Discover the Best Real Estate Investing Courses: Creative Real Estate Financing Post Covid

All right. Welcome back everybody to NoteSchool TV. My name is Brian Lauchner. I'm on the teaching team here at NoteSchool, and today we have a very special episode, just like we do every single Wednesday when we go live at 11:00 AM central time. So make sure if you're wanting to get the latest and greatest content that's coming out, be sure to like, and subscribe this channel as well as turn on the notifications by hitting that bell notification. And it will tell you on your device, Hey, we're going live. And then you can jump in with your comments and we'd love to interact with you here while we're live on the show. So today here at NoteSchool TV, we've got a lot of great content. If you're wanting to learn more about the Note Business or NoteSchool in general, you could go to www.NoteSchool.com/TV to learn more, or you could actually attend an upcoming industry event called Note Expo.

Brian Lauchner (01:05):

And you can learn more about that at www.NoteExpo.com. So today on our live show, we have some incredible content about the Creative Financing Space and really why is it so important that investors really know this information? And we've got the latest and greatest of people to talk about this as well. We've got Joe Varnadore and we've got the one and only Eddie Speed as well. Tons of experience to kind of bring the content into our homes and learn a little bit more. So joining me right now are going to be, and we're going to dig into, Hey Eddie, Hey Joe, why is creative financing so important in today's marketplace?

Joe Varnadore (01:44):

You know, Eddie and I were talking back in March early March, when this whole thing started, right? The whole pandemic and Eddie says, Joe, he says, you know, I don't think there's ever been a better time for a couple of, you know, older, gray hair guys, to talk about the way to, you know, build your business, double your net worth during a period of time then right now. And that's because of Creative Financing. Eddie, why don't you share with us, you know, some of your experience from the past, right.

Eddie Speed (02:22):

Well, you know, I started in the business. I started in the business in a market that was a black Swan Market. I started in 1980. And what's interesting guys is that when I started in 1980, I was calling on realtors, that their clients had created Seller Financing or Home Builders. They were creating Seller Financing for their clients to sell a house, a new house to them, right. A new home builder. And the truth of matter is I was calling on them. I was a rookie in the business, young didn't anything, you know, just, here I was walking into their office and they're like, it was like a morgue, right? I mean, they were just, Oh my God, we don't know what to do. And it's scary and stuff. And in this business, because I came into it from a different kind of a knowledge base, a different perspective, it was a Bonanza for me.

Eddie Speed (03:23):

And I thought that through the years they'd been doing it for decades and I've been doing it for months yet, I was killing it and they thought they were getting killed. Right. They're the ones that should have been telling me how to solve the problem, not me telling them how to solve the problem. Right. So sometimes because somebody has been doing something a long time, doesn't mean they're thinking in a progressive way. So Joe and I spent a lot of time about, yeah, this gray hair does mean something, but this gray hair doesn't mean anything. If we're not looking on the market horizon and saying, what would be the most relevant changes we could make to our business that would affect our net worth and our income the most.

Joe Varnadore (04:08):

And, you know.

Brian Lauchner (04:09):

being that, Oh, go ahead Joe.

Joe Varnadore (04:12):

No, I'm just going to say, and that, and you know that, so Eddie is, you know, he is our fearless leader, right? He's a, but he is our visionary as well. And you know, one of the sayings that, we say it NoteSchool, and Eddie nailed it is, don't have a crystal ball, but I do have a rear view mirror. And all of these events, these Black Swan events really has prepared us, right. For what's going on today in the marketplace, you know, you don't know what you don't know. So yeah.

Brian Lauchner (04:46):

And before we dive into some of these things, like these terms, Black Swan events, Eddie, why don't you start off start us off by really getting everybody on the same page, because we really need to understand what is Creative Financing before we dive into it. Because kind of like you said, you know, you're going into your spot speaking to these realtors and they're supposed to be the ones with the solutions, but the solutions for what? and what that's supposed to look like. So tell us a little bit about what is Creative Financing. And then we'll dive into a little bit about the opportunity.

