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Brian Lauchner (00:09):
So here's the question. What's better to flip a house for five grand? or to use Creative Financing and make over $200,000. Here's what we're going to dig in today, for those of you who are brand new, I want to welcome you to NoteSchoolTV. My name is Brian Lauchner. I'm on the teaching team here at NoteSchool. And I want to just first say if today it's something that you get a chuckle out of, or you learn something, or this is valuable content to you. Make sure you are liking this video, we would love for you to subscribe to this channel. And if you want to participate in these live shows, or you want to comment on these videos, make sure you're pressing the notification bell to actually alert you when we go live so that you can always jump on the stream and pop in your questions.
Brian Lauchner (00:55):
Today we're going to be digging into some really great content that I think is going to be kind of mind opening. And for those of you who are kind of like, I am still unsure even what a note is or what NoteSchool is or what this stuff is you're talking about. And if you're wanting to learn a little bit more about what NoteSchool does, you can go to www.NoteSchool.com/TV. And it'll tell you a little bit more about kind of what we do, what we teach and how you can learn even more. And so today we have an incredible case study with a student who's going to kind of walk us through a really unique story that I think you could probably relate to. If you're, especially, if you're talking to sellers, if you're talking to sellers right now, this is going to sound kind of familiar.
Brian Lauchner (01:38):
And this might be an opportunity that you might say, wait a minute, I've walked away from a deal just like that. And so we've got some awesome guests with us, but I also have the the power team as I call them. I've got Eddie Speed and Joe Varnadore here who are going to jump on and we're going to dig into some of this stuff so that we can get straight to the meat of it. How are you guys doing?
Eddie Speed (01:59):
We are awesome.
Joe Varnadore (02:01):
Are you ready? We are ready for Thanksgiving, Brian.
Eddie Speed (02:06):
I wore my Thanksgiving shirt today, kinda my, you know, Fall's shirt, I'm in the spirit, and I'm excited for it.
Brian Lauchner (02:16):
Yeah.
Joe Varnadore (02:16):
I'd love to pick that out for him.
Eddie Speed (02:18):
Martha picks out a lot for me. Yeah, for sure.
Joe Varnadore (02:22):
Martha being Mrs. Speed.
Brian Lauchner (02:23):
Yeah. So Eddie, tell us a little bit about, you know, you're gonna kind of tell us about the creative financing element and kind of, what's so special about what we're talking about today.
Eddie Speed (02:33):
You know, this story that we're going to have today is a weekly story. It's a daily story with us. And that is the guy that we have on is now last week we had Seth and he's a Ninja, right? He buys hundreds of houses a year and Jay this week he's not that big of an operator now he's a Ninja operator. He just doesn't try to go do Ninja volume.
Eddie Speed (02:57):
But he's a smart guy, very seasoned real estate investor. And I remember very well the first time he came to a class and he says, I'm doing this really well, but I feel like I'm leaving a lot of money on the table and I'm not sure which times I am leaving money on the table, in which times I'm not. And I think this was a great example of a deal that he sort of positioned it and said, you guys show me, give me some light here of how we could do this. And it's a great story, good guy. And you know, I always want NoteSchool to be an impact for it's students. And I believe that NoteSchool has been an impact for Jay.
Brian Lauchner (03:40):
I love it.
Joe Varnadore (03:41):
Yes, absolutely.
Brian Lauchner (03:42):
Well, I think it's something that a lot of us can resonate with. I mean, it reminds me of in 2016, when I first met you Eddie, and you said Brian, you're wholesaling houses. If you just consider adding Creative Financing to your business, it could really change your business. Now I was a little we'll just say hardheaded and didn't quite get it, but I have seen the light now. Right? And I've seen the light now, Scott, I mean, clearly we've got some smarter people on the call today. And so I'll kind of hand it over to Joe and you can kind of walk us through what we're going to be talking about.
Joe Varnadore (04:15):
Alright. So I want to introduce you guys to Jay Redding from Fort Wayne, Indiana. How are you, Jay?
