Together with Jay Conner, this interesting question is answered by Jay’s guest, Dan Mewhorter.
Dan and Crystal used to both work full time, Crystal was in the healthcare industry and Dan was on call 24/7 supporting software for the coast guard. A few years ago the couple stepped away from their careers and entered real estate investing.
Now after four 4 years since the couple has met Jay, they have raised millions of dollars in private money and private funding for their own business.
Discover Dan’s and Jay’s answer to this question and learn more about real estate investing by watching this video.
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Jay Conner has been investing in Real Estate for over 15 years. He typically makes 2 deals a month. He has bought and sold over 400 homes.
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Chaffee-Thanh Nguyen started investing in Real Estate a decade ago. He dramatically changes and impacts the lives of thousands of people around the world as an Executive Success and Event coach with the likes of Powerteam International and Marshall Sylver’s Mind Power Inc. Chaffee also teaches at his own events.
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Jay Conner:
Next question came in two weeks ago from Philip. Philip says I need help with raising, Hey, where's Dan? Hey, Dan. You get this one, you ready?
Dan Mewhorter:
Sure.
Jay Conner:
Hi, the reason I'm asking you is because like how much private money have you and Crystal raised, like since we've been hanging out together?
Dan Mewhorter:
I think she's, we're sitting somewhere around nearly 6 million.
Dan Mewhorter:
Yeah.
Dan Mewhorter:
It's a lot.
Jay Conner:
You want to be able to handle a private money question I would suppose. So Phillip says I need help raising private money, knowing best rate offer product lenders. And if we should be looking at bank loans with low rates to refinance and pay off private lenders for houses that we want to keep for the long-term as rentals. So his question really specifically Dan is, should they be looking at bank loans with low interest rates to refinance and pay off private lenders for the houses they want to keep long-term
Dan Mewhorter:
Okay. So, wow! Good question. It depends on how we're purchasing these homes. So if we're purchasing homes subject to when we've got a private lender on it to do some small rehab, like many rehabs, if you will on them then what we do is we get the owner to refinance, drop the payments down low, and we collect the cash on that refi. So we get that back to us, so that's, by the way, I think that's like a fourth paycheck on that one, but which is great. But yes, if you want to get a lower payment and you think you can successfully do that again, you know, problem is you're going to be using your own credit. And Jay talks about don't use your own credit and don't use your own money.
Dan Mewhorter:
So I don't, we don't put anything in our business in our name. Everything is financed through, unless it is a foreclosure that we purchased the offer of, and you're gonna, this is convoluted. So you're going to have to clear that up for them. But the offers that we make to our private lenders, we're very consistent with. And we asked them initially what they feel would be a good deal on their interest rate. But typically we'll sit, if it's a hundred thousand and below, we sit at 10%. If it's above 100,000, then we go with 8%. Obviously if it goes up to 1 million, which we have a couple of bows, then we drop the interest rate even farther, but we're very consistent. I think we sit at about 5% on a $1 million and above. So but make sure, because you don't want your private lenders talking. Jay has all his private lenders sitting on a stage together. So if one mentions one percentage and the other one looks at them really funny, then Jay's going to have problems with that. So he's very consistent with that across the board as well. Any other question there?
Jay Conner:
Yeah. Well, you said something that I don't want people to miss and it could have you said it like that and it could have gone very easily like that.
Dan Mewhorter:
Okay.
Jay Conner:
So everybody tune in okay. Like stop looking at your Facebook. I don't want you to miss this. So play out one more time, a little slower that you have somebody else refinance the house, play that out for everybody. How does, what's that look like?
Dan Mewhorter:
Sure. So when we go to purchase these properties and and again, if they're not a foreclosure that we bought outright to do a full blown rehab on, if it is a subject to, and again, Crystal is the queen of subject to, so she can't virtually reach out and slap me in the back of the head. So I'm okay with this. If it is a subject to purchase and we look at it and their interest rate on that might be 6%. We'll just say that that's what they were sitting at, but they've got an offer or an ability, a capability to reduce that by refinancing it. So they reduce the payment, which makes it even sweeter for us because now our monthly income on that. When we turn around and sell it as a rent to own, or whatever happens to be will increase.
Dan Mewhorter:
So we're going to have passive cash-flow coming in because of that. Now we convince, and it's a great deal for them, but we convinced the sellers to us to go ahead and refinance. We pay any of those costs that are incurred on that that's taken care of on that. We pay those. And right now, most of these folks don't charge anything to refi like rocket mortgage and all that kind of stuff, get them refinanced or their lower, their monthly payment. If there's cash ability to take out on it, then we work that into the deal where that cash comes right to us. So if they're able to, if the house is worth $250,000, we're going to pay for an appraisal. We're going to get that bank in there. We're going to say, okay, let's refinance that get cash out of it. If they only owe 150, or the only owner owe we'll say seventy.
