, $115, and now you've built in some really nice back-end profit. And as an investor, if somebody else wants it, you know you've got a margin in there to come down and say, you know what, I just want to flip this sucker really fast.

I'll sell it for $107,000 instead of 115. And after closing costs, now you're pocketing $6,000 on a very easy deal that you may have let go because it was fully leveraged or even slightly over leveraged as a wholesaler. Right, right. And one of the keys here is you didn't have to come out of pocket and there was no or very little. Your cost of money, because the loan stays in place with so little. I have so many listeners out there that use hard money and it's 18% and there's points and all of that. So this option, especially for a fix and flipper who is really going to acquire the home, this is a great option because you now have a loan at, I think you said 5% or maybe 6%. So your monthly note is $600 instead of $1,200. I mean, this is awesome. It takes a deal that would, in the fix and flip world, would be skinny numbers, right? Oh, you're getting

it for 95 and you can only sell it for 110. Yeah, but you don't have any cost of money. So you're able to take that deal. The other thing is, and you just said something that's really key, you don't even have to fix it up. If there's a little margin in there, you can flip it as is and say, hey, why do I need to tie this property up for two months going in and fixing it and then getting it to market? I can take this thing over subject to, flip it as is, so instead of flipping it for, you know, even to a home buyer. So now you've got the option of flipping it to a very hungry homeowner or another rehabber. And you'd say, all right, I'll flip it to you. I mean, you could jump with, there's no realtors involved, so there's no commission. You don't have to, because if you have your buyer's list of landlords and other investors and other rehabbers, which I know and I'm sure that you've taught your coaching students how to do that and your listeners on the podcast how to do that.

So now you could say, hey, I could do this as-is, safe cost. I'll sell it for $103,000. And now I've got between $105,000 and $103,000. Very nominal. I just made $7,500, and I didn't have to do a thing and I could flip it immediately. Right. Right. And that would be huge, right? And we just walked into a deal, the same thing, the sellers owed very similar to, you know, exactly what they owe on the bank is what the home was worth. They had no way of pulling away from it. I knew it would

be a great rental property for someone. So we were able to do a subject to deal with that structure because they owe, basically there was no equity. It could have even been a couple thousand dollars underwater, right? And so we were able to be creative with them to get the deal done. And the same thing. We bought many houses that were slightly, that were underwater, but the loan, the underlying loan was so good. I mean, because my strategy was, I'm a, you know, I'm the buy and hold guy because I do a lot of lease options and a lot of wraparound mortgages on the seller financing side for

my occupants so I could have an over-leveraged house but have a great underlying loan as long as I know my market rents can't support it. And if the house is in a desirable neighborhood, so they know it'll always be occupied. So I have a lot of fully financed homes that I made work with tremendous cash flow each month and then I just watched the house I mean I watched it go way up as the houses went up and then some of the houses that I held on to when that when it crashed and burned I still have in my inventory because the value came way down and they went down below what they were when I first bought them but it didn't matter

because I wasn't stressing about it because I knew this was a great rental house, it was a great lease option, a great wrap property, I had really good tenants, the house was in a good area, and it was just churning out cash flow. And I still have a lot of my subject-to-houses in my portfolio to this day, you know, 13 years later. Right, right. And that's going to be, you know, a lot of people will ask me is, you know, how do you start building a rental portfolio?

Well, guys, this is how. This is why it was so important for me to bring Dean on, right? I mean, Dean has the creative juices to get some of these deals where, let's face it, most of us investors would look like a deal that didn't have any profit margin or was slightly underwater and just say, it doesn't fit my fix and flip, or maybe the margins are too thin. Well, why don't you start taking, I say this all the time on my podcast, why don't you start taking a new set of glasses and looking at it at a new set of glasses so you can figure out

how to get a deal like this done. Now, you know, Dean, what I wanted to simply bring up into the podcast was what would be a couple scenarios that I brought up one already, obviously, if it's underwater, but when would you be looking at doing a subject two, right? Because last week, for example, I got a caller from a mailer I sent out. They own the home free and clear. Would that be a good position to do a subject two? Would it not be?

So why don't you let the listeners know? Sure. When do people want to be doing these subject two type deals? So for the one year you just mentioned if somebody owns a home free and clear there's no subject to deal because there's no underlying loan or mortgage on the property it's free and clear so i love free and clear properties for one because subject to aside you have the world there are so many places and so many ways to structure a deal that is beneficial to everybody.