Jay Redding (04:24):
Doing fantastic Joe. Great to see you Eddie, thanks Brian.
Joe Varnadore (04:27):
You look very official today with your headsets and so on, on man. I mean.
Jay Redding (04:33):
It's called old ears, that's what it's called.
Joe Varnadore (04:34):
Well, we've got, you know, the three older guys, then we've got our, you know, our good luck and talent up there in the top left corner right. So Jay, tell us a little bit about your deal here and just a little bit about your background as well. You came to NoteSchool, and again, Eddie said he remembered you being in class. And we did, we were in Indianapolis.
Jay Redding (05:03):
Indy, Indianapolis that's right.
Joe Varnadore (05:03):
You sit right on the, there was actually the class we set up in like four different sections. We had a big class and you were right there on the front row all three days, man.
Jay Redding (05:11):
Yep.
Joe Varnadore (05:11):
And I remember it like it was yesterday. So you were doing some rentals and you were doing some fix and flips along with your son-in-law right?
Jay Redding (05:19):
That is correct. Actually we have a 45 rentals. We do about three to five retail flips a year. We buy some tax liens and we were wanting to incorporate some Seller Financing into this, looking playing more of the long-term game in gradually reducing the number of rentals over time. That's been our game plan.
Joe Varnadore (05:39):
Right.
Joe Varnadore (05:40):
You've been moving in that direction with the rentals as well, right?
Jay Redding (05:44):
Yes we are. And so in this particular deal we purchased this property with our own capital at 37,000. All right. We scheduled about a 50,000 rehab for it.
Joe Varnadore (05:58):
Right.
Jay Redding (05:59):
And we're not inexperienced in doing rehabs and retail flips that type of thing. But every once in a while, and anyone that has retail or rehabbed a property, we'll find that every once in a while, you're running into a situation where the more you dig into it, the worse it gets. And that was kind of the situation on this home. So we ended up blowing our budget for 20 grand. Okay, which put us in, but we fixed everything's going to be a great, it's a great home for the new buyers, but now we're into it at about 107, a 108,000 and the retail markets are at 125, 129. And by the time you take in the realtor fees or whatever, if you're selling it on the open market, there just wasn't much juice in that strategy. There was only about five to seven on a good day, So.
Joe Varnadore (06:48):
So it is a flip, the squeeze, the juice wasn't worth the squeeze was it.
Jay Redding (06:54):
No. Really, it was not. Now in my previous years, I would have just took it on the chin and okay, live another day, and here we go. And we were far enough into the training here with you guys. And it's like, well, there's no better time than this to try it.
Joe Varnadore (07:10):
Right.
Jay Redding (07:10):
So that's what we basically did. We marketed at what we marketed at 129,900. We put the signs in the yard. We started to do the marketing on Facebook marketing marketplace, excuse me. And my tree trimmer who I've worked with for years actually contacted me. I actually asked him to do a bid for me on one of our other places. And he just asked me, do you have any houses? Cause he knows what we do.
Joe Varnadore (07:44):
Right.
Jay Redding (07:44):
And I said, well, yeah, we've got this one right now where we'd be willing to Seller Finance it with you so, but you got to go through underwriting. You're going to have to go through all of this, that type of stuff. And we talked good guy. But he will never qualify for a bank mortgage because his business is, he works really hard for about 10 months, 10 to 10 and a half 11 months out of the year and January and February. You just don't do too much when there's snow on the ground and snow up on the trees and everything else.
Joe Varnadore (08:16):
So Jay, let me stop you right there. So this gentleman is the gentleman that we talk about at NotesSchool all the time, right.
Jay Redding (08:25):
Yep, that's exactly.
Joe Varnadore (08:25):
That just misbuyer, he's self-employed, he's a contractor and he's just, you know, he was just one of these guys that just couldn't go out and couldn't qualify for bank financing.
Jay Redding (08:37):
Correct.
Joe Varnadore (08:37):
Actually, you know, since the whole COVID thing back, you know, started several months ago. So yeah, this is our buyer. This is what we talk about. This is what we talked about with Seth last week. It's just that just misbuyer. So you talk to this guy and he says in, you went through an RML all with this guy, residential mortgage loan originator, and he was your guy, right?
