Selling Property with Seller Finance

Today in Noteschool, Brian Lauchner, Eddie Speed, and Joe Varnadore talk about the Selling Property with Seller Finance. According to Eddie, there are two strategies. One strategy is to acquire a property with some form of Seller Financing or Creative Financing and the other one is to resell it. If you own a property with Seller Financing then you can just rent it. You can also flip the property with financing in place. “You make your money when you buy it” - It’s an old saying in real estate that says you make your money when you buy and you get paid when you sell it. Watch this video to learn more with Eddie of Noteschool.

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Brian Lauchner (00:02): Welcome back everybody to NoteSchool TV, we are live as we are every single Wednesday at 11:00 AM central time. My name is Brian. I am on the teaching team here at NoteSchool. And today we've got some really incredible content. We want to kind of dive straight into that I think is going to be very relevant due to the market conditions and something I think you can implement into your business quite quickly. And that's really going to be a kind of adding this layer of Creative Financing and Seller Financing into your business. And so, if you're new with us, man, make sure that you are liking this channel that you're subscribing to this channel and make sure you're turning on the notifications because every single Wednesday we go live and the notifications will tell you, you'll actually get an alert saying, Hey, we're live. Brian Lauchner (00:55): And that's going to allow you to interact with us, bring your questions to the table into the live stream. Other than that, if you're brand new to NoteSchool, you're brand new to notes even, and you're just trying to figure out, Hey, I want to learn more. You can go to www.NotesSchool.com/TV, and that's going to allow you to dig a little bit deeper into some of the content. And so today we are joined by some heavy hitters and we are going to be diving into this incredible topic that I think can really start to impact some of your business. And that is this Seller Financing, the Creative Financing realm. And so I'm going to pop up on the screen here two of the greatest teachers I know that's going to be Eddie Speed and Joe Varnadore, and welcome guys. Joe Varnadore (01:38): Well, you've got one Brian, that you know, great teacher and one, that's an amazing teacher, right? Brian Lauchner (01:44): Yeah, of course. Joe Varnadore (01:47): It's like Apollo Creed told Rocky. Right? Are you a great fighter? Do you fight great or are you a great fighter, right? Brian Lauchner (01:53): That's right. Joe Varnadore (01:55): Hey Eddie. Brian Lauchner (01:56): Awesome. Eddie Speed (01:56): How are you guys? Joe Varnadore (01:58): Wonderful. Brian Lauchner (01:59): Doing well. So Eddie, why don't you kind of get us kicked off a little bit and kind of walk us through, you know, we're talking about Seller Financing, right. And really what that is obviously we're talking to sellers and we want to buy their house, but we're specifically want them to play. We want them to sell us the house and provide the financing. We want them to play the role of the bank. So kind of talk to us a little bit about with your experience of 40 years, what are we looking for? Eddie Speed (02:26): Yeah. So there's two strategies, right? One strategy is to acquire the property with some form of Seller Financing or Creative Financing. And the other side is to then resell it. Now, if you own the property with Seller Financing, you could just rent it, right. Brian, or you could just flip the property with financing in place. So we're not talking about exiting today. We'll certainly get to that, you know, but today we're going to talk about the goodbye. You know, there's an old saying in real estate, Brian, you make your money when you buy it. You know, the saying is you make your money when you buy, you get paid when you sell it. Brian Lauchner (03:08): Correct. Joe Varnadore (03:08): That's exactly right. Eddie Speed (03:10): All right. But this is a little different mindset. Okay. So the common term for real estate investors and I am at a Real Estate Mastermind. So I'm actually doing this from a hotel. I'm at a Real Estate Mastermind right now. And this is fairly typical. I go to several of these masterminds and all of these guys are making a living, buying houses. And the general feeling right now is you have to be a superior marketer to survive, right? I mean, a superior marketer to survive. Joe Varnadore (03:48): Right. Eddie Speed (03:49): The reason is we're in such a competitive market, right? So real estate investors find themselves in a situation where they are, the lead they get with somebody that's willing to sell a house is so precious. It's like they're holding an egg and climbing up a mountain with it. Right? Joe Varnadore (04:11): Yep. Eddie Speed (04:11): And they don't want to break the egg. Right. And yet the climate, the mountain is rough. And so they face this scenario where, because the typical real estate investor only has one way to approach buying a house. And that is buying it at less than the retail amount. Joe Varnadore (04:34): That's right. Eddie Speed (04:34): That's tough. That's a tough gig. So this strategy that we're going to talk about today, so listen up guys. Let's just say that you're like, well, Eddie, I'm not one of these Ninja real estate investors. And I don't buy a hundred houses a year or 50 houses a year. And so this doesn't really relate to me. It a hundred percent relates to you because these high volume real estate investors do not have this strategy implemented. For the most part, they don't do it. And that is because they don't