Prior to getting yourself INTO a real estate transaction, you need to be sure you know how to get out … particularly if you’re counting on it being a successful transaction. On today’s episode, Matt covers several acquisition methods, as well as four main exit strategies that all investors need to know before beginning a real estate transaction.
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(Voice Over): Epic Real Estate Investing Podcast Episode 17. You’re about to meet a man that can show you how he took control of his life and financial future and how you can do the same. He’s never been on TV. He’s not a millionaire. He doesn’t know Donald Trump. He is a full time real estate investor, newly discovered author, and family man. He does not report to a boss.
He creates his own schedule and takes his family on a few vacations every year. He got started investing in real estate with almost no money and a really crummy credit score. And he’s going to show you exactly how he did it and how he continues to do it. You will have to work.
You will have to be responsible. However, laying the beach, sipping fruity drinks is a reasonable goal. Without further delay, your guru. Sorry. Your guide to a better life, the real estate investor, Matt Theriault.
Matt Theriault: Hello. Greetings from The Epic Real Estate Investing Podcast. The podcast that will show you how to create wealth through conventional and creative real estate investing so you’ll have the option to realistically retire in the next 10 years or less. And enjoy the good life while you’re still young enough to do so.
My name is Matt Theriault, author, full time real estate investor and family man. Boy, am I family man now. I’m really, really, really feeling it. My son is putting me to the test. I’ll tell you that but I’m working it out. Everything’s going to be all right.
Now if this is your first time listening to the show. You want to do two things. First of all, welcome. I’m glad that you’re here but you would want to go back and listen to episode one to get the gist of what the show is about and why it’s here.
I mean everything that we discussed is going to make a lot more sense if you do that. And two, download the free real estate investing course on how to deals, no money required. And you can get at freerealestateinvestingcourse.com.
It’s a step-by-step course of which I reveal everything that I do, everything that I say, everything that I use including the documents and contracts. Everything that you are going to need to invest in real estate using no money or credit. And that’s yours for free at freerealestateinvestingcourse.com.
Okay today let’s discuss strategy. How do you get into a property? How do you buy it? And how do you get out? How do you sell it? I mean this is really important to understand because you’ve all likely heard the expression that you make your money when you buy real estate. That is so true.
So you need to be good at least one acquisition strategy so you can buy right. So you make your money when you buy but you get paid when you sell. There’s different ways that you can sell.
You can sell all at once and get paid in one big super or in one big chunk through say a fix and flip or a wholesale strategy or you can sell over time and get paid monthly through renting a property with a holding strategy.
Or you can do combination of the two; get paid a little bit now and a little bit over time. Get paid a little bit more down the road through say through options strategy. Those are your 4 basic exit strategies: fix and flip, wholesale, buy and hold, and lease option.
If you want to make money in this business, you’ve got to get good at least one acquisition strategy. I recommend that you master it. You expect to get paid. You must be good at all of your exit strategies. Now examples of acquisition strategies are short sales. That’s an acquisition strategy.
Probate. That’s an acquisition strategy. Tax deeds and tax liens, those are acquisition strategies. Bankruptcy, where that’s from the courthouse or forming relationships with bankruptcy lawyers. That can easily extend into divorce files as a strategy like forming relationships with family law attorneys. That’s a great strategy.
You can market to absentee owners. Notice the defaults. REOs or the real estate owned properties by the bank. Foreclosure options, distressed homeowners or distressed investors, that’s a personal favourite of mine.
The MLS, I mean just buying off the multiple listing service can be an acquisition strategy. My friend, Christy, she writes a hundred offers a week or so for properties just on the MLS.
I mean that’s certainly a strategy if you want to do that much writing and faxing. In fact, I mean depending the market that can be a very good strategy.
Internet marketing for distressed sellers has certainly become an acquisition strategy in the last 10 years or so. Or expired listings, I mean there’s a bunch of acquisition strategies out there.
They all have different requirements with regard to time, money, patience, personality, and character. I mean, for example, short sales. It doesn’t take much to find a short sale deal.
However, I guess that really depends on what part of the country you live in. A short sale is when a property owner owes more than the property than what the property is worth.
It’s upside down so to speak. So if you live in an area of the country that hasn’t been too affected by the financial implosion and the lagging economy then you know there might not be too many short sales there for you to pursue. But boy, if you live in California or Arizona or Florida or Nevada, I mean they’re everywhere.