Jay Redding (08:59):
He really was. I mean, he had a credit score of 714 even.
Joe Varnadore (09:04):
Wow.
Jay Redding (09:04):
Okay. All that. So it's like and he was willing to put 18 plus down as the down payment. And so it was about 14 is down payments, about 14% of the purchase price. And it's like, okay, this is all lining up really well. And we did the full underwriting with him. It helped our renewing all right for a number of years. So he's a good professional business person and what he does. All right, good hard worker, good character. And it's like, this is perfect. So what we did, we actually went then and got a private lender. We do a lot of our business with private lenders and brought a private lender on board to be able to pull our money out of the deal.
Joe Varnadore (09:47):
Right.
Jay Redding (09:47):
At 80,000, All right. For 240 months for 20 years at 6%. And then we did a wrap note over top of this, to our buyer at a 30 year, 360 month at nine and a half percent. And that nets out then at 366 a month on monthly cashflow.
Joe Varnadore (10:09):
For 240 months.
Jay Redding (10:10):
For 240 months, and then 939 a month for the last 120 months.
Joe Varnadore (10:16):
Right. So let's, let's talk about that just a second. So you had an underlying lien with with a private lender. This is the, these are those guys that we talk about every week, you know, in NoteSchool just a private lender. Who's got some capital, they could be a burnout landlord, right. We call them a BOL. Right? And you borrowed $80,000 at 6% for 240 months. And then you sold the property subject to that underlying you did, what's called a wrap around. And so you had a 240 month loan with your private lender, right. You were netting 366 a month. Right. And then after that 240th payment, the underlying lien is paid off. And then you've got that full 939 a month in cash flow for another 120 months. Plus you had the defer, you have the down payment, right?
Jay Redding (11:11):
That's correct, yeah. It is $18,000 down payment. Now I applied the 18,000 directly to our debt service to be able to get out. So we would not have to borrow as much with the private lenders what we did. But I mean the cash flow is great on this. I fully anticipate this particular bar cause I just understand how he works. He'll probably pay it off early in chunks and that's fine. Okay. That's no problem at all with that. But yeah, I have essentially turned what would have probably been in my younger years, only about a five grand to seven grand profit. Now, something that's really given us long-term development of wealth over time with some of our other properties.
Joe Varnadore (11:55):
To go to term, you have made over $200,000, right?
Jay Redding (11:58):
That is correct. Yeah. And the other great thing is now we still had $9,000 into the deal of our own money.
Joe Varnadore (12:05):
Right.
Jay Redding (12:05):
Okay. In the first year, our returns at 49% alright. On the money we got into the deal. We have all of our money back in two years and it's, we got no money in the deal after that point. And so it's a, win-win, it's a win for the private lender, a win for the end buyer and it's a win for us. So it's a, it's the great way to do business.
Joe Varnadore (12:26):
Well, and this is exactly the type of thing that we, you know, we teach at NoteSchool, right.
Jay Redding (12:32):
Uh-huh.
Joe Varnadore (12:32):
On a weekly basis. This is the type of thing that we see our students. Right. And you've, and Jay, here's one of the things that, you know, Eddie and I, and Brian talk about all the time. You're one of those guys that, you know, you, came to the class, right? You learn what we taught and then you went out and you applied it. Right.
Jay Redding (12:51):
Exactly. Right. You know what, I remember Eddie talking in the first, well that's our first meeting. Okay. Was that about showing up for practice? He was making the analogy, you know, you got to show up for practice. Well, that resonated with me because I was a former division one track and field coach, you know, I get that. I understand. So that's why I show up for practice every day, right?
Joe Varnadore (13:14):
Jay you didn't say it quite, right?
Jay Redding (13:15):
Okay.
Joe Varnadore (13:15):
Jay, Jay you gotta show up for practice.
Jay Redding (13:20):
You gotta show up for practice, there you go.