have anybody, a specialist on their team that can go do it. And therein lies an opportunity for you to come in and help them with taking their leads that are in the trash can and digging them out and going and work in them, own not wholesale price. Right? Brian, but wholesale term. Brian Lauchner (05:29): Yeah, that's right. And let me kind of just jump in here, because what Eddie just said, is he's referring to the fact, because if you've ever talked to a seller, you can relate to this, you've talked to a seller or this Ninja real estate investor that talked to a seller you've made your cash offer. And the seller says, no, I can't accept that offer. It's too low. I won't accept that offer whatever it is, right. The next step is that lead typically goes in their trash can or their follow-up file. And what Eddie's saying is you can basically approach your own leads this way. Or you could go approach a Ninja real estate investor, somebody doing high volume and say, look, I can work these leads and start to monetize these marketing dollars that you've thrown into the trash. And that's a huge advantage because they're sitting there thinking, look, it's not like it's making me money anyway, how are you going to do this? And really, that's kind of the whole approach that Eddie's talking about is, well, if they won't accept your low price, would they be willing to accept the price that they want, which they will, but be willing to take their payments over time. And so Eddie, tell us a little bit about I mean, I'm sorry, Joe, tell us a little bit about from an equity standpoint, are we talking about leads that are only free and clear houses? Does this work on houses that are free and clear only? Joe Varnadore (06:45): So here's the great thing about this, It doesn't matter if the borrower has a hundred percent equity, meaning it's a $250,000 house they owe what, not one dime. Of course it works, right. They could owe $200,000 on the $250,000 house, or they could own $238,000 on the $250,000 house. So it doesn't really matter what kind of we'd like for them to have a little bit of equity, right? Probably 10% in equity. But the great thing is that we can help anybody in that gamut. Now, obviously, if the house is, you know, if they owe 260 on a $250,000 house, probably not going to be a play, but again, so it doesn't matter as long as there's a little bit of equity in there, Eddie, anything you want to add to that? Eddie Speed (07:33): Yeah. So it's a wide range of targets that would fit inside your filter. So think in terms of the typical house buyer is making 20 offers, and one out of 20 times they will take his discounted cash offer, right? So he closes one, right? That's his closing ratio, 1 out of 20, right? Here's the problem. He's got 19 deals in the trashcan and we're not, when we're saying they make a cash offer, they make a cash offer. And they work that offer. We're not saying that they just run out of the living room. Oh my God, the guy said he wouldn't sell. Now thay worked that lead and with all the work and the lead is still doesn't matter at the end of the day, it doesn't convert. I mean, these are the best closer to the closing table. I'm sitting at the table yesterday with the guy that revolutionized wholesaling houses because he taught all these guys how to negotiate the kitchen table. Eddie Speed (08:28): His name is John Martinez, right. And John Martinez can only be so good. Right? And he's the best of the best at training. These guys had negotiated the kitchen table, there's no argument of that, right? But beyond that, this seller is not motivated enough, Brian, to take your discounted price, right? Whether he can afford to take it because he owes so much money. You may, you may offer 200,000. He may offer to, you may owe 220. Well he can't even take your offer unless you wrote a check at the closing table. So that's a hot, that's a low equity deal. And then we're going to take advantage of their existing mortgage. And we have some very unique strategies and how we go about that. I know people go, Oh, I know what a Sub2 is, there's Sub 2s. And there's our way of doing Sub2. And it's not the same, right? So there are some elements of risk with taking over an existing mortgage. And we've really calculated those risks. And we believe our approach is by far the best way to go do that. That's everybody thinks they're great at something. Right. But we've studied this and we have a lot of experience in the mortgage industry. And so we work with specialized attorneys and we just have a diploma. What we feel like is a different approach. Right? Brian Lauchner (09:45): Yep. So let's kind of talk about that a little bit, because I want to talk about this Sub2 type of approach. And then I want to talk about, you know, the conversation, what you call the talk off and we'll get to that. But we're talking specifically about a seller who says, yeah, I'll sell you the house. But here's the problem. I've got a mortgage on this property. I owe $86,000 on this a hundred thousand dollar house. How would that work? Talk to us a little bit about, you know, how do we buy Sub2 or subject to the existing mortgage, which is basically we're going to be taking over their responsibility on the mortgage. Eddie Speed (10:21): Well, without getting too overly involved, there's the general way that real estate investors do Sub2 is they take the property and they file a deed and then they take ownership of it. And the risk in that is that the mortgage company goes, wait a minute, there was a provision in our loan that said you can't sell the property without our permission, or otherwise the loan can be called due, right. It has a due on sale clause, right. So the first thing you have to do Brian is really make sure that you