So we don't have time on this call to go into it. So the other way, so for subject to deals, for anybody, and I mean this is just an amazing strategy to use because most investors are in the fix and flip, the rehab business, and the turn and burn business. They look at, is there equity in this property? That's what most investors are looking for, equity, equity, equity. Now, as you said, put on those new glasses and say, hey, why don't I go after houses? Also, I'll add this to my wheelhouse.

I'm always looking for houses with equity, but now I can look at houses with no equity because now I know how to do subject to. So that's one indicator. It's looking at when you're looking at the house financing itself, look at loans, look at a house, one, that's fully lever it, that's practically a fully leveraged house because there's really no equity. And after paying a realtor commission and closing costs, you might have a couple grand left in there. So it's a thin deal, but don't walk away from it.

So look at that. Look at fully leveraged homes. The other thing is you want to look at the interest rate if it's got a great low interest rate and your monthly payments are lower than what your market rents are by you know fifty a hundred bucks two hundred bucks three hundred four hundred I have some houses that were you know at one time I had a 650 profit margin in there between my market rent and what was the underlying loans on it. And that was even with a first and second loan.

So you can get creative with subject to, which is what I've done before on first and second. One of the houses got two liens on it. So that's the other thing. So the first is looking for fully leveraged properties. The second thing to look for is the interest rate and your loan payment. And what are your loan payments each month?

And do your loan payments undercut what you could get in market rents? And the fourth thing you want to look for is a highly motivated seller. And this is true with anything, whether you're fixer-flipping or you're looking to tie up a house with an option, a subject to, always look for the motivated sellers and do not waste your time trying to convince somebody who's not motivated and you know it right away to sell their house to you.

So those, for me, are the... And also, a motivated seller means their situation. And usually you don't know because sometimes a seller will play it cool. So depending on your negotiating skills, there are very key questions to ask a seller to find out how motivated they are. Yes. Yeah. And you brought up a great point and I want to get out there.

I'm sure many people are asking, well, if someone has a loan that they pretty much are fully leveraged or even slightly underwater, how are you able to speak to that seller and get the loan documents and get that type of information out of them about how big is their loan, what is their interest rate, what's their monthly mortgage? You see a lot of those sellers, they hold that close to their chest. So how are you able to get them to tell you that kind of stuff? If they're motivated, they will tell you so when i market to these folks whether it's through uh... through mailers postcards online going to craigslist

the small monthly physical supplements like ed king and penny favor and those things were people still advertise and don't pass those opportunities up to look at those local ad papers at your local newspaper either uh... you know as you hear that print dead opportunities up to look at those local ad papers and your local newspaper either. You know, as you hear that print ad is mostly dead, but it's not because you still have folks who are in the baby boomer generation who still, a lot of them, advertise in those means, in that way. So I have a sheet when I'm doing subject to that goes through. It's like for me when I start asking questions.

Hi, you know, how are you? You saw our ad. If they're calling you, they're motivated. They want to sell their house. So be nice and always be of help and assistance. Put your, as much as you can, suppress those greed glands. Really, you're in the helping business. No matter what you do, the more people you serve, the more you will be served.

So always have that in mind first. Look to serve, support, and help others. Number one, because people can smell a rat. They can. So always look to be a servant in your business. The more value and the more value creation you provide for your customers and your clients and your sellers, the wealthier you'll be, the happier you'll be, the easier it will be,

and the world will open up and things will just be attracted to you just by the virtue of fact of how you're serving the planet. And when you do this, believe me, you are serving the planet. Money is great. We all love money. The bottom line is look to serve. So if you're on the phone with somebody or even face-to-face with a homeowner, that is going to come across. Come across as a human being. Don't come across as a shark investor.

Don't get your peacock feathers up and start puffing out your chest and showing how much you know and what you can do and I can do this and I can do that. The most frequent word out of your mouth should be you you you and when you do that it's easy to get this information because people will open up they'll give you their social security number they'll tell you what's on the loan if they don't know and a lot of people will not know, it's amazing how many people sign those loan documents without knowing the terms of the loan, what kind of loan, if it's an interest only, if it's a five-in-one arm, if it's a 30-year fixed rate amortized, a lot of people, you'd be surprised, don't know.