Joe Varnadore (13:20):
Let's put in Eddie on right now that we've kind of poked him a little bit. So let's bring Eddie on and let's talk to Eddie a minute about this deal.
Eddie Speed (13:33):
Oh yes. So Joe and those guys, Jay, you know, they never missed an opportunity, but apparently they think I have a Southern accent.
Jay Redding (13:39):
Some type of an accent.
Joe Varnadore (13:41):
I have one too. So.
Eddie Speed (13:46):
Jay, I would say that there were a couple of puzzle pieces here that I just wanted to point out that you utilized, okay. I say this all the time and a lot of people around the real estate investing business, I don't think really get this, but you now really get this.
Jay Redding (14:04):
Yes, very much. So.
Eddie Speed (14:05):
You borrowed $80,000 from what would have been a prior landlord. They have money. They just don't want to be a landlord. They don't want that second job. They want to be just the bank. And so you positioned this deal very well and showed a private lender, how they could loan you $80,000 and Get a 6% true interest on their investment every year or interest on their loan. And by the way, if I'm listening correctly, you immediately gave him 18,000 from the down payment money. And so now they only, they only had 60,000 out, not 80,000 out.
Jay Redding (14:44):
That's not true. Cause I used the 18,000 to only borrow, cause we were into this at 107.
Eddie Speed (14:50):
Okay, I got it.
Jay Redding (14:50):
Okay.
Eddie Speed (14:52):
So they loaned you 80,000. And so that puzzle piece was you used long term, low rate money. People talk about private capital all the time. And I sort of think that they are not talking about the same private capital that we talk about.
Jay Redding (15:06):
Right.
Eddie Speed (15:06):
Right. Some people think going to the real estate investor meeting and getting 10% money is getting private capital. That's what I that's pawn shop money. What you borrowed was not pawn shop money. Right? That was one significant puzzle piece. This all can be done, but people have to have develop a mindset of understanding. There is that guy that needs to get his money out. Right? So you did a great job of finding that private capital. Once you structured the financing with the low cost money in place, then reselling, it really wasn't automatic. Now you happen to sell it to a guy that you knew.
Eddie Speed (15:47):
And definitely, I agree with Joe, he was that penalty box buyer. I have a high volume real estate investor that I was talking to yesterday, guy that you hear on the deal labs, Jay. And he said that he just finished a Refi, he's got perfect credit. He had perfect income. And he said, he just finished a Refi on a rent house. And he said, it took him over three months. And he said, I went through the most hoops I've ever gone through in my career. And I said, and understand that this is the direction the market is going. Real estate is on fire right now, but mortgage lending has tightened their criteria drastically. But Jay, think about this. That guy is a perfect buyer. The mortgage industry is not going to make him a loan and left him behind. You got to provide, you provided home ownership to a guy and now he owns a home because you had the vision of offering Creative Financing to him.
Jay Redding (16:46):
Uh-huh. very much.
Joe Varnadore (16:47):
And Jay, here's the cool thing about it. You know we talk about this all the time. You became the bank.
Jay Redding (16:57):
I did.
Joe Varnadore (16:57):
You're the bank. You put cashflow, you borrowed at one, right. When you deposit your money in the bank and then they reloan it up and they're happy with that spread. Right. They call it arbitrage, right?
Jay Redding (17:07):
Arbitrage Yes. I'm happy with that arbitrage. Well then the other thing, the other thing is, you know, from the private lenders aspect, all right. He's really well secured in this. I mean, his loan to value is only 62%.
Eddie Speed (17:22):
Yeah.
Jay Redding (17:22):
Okay. And the end loan, the end buyer loan is at 84% and it's like, yeah, those are good all the way around, So.
Eddie Speed (17:31):
You know, people Jay all times will think that that kind of a down payment is kind of a fluke. You can't do that.
Jay Redding (17:39):
Well, we've done it multiple times now.