I mean it’s hard to walk out the door without tripping on one. So let’s say that’s the strategy you’re going to choose to acquire your properties. It doesn’t a whole lot of time to work a short sale.
I mean typically once the actual short sales package has been submitted; it might only take a call or two each week to follow up on that file and then it’s a waiting game.
But really it only takes a call or two each week to follow up. Then it’s just a simple math equation. Multiply how many short sales that you have under contract by say to be safe two calls per week.
There’s your time commitment. Now mind you, these are regular calls. You could be on hold for up to an hour certainly been up to an hour and more. But at the very least, plan 30 to 45 minutes per call. Most of that time you’re going to be on hold so that would be your time commitment for this strategy for the short sale strategy.
That’s when I guess your personality and patience come into factor as well. You have the patience to sit on hold that long for every call on every single week.
I mean do you have the tolerance for shuffling mountains of paperwork? Do you have the tolerance on dealing with total idiots on the phone? I said it. Total idiots on the phone. I mean the bank representatives that don’t have a clue as to what’s going on or how are real estate transaction works.
I mean, literally, you can ask the person at the bank to question about your file. It’s happens all the time. You can literally hear the bank rep, thumbing through their procedure manual, looking up the answer to your question.
You can tell they’re reading the answer. Do you have the patience for that? Do you have the patience for the bank losing your file at least twice through the entire process?
Then they tell you that you never sent it. They say it’s your fault. That can be very frustrating. Can you tolerate the banks? Changing the rules or their company policy every other week.
Do you have the brain stamina to try and reason with someone that’s unreasonable? Or even worse, to try to negotiate with someone that couldn’t care less if they sold the property or not?
I mean that’s impossible by the way. It’s impossible to negotiate with somebody that just doesn’t care or someone that’s totally indifferent.
To top it off, is your financial situation strong enough to wait 6 months before you actually get your first check? That’s how long a typical short sale takes. It might be 3 months. It might 6 months. It might be 9 months. I have files over 12 months.
I mean, maybe you can tell I hate short sales. I’ve done a ton of them over the last 3 years but I can’t handle it anymore. That strategy. I mean it’s almost drove to the Looney bin.
That’s why my girl, she processes all of the files now. She’s an absolute saint. She has a great personality. She somehow easily makes friends with all of the bank reps and to top it off, she has the patience of Job.
I’m just not built for short sales. She is, however. That’s a perfect example of how your personality influence which acquisition strategy you’ll be best at.
Now let’s discuss the money situation with the short sales. For a while, I mean it actually for a long while, we had a really good run for I guess a little over a year where it was possible to do simultaneous closes and concurrent closes with short sales.
I mean once the bank approved the discount pay off, we went out and marketed the property. You see, as when you get your approval from the bank, you get what’s called equitable interest.
With equitable interest come certain rights. One of those rights is the right to market the property. So we were marketing the property before we even owned it. And then once we fond a buyer, we just write a contract with that buyer. Then we would turn it into an escrow and instruct the closing agent to use the buyer’s money to fund our approval with the bank.
We obviously sold the property to the buyer at a higher price than the approval price. We got to keep the difference without ever using our own money. That worked well for a really long time right in the beginning. Then the banks, they put a halt to that.
So then we add the change our approach a little bit then we started using transactional funding of which we borrow the money to purchase the property from the bank first. We would only borrow anywhere from 24 to 48 hours or so. Now it allows us to close on the A to B transaction with the bank.
Then two days later, we would close the B to C transaction with the buyer. That worked for a while. In fact, that still work decently for us but the banks are putting more and more obstacles in the path of the short sale investor that even that isn’t as easy as it used to be.
I mean in many cases, the big bang is like B or A, or Chase or Wells-Fargo. They’re requiring the short sale investors to hold on to the property for 30 days before they sell it. What that does is that you have to negotiate bigger money’s spread with the bank to compensate for those new money costs.
I’d really don’t even understand they could force me to hold the property for 30 days before they sell it. I mean I owned the property, how can dictate what I do with it but they try but then the frustrating part about it is they don’t do it every time. I mean it’s a hit or miss.
It’s hit and miss just enough to keep you in the game because it is profitable. But it’s frustrating as hell. I mean last month we had 3 short sale deals with the same bank but we were assigned to 3 laws mitigators.
They’re the ones that negotiate the short sales on the banks perhaps so we have 3 files with the same bank. Because we had 3 different laws mitigators at the same bank, we had 3 entirely different experiences.