So these are the questions that you ask. If they don't know, say, well, do you have your loan documents? Do you have a loan statement on you, your monthly loan bill? Well, do you have a way to fax it to me or scan it and email it to me or for a meeting face-to-face? Do you have that? And they will show it to you. They will not resist because they are motivated and because even with marketing, these are the three biggest things. Remember this, KLT, KLT, know, like, and trust. If they know, if they get to know you, they like you, and they trust you, they will give you anything they ask for. And I can speak on this from experience because we've got 700 deeds,

700 social security, I mean almost double the number of social security numbers over the phone because we were getting spouses, wife and the husband or partners or whoever's ever on, who's ever responsible for the loan. People will tell you these things. It's not that hard. For the first few times that you do this, you're going to be nervous. It's new. We all go through this, but they will tell you what's owed on the loan. You'll find every piece of information. They'll give you copies of the deeds. They'll give you the original deed if they have it. You'll have everything you need to do a deal and to make an assessment so that you have all the financials and numbers in front of you so you know, is this deal going to work?

And then it's just a matter of saying, hey, we can work something out, or I'm sorry, you know, I may not be the best option for you, but let me see, even though I may not be able to help you, I think I may know somebody who can, and I will do my best. And you give them options. You give your homeowner options. If you can't help them, do your best to give them options so you're just not leaving them high and dry.

Even if none of those options work, they at least know what they are so they have something to work with so they know that they can go out and do their best to try and get out of their situation even though they may not be able to. Exactly. I couldn't agree with everything you're saying more. I see it and my team sees it on a daily basis our acquisition managers taught and I trained daily about you know there's certain words you don't use like deal right as investors will simply say oh is it a good deal is

it a deal I want to do you're dealing dealing with people, no pun intended, that in your in communication with people that have owned homes for 15, 20, 30, 40 years, they've lived in this home, their children grew up in it, their grandchildren, right? You can't speak about this deal, right? You need to be a human being. And I train my acquisition managers and my sales managers constantly about when you're in communication with the people who are selling their home, it's exactly that, their home. It's not a deal to them. It's their home. There is a tremendous emotional investment and attachment to that home. And like you said, their kids have grown there.

They've had experiences there. They've made love countless times in that home and the blog and the kids. I mean, it's life. This is where the majority of your life is happening if you're not living out of a suitcase on the road for your work. So think of it in those terms and what it means to you. All of the music that was played, those memories, the movies that they've watched, the books that they've read, the paintings on the wall, the colors of the wall, the rug, the carpet. There's history there.

That's somebody's life that you're dealing with. This is where they park their life. Absolutely. And, you know, for you to come along as an investor to help someone in a very tough situation, in a stressful situation, to help them get out of it and use Subject To as a way to do that now that you know that it's available to you is massive. Because I can't tell you, just every single, when I walked into a house and I would see, you know, all the Subject To's that I've done, I've done face-to-face for the most part I know I've got a subject to deal done on the phone with the way that that I've learned to negotiate and talk to homeowners before I even meet them I know it's it's a done deal before I meet

them and then when I meet them they're there I bring my contracts my my paperwork sign here sign here this, sign date this. Here, we've got a mobile notary here. Sign and date, we'll notarize that. Sign and date here. And they do. Yeah, yeah. I buy their house in less than 30 minutes every single time.

And they are thankful. That's the, that's, I mean, your eyes let them, they go, and they'll be thanking you. They will say, oh, man, this is such a relief. You have no idea. I can't believe you're doing this. I just can't believe. Now, I mean, I've showed up at banks to do a signing, and I recall a mom, a single mom, showed up at the bank for me to sign the paperwork,

and she came with her son, her 15-year-old son. They showed up in a pickup truck with all their belongings in the pickup bed, and they said, man, this is great. My ex-husband lives next door. I can't wait to get out of here. I can't tell you. She hugged me and kissed me yeah this is fantastic it took 15 minutes to sign paperwork adios goodbye i'm off to montana

that's the way it went down another woman said to me which was hilarious i met with her in her house and she was a chain smoker and i felt like i was in the cone of silence on the old get smart tv show you know it's just a smoke-filled room and she's saying, this is great. How long does this take? Because I've got to get to Vegas. You're like, oh, sorry, I didn't bother about selling your home. I know. I had to get up to Vegas.