Eddie Speed (05:17):

Well, let's define Creative Financing is some kind of financial structure that's different than just to normal traditional bank financing, right? Or traditionally how people generally focus on doing something. Now I started out in the Note Buying Business, meaning that people would sell or finance a property. They would not only be the seller of the property, but they would be the bank and they would carry payments over time. Right. They would collect payments and then they'd wake up one day and decide they wanted to cash in early. Right? Now we've come up with Creative Financing structures even to buy their notes. Right. So, Creative Financing could be a Note Buying Strategy, right. Because there's more than just one way to buy note. Right. But we also want to make sure that people don't see us as just, we teach people how to buy notes because I've taught thousands of real estate investors, how to creatively structure buying a property and reselling a property, Creative Financing when they buy it Creative Financing when they sell it.

Eddie Speed (06:28):

Right. So, that's kind of, that's , when we say Creative Financing is like, what does that apply to? Anything related to what NoteSchool does it could be buying a note. It could be buying a property and getting the seller to carry terms, maybe using a private lender for part of the terms, all these different ways. And then the other side is Creative Financing. When we sell it, I like seller financing property in this market, right. Now, people say, well, don't you ever believe in rentals? Well, I mean, you'd be crazy not to believe in rentals when you could buy a rental property, Brian, in 2013 and 14 at the discounted price you could buy that, right? Because you had a high potential of its lift in value. But if you've reached a market condition that says that you pretty much have peaked out the top of the market, we can argue that debate. But wait a minute right now, if I could sell it and get a giant down payment, I could put some money in my pocket, reduce my investment costs in the property. And then I could carry owner finance paper over time, a wrap note. And and so those are all things that would relate to Creative Financing. It's not just to buy, It's not just the sale, It's not just notes, and it's not just property. It's, this is why it's so valuable is because you learn to intertwine these ideas. I call them puzzle pieces. If you understand the concept of this puzzle piece, you can apply it to the story.

Joe Varnadore (08:09):

And, you know, Eddie, we know that sellers will agree to terms that banks would never, ever, ever agree to. Right. We know that there are things like, the ability to be able to buy the note that we created, we're the borrower on, but being able to buy our own note at sometime in the future to discount and things like that. So we've got, you know, we teach 50 plus deal points that you can add into that. So it's that whole process of knowing and how to structure a deal, right?

Eddie Speed (08:43):

Yeah. The concept is this, we're in a hype at the moment. We're in a hyper competitive real estate market, whatever happens next year. Okay. We can argue about shadow inventory and why there's going to be a lot of distress properties on the market. We can do all that, but at the moment, Brian, as you well know a real estate investor at the moment, he feels like he's having to essentially overpay. So he's buying a property at what he thinks is, man, this ain't much of a discount, but on the other hand, there's all these people wanting to buy the property from him. And so he can, it's hard to buy, easy to sell, but the problem is the hard to buy, how many people does he make a discounted price to a cash offer? And now all of a sudden they won't accept it now, what's he going to do with that deal? If they won't accept his price, what does he end up doing with that lead? It's in the garbage?

Joe Varnadore (09:46):

That's right.

Eddie Speed (09:46):

How do you dig that deal out of the garbage and go make an offer? That is a higher price, but it's how you pay them back.

Joe Varnadore (09:55):

We lovingly refer to paying somebody in the future, structuring a seller finance deal, or buying with Creative Financing is buying with monopoly money. And everybody kind of looks at us like we have four heads, right? It's not really buying monopoly money. What we're doing is we're paying the seller, their equity over time. And the reason we can do that, you know, people, you know, you could buy it at a discount being a wholesale deal, or if we can pay them almost, you know, full price for it. And because we are structuring the deal and paying them over time, we can pay them more money. Therefore, if it falls out of the deal hopper, because we can't buy it for for a discount, then obviously it we can buy it with terms and give them closure to what they're asking for.