We were forced to play by 3 different sets of rules. I mean it’s like the government. They have their rules, right? You got the laws that you got to abide by. Then the DRE or the Department of Real Estate. They impose their own set of rules. Then the banks. They have their rules. They have got their company policy.
Now it seems each individual laws mitigators have their own set of rules that they impose on the deals as well. What it really all boils down to is the banks just don’t need to sell right now. I mean, they may want to sell but they don’t need to sell.
You see, the banks that are still in existence receive their bail out money years ago from the government so that really save them from the massive losses they would incur without the bail out money.
If it didn’t wipe out their debt and losses entirely but then the banks were allowed to claim on loss on their taxes anyway. Even after the bail out save them from their losses so they got to claim the loss with the IRS of which they didn’t lose. They were bailed out.
So they’re sending mountains free and clear real estate right now, which they are in no rush to get rid of. I mean it’s almost a 100% profit to them. So I’m sure you can tell that this is a serious sore spot for me.
I mean, mostly because they dramatically cut back on the amount of deals they’re approving. If it cut way back on the amount of equity they’re letting go on each deal they do approve. I mean the government they got bailed out but the buck I guess it just stops with them.
The bail out wasn’t intended for the people I guess. The bucks stop with them with regard to the relief trickling down. In fact, it actually never really trickled. The banks just damned it up. The small businessmen didn’t get to see a penny of it.
Or maybe we did for a hot second but once they figured it out that we were actually making a small profit and we are able to feed our families during these trying times. We were able to pay our bills. They decided to put a stop to it.
Now if you can deal with all of that, I mean knock yourself out. Short sales? Go for it. I mean if it weren’t for my girl, I would not be doing short sales at all anymore. But we still get enough approvals to where it is worth our time.
It’s just not worth my sanity so she handles it. Now I don’t know how much of everything I just said is true because I didn’t hear that from anybody. I didn’t read it anywhere. I’ve witnessed this from the outside looking in.
I’m on the frontline. I mean that’s a consolidation of the last 3 years of short sale experience that I gathered from being in the game, from being on the court, and playing that game.
Actually I didn’t intend to make this podcast on short sale bashing but what you want to get out of this is that every strategy has its pros and cons with regard to an investor’s time, to an investor’s money, and to an investor’s personality.
For example, take probate as an acquisition strategy. My friend, Chris, he is a master at probate. A couple of hours a day, he goes on down to the courthouse. He thumbs through the probate files and he reads them. He decides if there’s a deal or not.
Now I don’t know if you’ve ever done that. You might want to try just for the experience but if you go down there and you read through those files. There’s not a little flag sticking out of the files anywhere that says, “Hey, there’s a deal right here.”
It takes time to learn what those documents are saying. It takes time to discern whether there’s a deal, whether it’s worthy of your time to pursue or not.
Now he is a master at this. Because he is a master, he is essentially eliminated all of his competition, very much of it. I mean he finds deals where no one else can find them. Just because he knows what he is looking at, because he’s invested his time. He’s gotten educated on what to look for.
On the schoolteacher’s salary through this strategy, he has created a real estate portfolio of over 200 cash flowing properties. It’s pretty amazing but if you don’t have the personality or the character that has the patience to go down to the courthouse everyday for two to three a day and look through files. Then the probates probably not going to be an acquisition strategy for you.
Another example is tax deeds as an acquisition strategy. I mean I took a class on this strategy because it just sounded too darn good. If you don’t know what that strategy is, each county will hold an auction on properties that are delinquent in their property taxes.
They’ll auction the property off just for the amount of the taxes that are overdue. So if someone didn’t pay their taxes for a couple of years and all they owed is $4,000 in property taxes, that’s where they basically start the auction.
Is it $4,000? The one I heard about that is like wow, even if they doubled or tripled or quadrupled that price, it would still be an awesome deal. So I took a class on that strategy and coincidentally, it was just a time when the tax deed auction was coming up in my county in Los Angeles. This is a few years ago.
I went down. I registered for the auction. I put down a $5,000 deposit. They gave me a giant book. I bet the book was probably 2 inches thick, filled with all of the properties that were going to be auctioned off.
I started to look in through them. You know, I was like, wow, this one is only $5,000. The auction here starts at $10,000. The auction on this one starts for $500. I was looking at this. Who wouldn’t pay an overdue tax bill for $500 to save their home?
But hey, they were there. I started going through them. I brought a couple of friends with me. We created some guidelines of how we are going to identify which properties we are going to bid on.