I couldn't find the paperwork. She couldn't find the paperwork fast enough. Unbelievable. And I had that house and each one turned out to be a profit center for me, every single home. Unbelievable. And what I want to get to next is you brought up a couple key points that I want everyone to listen to is, A, where do you typically handle the paperwork, right? And then, B, let's talk about the paperwork.

What type of paperwork do we need? And also, I know you actually have the paperwork, and I'll encourage a lot of my listeners to contact me so I can get them over to you. And you can just do that by going to thescienceofflipping.com. Email me at info at thescienceofflipping.com, and I'll get Dean's paperwork. But let's talk about the closing of the transaction. Where do you typically get them to sign the paperwork? Do you do it at title companies, lawyer's office, at their home? And then what actually is the paperwork you are personally using?

Because I actually know you have all that paperwork. Yes. And I have a course on it as well on subject oh my god a contractual package which is it has all the blank documents and it has an entire set of documents filled in so you know exactly what to do so the way I the way I did I did kitchen table closings a lot some of you might feel more comfortable doing it with a title company or if you're in an attorney state for closings,

and certain mortgage states like New York State is a mortgage state. Arizona is a deed of trust state. So, you know, you might want to do your first couple with a title company or with your attorney, either one. But I always did kitchen table, meaning I met them at their house. Or if they want to meet at a neutral place, I would meet. I did signings at – I had good relationships with a title company, but I didn't use them to close, so I would meet in their conference room.

I've done subject to at Wendy's and Burger King because it was near their home, and that's where I met them. And that's where they wanted to meet. So I would say, what's convenient for you? Where would you like to meet? I'm buying their home. And it can be literally anywhere. I've signed contracts in the front seat of a car with them, getting in the passenger side, and they've signed the documents.

I signed a set of documents also at the Justice of the Peace, at the county courthouse. They've got notaries there, so we've done a notary. Banks are really good. If you've got a good relationship with your bank, you can use the little conference room. They've got notaries there because there are certain documents that need to get notarized, like the warranty deed or a trust agreement. Now for the paperwork, there's a couple of steps here. One is there's the paperwork that they need to sign, and there's the paperwork that you're going to be doing when you're taking all their information over the phone. So I always have what's called a seller script that I use over the phone that I need to get all the information.

And I can tell right away if this is a house that's eligible for subject to just by filling in the seller script. So you're going to need – do you want me to give you the laundry list of the documents? Well, I think what most listeners probably would like to know is, you know, most of us on this podcast are traditional fix and flippers. And I know there's a very big group of wholesalers as well. But, you know, most often we use a traditional purchase contract, whether it be through their department of real estate or maybe they have one of their own that a lawyer drawn up. Do you use that type of purchase contract? Do you need to have any addendums? Do you need to have what type, you know, as far as the paperwork that needs to go in to get the deal under contract, what are you using? So here's what I'm using. I use an authorization to release loan information

because the, the whole, the borrower or the homeowner seller has to give you permission, the investor, to call the bank so you can get all the up-to-date loan information. And when they're out of the picture and they've moved, you've got to have authorization to talk about the loan. If loan payments change, which they do each year according to taxes and insurance, so you get a different loan payment each year according to taxes and insurance, so you get a different loan payment each year depending on how long you're holding on to the property, so I need an authorization to release loan information. I have a warranty deed, which gives me full legal and equitable title to the property.

I have them sign a special power of attorney, which just limits my power as attorney to the property itself. So we sign and notarize that. The warranty deed is also notarized. That's the second document. So those are the two documents I know of. I get a limited power of attorney for the insurance because I'll be talking to the insurance company about the hazard insurance on the home. So I get that notarized as well.

The purchase and sales agreement. I use my own purchase and sales agreement, and I tail it to the deal uh... the the hazard insurance on the home so i get that notarized as well the purchase and sales agreement i use my own purchase and sales agreement and i tell it to the deal sometimes it's like certain provisions that they want and or that i want to know i use my own purchase and sales agreement you could use a standard state-issued realtor uh... agreement if you're comfortable with that, but you don't have to. I also do a trust agreement.