Eddie Speed (10:47):

Yeah. It's another option. It's another option that lets us close a piece of business that we couldn't close. If a guy is training at NoteSchool and he's a high volume real estate investor, or maybe Brian he's as low volume guy, right? Maybe he only buys five deals a year, whether he does five or 500, the issue is, he may, he spends X amount of money on marketing and energy and effort. And he closes X amount of deals essentially to put it under contract and flip it to somebody else. Right. That's a, that's a wholesale deal. Right? Brian.

Brian Lauchner (11:23):

Yeah. That's it. And the other piece of this too, is that it's not just people who have it doesn't matter what your marketing budget is, right? If you were talking to sellers, the thing that you almost always have in common is the fact that there's going to be competition as well. So there's also this variable of if the seller always wants retail or some high price and all the wholesalers are kind of in this lower price, how do I start to separate myself so that the seller just talks to me? So then I can kind of transition, you know, how do I, if everyone's at a a hundred thousand price point or in that range, how do I start to say, Hey, I'll give you 135,000 or 125,000 to where now I'm just in such a completely different ball game that they're willing to have the conversation.

Brian Lauchner (12:05):

And then I get the opportunity since they've given me some time now to hear me out, and now I have the opportunity to say, look, I can give you that money over time. And here's even why some, you know, here's some reasons why would be in your best financial interest. So from an acquisition standpoint, now I'm monetizing more leads, right? Because that one was going to go in the trash can if I didn't get it, but I'm also separating myself from the competition. And especially in times like this, where the seller sentiment in the market, which is what the seller believes, right? Whether it's true or not, doesn't really matter. It's when they believe. And when they believe that their house is worth this much, you know, it's my house. I will only sell it for a million dollars, Brian, because that helps down there.

Brian Lauchner (12:48):

So for a million dollars and it's like, you try to use logic, you tried to explain to them, but that house is 7,000 square feet and your house is 2000 square feet. They're not the same thing. Right. They're stuck on that. And so how do we start to get closer to the fact that, okay, if you have to have that price, I can give you that price, but here's how it's going to look. Right? And so, again, it just, it gives me more opportunity. And as we know, when we start to bring creative solutions to complicated problems, that's where we start to, to make a lot of money.

Eddie Speed (13:23):

Brian, and just the audience make sure that you know this, you were right down in where the rubber meets the road, right? You did this every day for a living. This was your full-time gig. You made your mortgage payment, your car payment, you've sent your kids to school based on your success of buying these houses at a discount. Now you weren't the note NoteSchool a few years ago. Right. And you heard these other concepts, but you said, I don't know. It's, I'm not sure this really applies. And then all of a sudden, as it progressed, the market got tighter and tighter. What did you have to go do?

Brian Lauchner (13:58):

Yeah, I needed some sort of new result, right? I can't keep doing the same thing over and over again expecting a different result because the market shifted. Right. And when we look at you know, a lot of wholesalers and people who are talking to sellers, whether you're wholesale or not, maybe you're talking to sellers to acquire your own rental properties. The bottom line is the market has shifted. And chances are, especially since March of 2020, you've seen that maybe your marketing isn't performing, or maybe the sellers are demanding something different. And at the end of the day, nobody's telling you to stop making cash offers. That's not what Eddie's saying. Just to be very clear, definitely go make your cash offer. There's nothing wrong with that. That's going to help you get to your goal. But what do you do with those leads that you make your cash offer?

Brian Lauchner (14:40):

And they say, Hmm, can't really do anything about it. Right? And so, you've got to be able to have another tool in the tool bag. And what Eddie's referring to is in 2016, when I met Eddie, he was like, you really need to add Creative Financing to your acquisitions. It will change your entire business in 2016. I didn't need a change. Like things were fine. I could go make a cash offer to a seller and they'd be like, okay. Yeah, it's probably worth that. You're right. You know what I mean? There wasn't any, there wasn't that hesitancy, there wasn't that resistance to get the deal done. But by 2018, at least in my market, things did start to shift and I did have to make a change and call up uncle Eddie and say, I need help. What am I doing wrong? And he lovingly of course said, look, it's what I told you two years ago, we just let's get to work. Right.