So we tore the book into 4 parts. We each started analysing the property. We started making a list by putting a little star next to the ones that met our criteria. Once we’re all done, we’d narrowed down that list of that 2-inch book filled with properties that are probably, I don’t know. I really can’t remember but there were multiple properties on each page. There were probably 10 properties per page.
We went to that entire list. It took us about a week to do so working non-stop. We reduced that to a list of about 150 properties of which met our criteria.
We’re going to flip these properties so if we could purchase the property with at least $50,000 of equity then we’re going to bid on that property. We mad an ode to each other that we aren’t going to bid one penny over that price. We wanted to always maintain $50,000 of equity in each property.
It seems like really easy to do especially when a property’s auction is starting at $5,000 or $10,000. I mean we’re in Southern California. Properties here sell at $2,000, $3,000, $4,000 or $100,000. Starting at that price seems like creating an equity position of $50,000 would be pretty darn easy.
So we reduced it down to about 150 properties and then we over next couple of weeks end. We drove properties and further reduced that list. We reduced it down to a list of about 60 properties.
So now we’ve 60 properties. Then what we needed to do, I think with this auction, we only needed 10% down to take ownership of the property then we had 30 days to close. Though I was thinking about my short sales strategy, okay this is going to be easy.
Put 10% down. Get it under contract. Then find a buyer for and close within 30 days. Easy. So the date came up and we started probably 3 months out ahead of the actual auction date. That date came up. We went down. We marched down. There were 5 of us I believe.
We marched down to the auction at a big giant auditorium. We walked in and there were probably at least a thousand people sitting down, waiting for the auction, and bidding on properties.
We just kind of looked at each other like “ooh. I guess we got some competition.” But it’s okay. We’ve got 60 properties and all we need to do is to get 20 of these properties.
We only need to win 20 of these properties. If we get 20, we can essentially create a million dollars in 30 days. 50 grand of equity times 20, were going to create a million dollars within 30 days.
So we were excited. They gave us this little brochure of the properties that were coming up for auction. We started going through to see when our properties were coming up for auction.
We started going through and going through. We got to one property. It said that it was pulled from the auction that the homeowner had paid their taxes on time to save the property.
I mean like okay. We will get to the next one. Same story. There were property owners who paid the taxes. They pulled it from the auction. We went through again. Same story. Same story.
I got to like 10 properties and none of those first 10 is actually going to be auctioned off that day. So now we are getting a little concerned. We went to the whole thing. Out of a 60 properties we were going to bid on only 4 of them were left in the auction. We looked at each other like “wow!”
But hey, $50,000 of equity times 4 properties, that’s still not a bad month. Even if we had to divide it by 5 times. So that was a dose of reality that kind of came up and slapped us against the head. Hey we did all this work for months, months, months, and months. We only got a shot at 4 properties.
So we sat around patiently, got a hotdog, and a soda. We waited for our number to come up. By the way, while we were waiting we were watching all these other properties that people are bidding on.
You know there’s like one person or two people bidding against each other and the property just goes for ridiculously nothing. The next one, maybe two or three people are involved. Then there are other properties that nobody bids on.
It might have been a thousand dollars of property and no one bid on. So we were watching. There’s not a whole lot of competition for each property that’s coming up.
So we see our number coming up in the auction. We were getting ready. Okay this is our moment. We all had numbers so we’re ready to hold the number up so the auctioneer could see our bid.
Our property came up and he said, “I’m going to start the bid at $5,000.” Every single hand in the auditorium shot up in the air. It was the first property. Our first property that we bid on. It was the first property. We saw more than 2 or 3 hands bid on that property. It was amazing.
That thing went from $5,000 to $10,000 to $20,000 to $50,000 to $100,000 to $200,000 to $300,000 to $400,000. Really in a matter of, I don’t know, 30 seconds. We looked at each other like “gosh, we were supposed to stop bidding about a $100,000 ago.”
When all those were done, the person that won the property. I bet very conservatively. Perhaps more but very conservatively they bid probably $50,000 over retail on that property. It was insane.
Like how they are going to make any money on it? I guess they’re just going into living it. Who knows? But that’s how the first one went.
In the 2nd property came up with the same story. The 3rd property that came up was the same story. The 4th property came up same story.
So we walked out of there with nothing. We had almost 4 months of time invested in research and walked out of that auction with nothing.
I went back and reported to the person that taught the class that we took. I reported to them what had happened. She was a very successful Britney. She was a very successful tax deed investor.