You can and can't do this. I do a trust agreement because a trust agreement is a way of avoiding the due on sale clause. That's something we didn't talk about. And then there's with the trust agreement, the assignment of beneficial interest in trust. I have that agreement. I have a letter to the insurance company and a letter to the mortgage company letting them know that I will be making, I've been assigned to, I don't let them know that I own the property. I let them know that I will be property managing the property

and that all payments will come through my office. And if insurance payments are escrowed meaning they're tied into the entire loan payment each month or if insurance payments are taken care of separately outside of escrow each year so i get that so they and i'm also added this is getting into the nuts and bolts and nitty-gritty of subject to, I'm also added on the insurance as an additional insured. Okay. Okay. And I have a bill of sale, which means if the bill of sale is for any goods that the homeowner is leaving in there,

let's say washer and dryer, and they may want a little cash for it, or you negotiate to say everything that's in the house comes with the house. But they might say, well, I'm going to take the washer and dryer, and then you can negotiate with a bill of sale, saying, you know what, how about if I give you $50 for both, and then you don't have to hassle. And they might say, okay, so I have a bill of sale. And those are the basic documents that I use for a subject too. And it's complete and it covers everything. That's fantastic. And if you're out there and you're listening, you say, oh my gosh, I need that stuff. Listen, get ahold of me

at info at the science of flipping. We'll make sure that you talk with me, Dean, my team, and we'll get you going with that type of paperwork. I did want to bring up two last things. We're creeping up on an hour here. I can't believe how quickly time flies when you're talking about interesting stuff. First, let's talk about the due on sales clause. I know a lot of investors are sitting out there like, okay, Dean, this is all fine and dandy, but the bank's going to call the loan due. You know, you're transferring title,

they're going to call the loan due. Now, how do you get around that, Dean? The hammer of four, the God-fearing due on sale clause. All right. So when I first started, I was like, this is great mitigated risk. I'm okay with it because I knew. So the due on sale clause is a provision in the loan documents, in the promissory note that the seller signs when they get a loan from the bank that says if legal title of the property is transferred at any time without the bank's knowledge or approval, the bank could call the loan due full and payable.

So let's say we got that $95,000 home. I did a subject to. I took over that $95,000, and the bank out that the homeowner sold me this house and transferred title because they gave me a warranty deed for it, the bank can go back to the homeowner and say, we want all of our $95,000 now. It's due right now. That's the worst that could happen. Has it ever happened? Yeah, it's happened. It's not common. It's pretty rare, especially in today's economic climate, because the banks are just happy to get their payment each month,

and they don't care who it comes from. Right. So I'm not saying this to boast anything, but with the skills that I have in negotiating, I would know how to negotiate out of a due on sale. And so it's something to be aware of. It's not something that should – and again, this is a personal thing. I would say it's not something that should frighten you or scare you from doing a due on sale clause

because the worst that could happen is the due on sale clause. And remember, it's not you, the investor, that has breached or broken a contractual agreement. There's no due on sale jail. You don't go to jail. It's not all you're doing. It's a contractual agreement with somebody. So they can't do anything and they can't prosecute you.

The worst they could do is if you didn't. So if the bank calls the loan due, you as the investor who took over those payments, you're not responsible. The homeowner is. Their name is on the loan. That's not to say it's to shirk your responsibility. If that were to happen, I would say to the homeowner, hey, the homeowner calls up and says, the bank just called. They found out I sold you the property three years ago, and they're calling the loan due. I would

say, I'm happy to take care of this for you. And if the worst thing comes to worst, what I would do is say, what's owed on the loan? Let's see. The bank's not going to say, we want our money right now. You can buy time. You could buy 90 days, six months, whatever, to say, give me some time. You're getting your loan payments, right, bank? Are you getting your loan payments? Great. Continue to get your loan payments and give me some time if you really want to call this loan due and I will sell the house. I can bring an investor in.

I already know I've got a little equity in it. Even if it's fully leveraged, I can sell it and get out of this. Very least you can sell it for what's owed for the loan. Absolutely. Very least. Worst case scenario. Right. Absolutely.