Brian Lauchner (15:30):

So it's just about implementing it into what I was already doing. And because of that too, it was a very smooth and quick transition, which again, kind of bringing it back to why it's so important. You know it today, is look, the market has shifted. Everybody's aware of that. Well, I say everyone is aware of this. Some people think that it's just going to keep going like this for the next couple of years. Right. But the reality is if you're in a spot where maybe I need a little something different, I need a little something new. I need to start monetizing some of these leads that I used to, but I don't anymore. This creative financing element and the words of Eddie speed in 2016, if you'll add creative financing to your acquisitions model, it can start to get you a lot of leads and a lot of deals, which ultimately lead to money in your pocket, even in a market like this after what Eddie calls a Black Swan event.

Joe Varnadore (16:22):

And, you know, we see that over and over people that were, you know, they were listening like you were in 2016, but they weren't forced to take that next step. Right. They weren't forced to say, okay, something isn't working. So now I've got a look at what else I can do to keep my business growing. And that's what it was. Eddie. Why don't you talk just a minute about, you know, for the folks that are wholesales about the three reasons that a wholesale deal or that cash offer deal just doesn't or can't work well all the time.

Joe Varnadore (17:08):

All right. We can't so Eddie, let me jump in there. You've got a little sound problem there. So maybe we can get that worked out.

Eddie Speed (17:17):

I don't know. How about a little.

Joe Varnadore (17:21):

There you go. perfect!

Eddie Speed (17:21):

A little munchkin jumped up there on my computer, Joe, and muted me. One of those gremlins,

Joe Varnadore (17:28):

We know about those gremlins. Every time we would go do a live event, we would have everything set up perfectly, And.

Brian Lauchner (17:33):

That's the beauty of live TV.

Joe Varnadore (17:37):

Amen.

Eddie Speed (17:39):

A real estate investor. The other thing that they can do is you, if you're not a giant operator, right? You're just a small guy doing the business. What you have to remember is there so many people doing the business today in the trashcan is getting full, fuller and fuller of people that just won't accept the discounted price, make a go, make a deal with them. And we can show you how to do this, by the way, very clearly go make a deal with them to go dig through their trashcan leads and go work the leads that they, that the cash price ended up in the trash. And there's, you know, there's some filtering to that, you can't go work every lead, but here's some simple filtering processes that could be put together. And then all of a sudden, Joe, I might go work part of my business or maybe all of my business and just going and working my competition's leads and letting them make something if I'm able to close it.

Joe Varnadore (18:40):

That's. Right. Yeah.

Eddie Speed (18:43):

That's an example of you know, we call it getting the juice out of the lemon, right guys.

Brian Lauchner (18:50):

Yeah. But there's three main reasons that they even had that bucket of leads to begin with. Right? And every wholesaler, every rehab or anybody who's ever talked to a seller ever understands that the reason you're not getting the deal is number one, it's too far. You're too far apart on price. Right? You're here, and they just won't accept that price because they're way up here. And you're way down here, they just won't accept the price. So the second reason is just they can't accept it, right? They owe $87,000 on the mortgage and you're offering them 65,000. They'd have to write a huge check to do that and that's not an option. Another, the third reason is just you don't have the right buyer. Right? And that could be because you don't have a buyers list yet. And that could be because it's a really obscure property out in the middle of nowhere, or it's just a really weird house that nobody really wants, you know, to kind of mess with.

Brian Lauchner (19:40):

There are those. But when you look at those, you could either talk to another investor and work a deal with them. Or if you're already in a situation where you're talking to sellers, kind of, like I said, before, you now have a secondary option, Hey, we can't make it work because you can't accept the price or you won't accept the price. What if we go about doing this a little bit differently? And and we buy it on terms, which is you taking the same equity, but you taking it over time, right? You want this much money. I'll give you this much money in chunks over time. And if that's a solution for you, because it's going to allow you to accomplish whatever that goal is. Well, now we can start heading down the path of how do we make that happen? What do those terms need to look like for this to be kind of a win-win solution.