Dan Mewhorter:
We had one that was $75,000. And it appraised out at $350,000. There's a lot of cash sitting in there. We don't want to wait two, three years on this. We want to go ahead and get that cash now. So we get them to refi, we get the cash out, still staying down within our percentages are 60 to 75%, whatever we said, low in the value. And we take that cash and hold on to it. So we're going to use that cash, reinvest it back into the property to do the rehab on it. Whatever happens to be, we don't even need a private lender because we just got that cash to do that. If there is a private lender that we were going to be using on a property and we were able to refinance it, then we pay that private lender off and now they're out of the picture, we're not paying that, you know, 8% or 10% of what there happens to be.
Jay Conner:
Well, that's a very advanced, brilliant strategy. What incentive the, so obviously you're buying this house subject to the existing note. I'm going to assume everybody in the Academy knows what we're talking about. So you buy subject to the existing note. They're obviously can't get it refinanced unless they've been current on their payments and you and Crystal had been buying a ton of subject to deals that are current. They're not behind they're currently payments. So obviously Crystal's got the talking points down, Pat on convincing someone to sales subject to, and they're not even behind on their payments, right? That's a whole nother discussion, but since they are current, they're not behind, they got good credit. What incentive would they have to go through? Even though you're paying for the refinancing costs, what incentive would they have to go through the, whatever not pain, but to go through the trouble for lack of a better word of doing the refinancing. I mean, are they most times when they're going to refinance the house and sell it to you subject to, or they go, is that one way of getting them cash that they want over and beyond what they want to sell it for?
Dan Mewhorter:
Absolutely. We get them cashed out quickly that way. So normally when we're purchasing subject to, we've got to wait until we get a tenant buyer in there. The tenant buyers installed. They have some seasoning on them, you know, a year, maybe two years max they're in there. And then they're able to get their own mortgage because we go ahead and put them in free credit repair, that kind of thing, where we're getting them there, got them qualified, they get cashed out, they purchased the house. The cash comes in and we hand the previous owner, the cash that we agreed upon and this way with a refinance. So I already worked out all the deals on it already understand, Hey, you know, this is how much you're going to get, we agreed upon it, then we talk about the refi. So we say, okay, since we've got this, now let's talk about a refi.
Dan Mewhorter:
We're going to walk you through it. We're going to help you with it. You're not going to have to deal with it all by yourself. Some of these folks in a breeze over quickly, some of the reasons why is because, well, probably primarily because of COVID right now, but they're, they've lost their job. They haven't missed a payment yet, but they know they're going in and they don't want to wreck their credit on it. So we step in and we can buy very, very quickly, literally within seven days, as long as we get that title search done, we can start making payments. So, boom, they don't even miss a payment on it. You can't get that with a realtor. So realtor said, Hey, you know, I believe I can sell it in a month. Or we've got, we've had properties sitting there for six months and Jay can attest to that.
Dan Mewhorter:
You know, it's a fickle market out there. It just doesn't. I mean, they don't sell like hotcakes like the realtor is telling you, Oh, I can sell it in two weeks or six months, you know, that kind of deal. So these folks have no tolerance, no threshold. They have no, I mean, they have a big pain point because they've left already or they're leaving. Maybe they found a new job someplace else, and they've got to move or they're moving in with mom and dad because, you know, they just can't make the payments anymore.
Jay Conner:
So this strategy, just to recap works A, when they're current on payments, cause they can't refinance unless they're current B they want cash over and beyond. They want to sell you the house over and beyond what they owe on it. So they're not selling it to you for what they owe. So one question just came in that I think we sort of answered it. The question is why would they even do subject to if they can refinance? And the reason they want to be subject to is because they want it, they want to sell the house and they, they don't want to be responsible for payments because maybe they're getting ready to lose their job right, Dan?
Dan Mewhorter:
Right, There's I mean, there's a million different ones different reasons behind it. You know, whatever, but I don't wanna go here, we could have one session just on reasons why people sell subject to.
Jay Conner:
Exactly, So.
Chaffee Than-Nguyen:
The primary reason is that crystal knows what to say and how to say it.
Jay Conner:
That's right.
Dan Mewhorter:
That is the primary reason, she's good at finding the pain points and having a conversation with people, she's, she's very, very good at that, So yeah.
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