Eddie Speed (17:42):
You know, statistically last month, according there's a software that tracks all conventional mortgages that are made called Ellie Mae. They did a statistic. And the average down payment for a Fannie Mae Freddie Mac loan last month was 19% cash down. So it just starts showing us that when we believe it, then all of a sudden we can live it, right. The market is what the market is, but sometimes we don't believe the market, you know, and I was listening to the, of course, we got the firm joy of living your case study, you know, as you were developing it. And then of course you presented that to an internal audience here, not too long ago with NoteSchool. And we were excited to bring you on NoteSchoolTV today, because let me tell you something you, and I know that you may not do the most volume real estate investing or in your region of the country.
Jay Redding (18:44):
True.
Eddie Speed (18:46):
But I don't believe there's a lot of real estate investors knocking down $200,000 profit on a deal in your region very often, right?
Jay Redding (18:56):
Not at our price points. That's correct. We're not in the, you know, 250, $300,000 price points that are in other parts of the country,
Eddie Speed (19:07):
You made 200 grand on $120,000 house.
Jay Redding (19:12):
Yeah.
Eddie Speed (19:12):
Here's what I think's important. That we, I hear the people always like to say, he's a house buyer and he does so many deals a year. That's kind of like your intro, right? This guy's a house buyer and it does so many deals a year. And you can just smile and look back and say, I'm a house buyer. And I don't focus on volume. I focus on profit.
Jay Redding (19:34):
Exactly.
Joe Varnadore (19:36):
Amen.
Jay Redding (19:37):
I like to set it up and be done for the next 20 years.
Eddie Speed (19:41):
What, you heard of my father-in-law, you know, he was old southern gentleman from Hattiesburg, Mississippi. And when I first started with him this is 40 years ago, when he first started teaching me the business, he leaned over there and he had a pair of reading glasses on the end of his nose, there's like a million miles from the top of his head to those reading glasses. He looked down those reading glasses and he's talk in this real Southern accent. And he'd say, you'll get a check for forever.
Jay Redding (20:08):
And you know, the great thing is on this. You know, it fits right into what we're already doing. You know, we're doing three to five retail flips a year. We create three to five of these. I mean, it's not long too. That's a very sizable chunk that's passing through on a monthly basis. So yeah, it's pretty much our new model for our retail flips. Now let's put it that way.
Eddie Speed (20:29):
That's great. Jay, we are thrilled to have you thank you for coming on and sharing your story. You know, I tell our students all the time and I really do mean this. The power of your story helps somebody else get the vision that they can do this too.
Joe Varnadore (20:45):
Right.
Jay Redding (20:47):
Yeah. So, my pleasure. Thank you.
Joe Varnadore (20:49):
Good to see you, Jay.
Joe Varnadore (20:50):
Good to see you Jay, happy Thanksgiving to you and the family. Let your son-in-law know, we asked about him.
Joe Varnadore (20:56):
All right. Sounds good, certainly will.
Joe Varnadore (20:58):
Thank you,
Eddie Speed (20:58):
Thank you buddy.
Eddie Speed (21:00):
Well, let's bring Brian on. And what do you think of that, Brian?
Brian Lauchner (21:05):
You know, there was a couple of things that stood out to me that I think are kind of interesting. The first one is there's a lot of people out there in their market right now who feel like man, I'm in this competitive market. There's not a lot of deals. The deals that I see, there's just not much meat on the bone. And that was essentially the exact same situation. He was left in where man, I got this flip. There's not much meat on the bone. Am I stuck? Do I become, what's called what I call an accidental landlord where I just like, I guess I'm going to own it forever as a rental property, but by having this additional play, he now had access to more inventory. There's more, you know, marginal deals out there.
Brian Lauchner (21:42):
He could always go get if you wanted to, I guess, but it shows that inventory really may not be the problem just because you're in this super competitive marketplace. And there's these deals that seem marginal that by adding Creative Financing to it and buying something on terms or being able to resell it on terms, you create your own margin, you create your own profit. And so it just, it's a really eye-opening thing for me. And I think for a lot of other investors as well, it'd be like, well actually, maybe I do see deals like this. Right? And the other piece that I thought was really fascinating was, you know, the raising capital piece, I talked to so many investors, especially, especially when they're new, they say, well, man, I, where do you find private money? Who's going to loan me private money.