Joe Varnadore (20:22):

And you know, it's not only what you say, it's how you say it. You know, Eddie calls it the talk off, right? It's knowing how to present this terms offer this creative finance offer. Eddie. You can talk about that for just a minute.

Eddie Speed (20:40):

Yeah. I think that's one of the key things that I've learned in whether I'm coaching somebody, that's a Ninja real investor and did 300 deals last year, or I'm helping somebody that did three deals last year. There's an interview process that we try to teach, not we try to teach, we definitely teach. There's an interview process of asking them the right questions. So let me give you one simple example to kind of wrap it up as we do this today. So Brian, let's pretend that you have a property and that you have, you've demanded a price that my cash offer won't meet. And so I've said, Brian, I can pay you your price if you take your equity over time. Right? And Brian goes, okay, that might work. And we can work around that. And then the second thing is, you're saying, well, because essentially what I'm saying to you is you're going to sell or finance it to me. Right. Brian, I'm not exactly saying it that way, but that's what the end result is going to equal.

Brian Lauchner (21:48):

Right. And the interest to me is that I'm okay with taking my payments over time. I'm not okay with taking a discount or maybe it's paying real estate fees or something like that. That's why this would be a potential solution to continue talking about it from the seller's perspective.

Eddie Speed (22:02):

So real estate investors regularly set this up. They regularly say that, but here's a mistake. I believe they make, they say, well, Brian, if I were talking to you, Brian, I would say, well, Brian, how much down payment do you want? You see, I'm inviting a conversation that is not going to be good for me. Right? Instead, Brian, here's what I must say. What are your immediate cash needs? Right. So now all of a sudden, if you say, well, I need 20% of the price of the property as my immediate cash need. Then I'm just going to go get a private money first and get you to carry a second lien for the 80%. There's the hundred 20 private money, 80% second. So wait a minute, I bought the property for nothing down, but it's because I ask it in the right manner.

Brian Lauchner (23:03):

And the thing about this, what Eddie calls the talk off is there is such a logical rational way to have this conversation. And I think one of the reasons people fail with pitching terms or pitching Creative Financing solutions is they use a slick salesy type of approach. Like they're trying to just kind of work around the, you know, work around the problem to kind of get them to agree to these little weird things when it's like, you can just be direct and it's a more logical approach. And Eddie has just nailed this. And it's something I think NoteSchool teaches really well, is that when you come in from a standpoint of look, let me show you the most logical rational way to do this. And then on top of that, Mr. Seller, I'm going to explain why this is in your best interest. Look, what the money is going to turn into. If I'm, especially if I'm paying interest, like that's the most common way. And if not look how you can get the money that you're wanting, right. To be able to meet your immediate needs.

Joe Varnadore (23:55):

So we have a question there, So, does it guys, can we do this? We can do this on a hundred thousand dollar house, or we can do it on a $800,000 house, right?

Eddie Speed (24:09):

Yeah. You can do it on luxury properties. You know, I would say that you're going to need a really tighten up some things to go do it on luxury properties, but financing for luxury properties has been very drastically affected by this mortgage credit availability. So it can work. This is probably a deeper conversation of things to tighten up. But, yes, I think it can work even on luxury properties.

Brian Lauchner (24:42):

And I think when you, if you looked at a hundred different assets that were seller finance or a thousand, you would see they're all over the price point, right? There's a common misconception that seller financing, Creative Financing is for these cheap crappy houses that you can't sell anyway, so you might as well play the role of the bank so you can potentially get rid of it. Right? Whereas so many small businesses are sold with Creative Financing, so many apartments, so many, you know, whatever, small commercial tthey are sold with seller financing and any price point it applies to. And I think that if you were to go and look at a lot of these I have a great story of a motel that I teach in a one day class that, you know, motels are not commonly known for getting bank financing the old fashioned way, right?