And so the key to this, Dean, and for everyone out there, is you can't be going after someone who isn't in need of selling their home. A subject to really, the best way to do a subject to is to find someone that literally is in a position that they can't either afford their mortgage anymore, they're moving, they're at a point of desperation, something that they have to get this done, right? That is the type of person you really want to get or to at least handle this transaction in a subject to manner

because if someone can afford it or, you know, a lot of people don't want to go through this mess if they can continue to make their mortgage. You want someone who's either over leveraged, lost their job, has to move in an emergency and then you're able to do a subject too, right? So that's really who you want to be focusing on. And even if the borrower, even if the homeowner is behind a couple payments, it's no skin. Because there have been many deals where I'd say, hey, you know, they're behind a couple payments. It's going to cost me $1,500 plus some late fees to make up the back payments and bring the loan current.

It's worth it for me. Absolutely. So I make up the back payments. And one of the other things, too, with doing a subject-to deal, you're going to tell that homeowner if they've gotten behind in payments to say, you know what, I'm going to continue to make the payments, and I'm going to improve your credit in regards to the home, because your payments are going to be made every single month on time. So when it comes to the home and improving your credit, Mr. Borrower, Mr. Homeowner, from my end, you're going to have stellar credit.

I have no control what you do with your other bills, but in regards to the home, that loan is going to be paid every single month on time. Right, what's your alternative? You're going to start missing more payments. You're going to start missing more property tax. Listen, Mr. Seller, you're in a position right now that I'm able to take over your loan. I'm going to catch you up. You owe $5,000. I'm going to cut you a check. I'm going to catch you up. You owe $5,000.

I'm going to cut you a check, or not you, but your bank a check for $5,000. I'm going to make the loan current. It's all going to go through a third-party company who's going to handle all the transactions. And I'm going to make sure that your monthly note gets paid every single month. That way you don't have to hurt yourself, hurt your credit with defaulting on your loan. I mean, it's really a win-win situation, but you must be going after people who are in a position that they need to sell, they must sell, they're desperate to sell. If someone has, again, is free and clear, or they have a hundred grand equity or you know whatever those are

not going to be the people that you need to be negotiating with it's the people who need to get out of this situation you will have leverage with them you will be able to communicate why it will benefit them to do this and that's how you're going to get that deal done and especially today with there's always people who are in distressed situations. Medical, divorce is real big, change of jobs, health. So you can... Oh man, I just lost my train of thought. I just went to grandma's house.

You know what, that's okay. We've been on this call for an hour now, 58 minutes to be exact. And again, I know you and I probably could sit here for hours and hours talking about these certain deals. But you know, there's always another podcast. There's always another time. Is there anything you want to kind of leave them with, all of our great listeners, about subject twos,

how to get them done, the paperwork? I think you've done a great job laying out how to get these deals done. Just now you're aware that these deals are out there. Here's what I was going to say. The subject to deals that are coming up now, remember, a lot of these loans were originated

during the market crash in 2008, 2009, and 2010, and the mortgage interest rates are so low on these things. So that means you could pick up fantastic deals with great underlying loans with very low interest rates. That's key, and you're in a great position right now in today's day and age to have your eyes open to these types of deals. You've now got another tool, another strategy that you can use when you're out there looking for your fix and flips deals and your rehab deals. That's it. That is exactly why I had you here, Dean.

I want to give you a very, very special thank you for coming on our podcast here at The Science of Flipping, for being here and sharing your amazing insights on subject to. Like Dean just said, today's market is a great market to do this because the loan that you will be inheriting is low interest. You don't need to go find more money and raise more money. You'll go get a 3% or 4% loan on that deal and you can flip it, fix and flip it, wholesale it, keep it as a rental. Today is a great market to be utilizing Dean's strategies. And again, if you need that paperwork, give me an email at the info at the science of flipping, get over to the website,

the science of flipping.com. And remember remember if you're interested in doubling, tripling or even 10 timesing your flipping real estate business don't be afraid to email me regarding my mentorship and or consulting program email is at info at thescienceofflipping.com

again I really want to give a big shout out to Dean Edelson. Thank you again, sir. And you will be hearing from him more, guys. I promise you that. So thank you again, Dean. You're welcome. Justin, thank you for having me

and for all the great information that you provide for your real estate information. You probably provide for your listeners. It's invaluable. Well, thank you much. And I'm sure I'm going to have you back on here very soon. And I'm sure we're going to be in overflow of emails coming in, wanting to speak to you and the rest of my team. So that's it, guys. I'm your host, Justin Colby. And thank you for another great episode of the science of flipping talk soon