Brian Lauchner (22:25):
And the reality is money goes to good deals, of course. But what was really fascinating is he thought in terms of, what would, what would make the bank, the bank, the private lender, the burn-out landlord, give me his money. Well, I'm going to give him something that he gets a return on investment, right? In this case, it was, you know, under 8%, which is great. But more importantly, he said, how do I get it down? How do I get that number down to the 6%? Well, I'm going to lower his risk. The lower, his risk goes the lower my chance of getting a lower interest rate. Right? And so by moving the loan to value from 80% loan to value to 70% to 62%, I think he said it really started to incentivize the lender to say, okay, I know I'm going to get my money back. I feel pretty good about this. I'm okay with taking that 6% because you're not asking me to put it into a hard money deal to where yeah. I can get 10%, but who knows if this house is ever going to get flipped or ever gets sold. Right?
Joe Varnadore (23:20):
You know, you gotta go out and find somebody to reinvest to borrow money again from you in three months or six months or nine months, whatever it is.
Brian Lauchner (23:28):
Yeah, exactly.
Eddie Speed (23:28):
Well, and once again, he gave a burnout landlord, a chance to get their money deployed and earn an interest rate and, No, they're not going to get an invoice for the air conditioner or whatever. They already, they don't have a tolerance for that kind of investment anymore. Just making a loan Was great. I'm going to remind you guys, this case study, there was no Seller Financing when he bought it involved. A lot of our case studies will be involved where the seller carried all of the financing when you buy it. And in this case, the seller walked away with cash and it was a big rehab project. So there was a lot of things about this deal that are different than some other case studies where the seller carried a lot of the financing when he bought it. In this case, the seller got all cash and didn't carry any financing. Other thing about this is, is Jay had been investing in properties for years. And I think a lot of times, you know, Brian, you look at yourself, you were a full-time wholesaler for years and really were just sort of resisting. I'm going to this Creative Financing is not really what I need to do. And it's just funny. So I would, as an encouragement, I would say, if you've been doing this for years, and you're not where you want to be, then, then consider what Brian has figured out and consider what Jay has now figured out. And if you're young and you haven't been through all the pain and aggravation that Brian has, or Jay has, then why don't you figure out earlier than they did, how to add this to your business.
Brian Lauchner (25:03):
Yeah. And some of us don't, even when Eddie speed himself says, you shouldn't really be doing this, but it is kind of interesting because my fear and maybe your fear is that you have to give up your money today. Like, Oh, well, you know, Jay's going to make all this money in the long term, but I got bills to pay. I got, you know, and that was one of my fears. And if you'll go back and watch last week's episode of NoteSchoolTV, you'll see that you can make some money today and it's not a problem. Right. And so if you're interested in kind of what was created today by Jay, if you're trying to learn a little bit more about notes, or maybe you just want to understand the note piece of it. Right? and just understand, I don't really talk to sellers.
Brian Lauchner (25:44):
I just want to understand the note piece. Well, I would encourage you while you're on the YouTube channel, go to the playlist called Feeding Frenzy Friday, where we break down a note asset from Notes Direct each week, talking about the pros and the cons and some of the due diligence with that note to find out, Hey, is this a great note or is this a bad note? And what's kind of my exit strategy. As always, we'll be here every single Wednesday at 11:00 AM live central time to kind of talk a little bit more and try to bring some value to you and to your investment business and encourage you to, again, please like the video we'd really love for you to subscribe to the channel. It means a lot to us. We love to get the engagement, so make sure you're clicking that bell notification to get involved. And again, if you're like, this is cool. How do I learn more than just watching one video? Well, again, subscribe to the channel, but also you could go to www.NoteSchool.com/TV, and learn a little bit more about some of the content that we have and some other videos that we'll try to point you in the right direction. So we really appreciate you coming on this week. We will plan on seeing you next week. And again, we'll see you on NoteSchoolTV. See you next week.
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