understand how that works. That's why it's called a Sub2 it's sub you're buying it subject to the existing mortgage, but not assuming the mortgage. And so there's some unique ways we do it actually, the way that we like to do it is that, that seller actually seller finances, the property and, and does what we call a wrap note to me. Eddie Speed (11:27): And then I transfer that to another buyer, right? And then if I create cashflow every month, then I buy this seller finance note from the original seller. And I don't want to get too complex or too wrapped around the axle. And all the mechanics is morning, because Brian we're in a pain market situation, right? The reason people make money in this business, either just buying house for cash at a discount or buying a house on terms and paying for the house over a long period of time, the reason any of that happens is that the customer, then they have to check one giant check in the blank and that is, they solve my problem. Right? And so this one way it can be, they have an existing mortgage and it just doesn't make sense to pay it off. Now, once again, there's levels of conversation of how you take over an existing property with an existing mortgage, a Sub2 transaction. Eddie Speed (12:30): Then the second way is maybe they don't owe a huge amount of money. Maybe they owe 40% of what the house is worth, Brian. And is it really makes sense to do a Sub2 or maybe you just go find a burn out landlord and loan you the money and pay off the mortgage. Right. So that's another way to structure it. So depending on we always say how you structure the creative financing is in direct correlation to the needs of the seller and the situation of the transaction itself. Meaning how much do they owe or what's the property, or does it need repairs and stuff like that? You can't generically make one creative finance offer that will fit every kind of property. Just wouldn't. It wouldn't make sense. Brian Lauchner (13:17): Yeah. And I think to that point also, it's those detailed pieces that we really need to understand for the conversation of making sure we're getting away from all the fears. Like there's somebody watching this saying, you know, Eddie, I, you know, I heard about this in my state and, you know, it'll trigger the due on sale clause. Like learning those details are going to be what, not just protects you in the deal, but also to your point allows you to figure out really what that exit strategy is. And so go ahead. Joe Varnadore (13:48): No, I was gonna say, and we've spent a lot of time over the last little while perfecting that, you know, Eddie has sat down with you know, one of the best attorneys in the industry. We think he's the best to, to create this paperwork that makes this a seamless as possible. Right. And that's what, you know, that's where we wanted to be with this. And so that's, we've created the time and are committed the time and the assets to make sure that, that happens. Brian Lauchner (14:16): Yeah. And obviously we can't cover all of this in, in 20 minutes, but again, the goal is to get you thinking that as an investor, right? Whether you're active or you're passive, you're talking to sellers, you have your way of doing it. You've got your tool and you're going to work and you're going to solve this seller's problem. And maybe that's what the cash offer, but in the event that they cannot take that. What do we do? What Eddie's really, you know, kind of pointing out is that you're bringing more tools to the table now, right. To the problem so that you can bring more creative solutions to the real estate problem that's complicated, right? Because like Eddie said, you've got to solve that problem. And the more tools you can bring to the table, the more likely that we're going to be able to solve that problem and monetize that lead. Eddie, did you want to add anything? Eddie Speed (15:04): Yeah, I think that, you know, anytime we bring up an idea, there are clearly going to be mechanics behind that idea. Right. I went to a hotel to go to this thing. It's actually in the Dallas area. So I drove, but I'd never been to the hotel before. Right. So I had to follow a process of going on Waze, my little app, and putting all this into Waze. And all of a sudden it told me, and it drove me right to the front door. What would happen if I would've just said why? I don't know. I don't know how to use Waze, while I'd have been driving in a big circle. Right? Hey, we all live this everyday. Joe Varnadore (15:45): It's something in Dallas, you know, right there with the stacks up. Brian Lauchner (15:48): So you're saying I can't use a MAPSCO anymore. Is that not an option? Eddie Speed (15:52): You can, You know, it's a funny, I heard a guy make a presentation at this event, it was funny. He said, we an old, the old guys always use maps. And when we got to the parking lot, we always paid attention to every little sign or every little, you know, marker. So we could find our way out. And he said, now we're so accustomed to an app that we have to turn our app on to figure out which direction to have a parking lot. We drive out. Eddie Speed (16:21): So let me go ahead, Joe. Joe Varnadore (16:23): What I was going to say, so guys, and, you know, as we start wrapping up 2020 and getting into 2021, these are the types of things, you know, learning to buy. I mean, times are going to be interesting guys. So, you know, we need to have that, you know, that extra tool in our tool belt, right. We need to have more than one way to buy, you know, it's not just a cash offer, but it's a cash offer. And then sometime some type of terms offer. And you know, one of the things that we talk about in the talk off in talking with the property seller in this is you know, we know that they will agree