Brian Lauchner (25:30):

It's going to have a little bit more creativity to it, because that motel owner was exercising their full legal right to write off all the things they need to write off. So they pay less taxes, but a bank looks at the valuation of that and they say, wait a minute, you want to sell this for a million bucks, your books, don't say it's worth a million dollars, but me as an investor can be like, don't worry. I see the valuation and I can play the same game. So I'm interested. I just need you to sell me the property with seller financing. So every price point would definitely work. It's just a matter of the nuances of that specific deal.

Joe Varnadore (26:03):

That's correct.

Eddie Speed (26:05):

That's it.

Joe Varnadore (26:05):

Yep. Absolutely.

Brian Lauchner (26:08):

What about sellers who want cash to buy their next home? Would that that's kind of to Eddie's point, right? Is how much cash are they really needed in the immediate term? So the conversation will be something along the lines of, you need a new house, you're getting are you getting a mortgage? Okay, what kind of money are you meaning to put down in that property? And then starting to have that conversation, even if it's $50,000 to Eddie's point, I can borrow that 50,000. And if you have to have that 50,000, I can do that, but you're going to have to give up some other things in order to get that 50,000, if it's truly what's most important to you, I can make it happen. I just need these other things over here to be in my favor, to make those things work.

Eddie Speed (26:50):

Remember this, the guy that was paying cash for the house, solved a problem one out of 20 times, 19 times, he did not solve the problem. They did not, the seller did not get their problem solved. Are we saying that we can solve all 19 problems? Of course not. Let me tell you what would be amazing. Brian, if I could solve one out of 19 problems, right? Just one in 19 where the seller was accepted in my terms, and I could structure the way that was really good for me. I just doubled my conversion rate. Now I close two out of 20 instead of one out of 20. So this is part of the filtering process, right? And by the way, I will tell you this, this interview process and going through the deal with the customer is under start understanding that when people say they need cash, you start investigating why they actually say they need cash. So some people say they need cash, they don't need cash. They just cash relates to the price to them. Right?

Joe Varnadore (27:56):

That's right.

Eddie Speed (27:56):

So kind of the customer that that's where we, that's a part of a filtering process that we develop. Excellent question. But the answer is no, I can't solve everybody's problem, but I can solve a lot.

Brian Lauchner (28:07):

Yeah. And on those 19 examples, right? If you're getting one out of every 20, those 19 leads, you're chasing down, you already made a cash offer. You weren't going to get the deal anyway. So what, if you could add something to your acquisitions model, the way you buy houses in order to convert another deal and ultimately double the number of deals you're doing, which would basically be free money because you've already made your marketing money back on that first deal. So a lot of really, really great stuff today. Unfortunately, it's not a show we could talk for two days on. And so I want to just, I'm so glad we can at least talk about what Creative Financing is. These Black Swan events, these cyclical events that happen. They just happen over time because real estate has cycles. When the market shifts Creative Financing will always fill the gap in the marketplace where the conventional traditional money does it. Right.

Brian Lauchner (28:58):

And that's really what we're seeing right now is there's a huge need for creative financing in the marketplace right now, in my opinion, if you are an active real estate investor, you can't afford to not know this stuff. And as you learn more about it, you're going to start to find out this actually is the more profitable way to do a lot of different types of strategies. And so, again, thanks for joining us today. On NoteSchool TV, it is a live every Wednesday at 11:00 AM central time. I'm so glad you came again. Make sure you're liking it, subscribing to this channel, turn on the notifications so that you know, when we're live so you can engage like some of these others did and bring your questions to the table. If you're wanting more information, definitely go to NoteSchool.TV, I'm sorry. www.NoteSchool.com/TV to get engaged with us there and be sure to attend the upcoming industry event. Note Expo, go to www.NoteExpo.com to register. It's going to be an absolute killer event. Thanks so much for joining us this week. And we will see you next week on NoteSchool TV.

Discover the Best Real Estate Investing Courses

Monday, November 9, 2020

Creative Real Estate Financing Post Covid - Mortgage Notes and Real Estate

No comments:

Blog Archive