to terms that a bank would never agree to. And that's part of the talk off as to how we, how we do that. That makes sense, guys. Brian Lauchner (17:07): Yeah. So tell me more about that. Eddie or Joe, the talk off is that logical rational conversation we're going to have with the seller to get them to the, yes, I will. I'm willing to seller finance my house. So Eddie, tell us a little bit about the what you called the talk off. Eddie Speed (17:24): All right. So let's mock call the situation, Brian. So you come on and you're the seller and I'm the buyer. Brian Lauchner (17:30): Okay. Eddie Speed (17:30): Okay. And I've gone to you and I've made you a cash offer, and you're going to sell your house for 75 cents on the dollar. And you might have pretty starkly said ***l, no. Or you might have said, I don't think I can do that. Or you might've been polite and let me get out the door and then you locked it. Okay. But the factor might not have all been disclosed as to what they were. Brian Lauchner (18:03): Yeah. Eddie Speed (18:03): Right? Brian Lauchner (18:04): Okay. Eddie Speed (18:05): And so you're at a point where you've made an offer, you've worked the offer, you've followed up, you've done all of the best techniques. And you just have to realize at some point, they're not selling to you at that price, right. You've been there, you've been a full-time house buyer. You understand exactly what I'm saying. And so now all of a sudden here, Joe Varnadore comes in, okay. Brian Lauchner (18:27): Okay. Eddie Speed (18:27): Now, Joe is what we call a designated hitter, right? So Joe is making a deal with you. He says, I know how to work offers where they're going to sell to me on terms. And there's a myriad of ways we can make money. If I'm successful, I could just pay you a fee, or we could do some kind of JV and do it together. I mean, there's different ways to do it. And do you and Joe could figure out like how to split your money up. Okay. You may say, Joe, if somehow some crazy way you pull this off. If you paid me 5,000 bucks, they dig a deal out of my garbage can. I'm a happy man. Eddie Speed (19:00): Absolutely. Eddie Speed (19:00): Or whatever. Maybe you agreed to 3000, or maybe you agreed to, you know, take some percentage of the deal down the road. Maybe you keep 20% of it. If he's successful doing you guys are entrepreneurs, you can figure that out. Right. Brian Lauchner (19:15): Yeah. Eddie Speed (19:15): So, Joe then comes in and he says, okay, Eddie, I'm gonna buy this house from you. And I understand Brian's already told me that you made an offer and you didn't like the offer. Right. And I've completely understand that. In fact, I think it's kind of smart of you, because you deserve more of the price for your property than these other investors we're offering you. Joe Varnadore (19:41): Right. Eddie Speed (19:42): Right? So let me say this. You have a, you'll have to explain what equity is, but you have a certain amount of equity in this property. And if, Brian. If Eddie, I can pay you for this house, right. I'm the seller. If I can pay Joseph, if I can pay you for this house, the price you want, I can do that. If you take your equity, the amount of your equity, and instead of taking it in all cash, which would be discounted, I think you'd be like a furniture company and not have to discount it. You take your equity over time and you don't have to discount it. Okay. Now, all of a sudden Eddie's thinking, well, dang, I'm pretty dang smart. I'm like a furniture company. I'm a, I'm Warren Buffett. I'm in the finance business. Now you see what I'm saying? Because understand, what I had was a real estate problem, not a money problem. I wasn't desperate to sell , but I, but if nobody bought my property, I still had my same real estate problem. Right? Brian Lauchner (20:46): Right. Eddie Speed (20:46): So Joe comes in now and offers a solution that's not a wholesale price, but the way he structures the offer is wholesale terms. Brian Lauchner (20:59): Yeah. And I think, you know, to all the investors watching this, the key takeaway in this conversation is it's not the price that you pay. It's not about the price that you pay. It's about when you pay that price. That's one of the most profound things I've ever heard Eddie say, is that you can't get hung up on the price. The seller is hung up on the price and we're going to let them stay hung up on the price. I don't care what the number is. What I do care about is when I give you that number. And so, that's, I think a little bit of the talk off, and at least gets you kind of going in the right direction. And like I said, this is, this is really, you know, supposed to be a great place to kind of bring your questions, bring your content. Brian Lauchner (21:41): And so I want to thank everybody for for kind of joining us you know, this Wednesday, just like every Wednesday as we do NoteSchool TV here, if you, again, aren't subscribed already, please subscribe to the channel. It helps us a lot. And plus then we get to engage with you. We get to interact with you make sure you're clicking the little bell notification so that you're getting alerted when we go live so that, you know, you can bring your questions on while we're here alive on the air. So to speak, if you're wanting to learn a little bit more about kind of what we're talking about and how do I actually go out and do more of this, or I need more details. Go to www.NoteSchool.com/TV. And it's a great place to go, to learn a little bit more about what we do and how to kind of get this implemented in your business. We are, you know, we're planning on seeing you guys next Wednesday at 11:00 AM central time. As we go live, please engage with us, bring your questions. And we will see you on the other side.