I was like how does this strategy work. This is what we did. We did exactly what you told us to do. We did this and did that. We went down there.
She said you know what? Some markets are just like that. It’s that it, she was like I don’t know what happened but you know friend, uh, my friend Lisa went down and she got 4 properties from that auction.
I was like, “really, how did she do that?” Well, Lisa is an expert at tax deed auctions. She knew how to work the system. She actually purchases those properties because she became an expert because she is experienced because she dedicated and mastered one acquisition strategy. She makes a profit at every tax deed auction.
She makes a killing because she learned how to get the properties before they went to auction. Here we are in this giant room of a thousand people, a bunch of imbeciles that are all chasing their dreams and trying to get rich.
At tax deed auctions and competed against each other. She didn’t actually go to the auction. She got all of the properties before they went to auction. Perhaps we can get to later on how she actually did that but the point I’m trying to make here is she mastered an acquisition strategy. Because she mastered an acquisition strategy, she eliminated her competition.
She didn’t have to step into that room with those thousands people and compete. Just like my friend, Chris, he doesn’t have to compete with all the other people direct mailing probate.
No. He goes down to the courthouse, goes through the files, finds out which ones are the deals and knows how to acquire that property above and beyond what’s so many people are out there doing what they’re direct mail campaigns.
I mean each strategy has its pros and cons. You’re going have to take the good with the bad. You’re going to have just to pick one.
I recommend as I’ve illustrated a few examples that you just master one. Master whichever one you pick. You know I’m going to have many guests on the show sharing their strategy and how they succeed at their strategy.
I’m not going to pretend to know it all and try to teach you every single strategy out there. I mean that would be silly as well as very big disservice to you. I mean for example, I‘ve never bought or sold a seller-financed note but I had one on the top of note investor in the United States on the show last episode to share with you how he does that.
I have a pretty deep network with regard to successful investors. Then run the entire spectrum of strategies. I’ll continue to have them on to share their perspectives and their tips. So once you actually pick your strategy, study it and become a master at it before you adopt a 2nd strategy.
I mean I consider myself a short sale expert. I’ve made a lot of money with that acquisition strategy but it’s really tough to get any sort of attraction or momentum going in the current banking conditions.
I mean if you are an expert marksman with the rifle but the guy at the end of the line kept moving the target or even worse changing the target without telling you what the target was. I mean how could you hit your target? Even if you were an expert.
So I decided to become an expert on acquiring property just by distressed property owners. Whether that’s homeowners or investors, I mean if you’re in a jam and you need to get rid of your property, you need a way out for the last year. That’s been my focus. That’s who I’ve been looking for.
Now I’ve become somewhat of an expert on creating win-win seller financed deals. I like to think of myself as an expert but there’s still so much more that I can learn. But I’ve done very well with seller-financed deals. I’ve done very well with all-inclusive deeds of trust.
I’ve done very well at using other people’s money to build my portfolio. That’s actually what I’m putting together inside of my Epic Pro Academy of which is scheduled for a November 15th launch.
It’s my shameless plug by the way and more shameless plugs to come. Epic Pro Academy. If you want some more information, you can go EpicProAcademy.com.
All right. I’m executing these types of deals on a regular basis. That’s where I decided to commit and that’s where I’ve decided to hone my skills. That works for me. I might not work for you. I mean perhaps you’ve got a bunch of cash and you can go down to the courthouse steps and bid at the auction. That might be a strategy that works for you.
That doesn’t work for me. You’re going to find that each strategy the less money that it takes to execute that strategy, the more time it takes. Those two factors, they just seem to work together. They seem to be finally correlated.
I mean if you got a bunch of money. It’s not going to take you much time to build your real estate portfolio. I mean just hit the multiple listing services with your real estate agent and start making offers.
I mean you should be done in no time. Or if you find yourself strapped for cash, you’re going to have to get really good with the time part meaning you’re going have to really hone your skills and practice your techniques.
That’s why education is so important. It compensates for the lack of cash because all the time in the world really just has no value inside of real estate investing unless you know what to do with that time. So pick one acquisition strategy and master it.
That’s how you’re going to make your money. Now having said that, you also need to learn the 4 basic exit strategies: fix and flip, wholesaling, buy and hold, and lease option.
You’ll need to understand how each one of those strategies is going to affect your acquisition price. You see you got to know how you’re going to get out before you get in.
For example, if you’re intent is to fix and flip as you’re exit strategy. When you buy, you’re going to be very concerned with. You’re going to want to pay attention to what the after repair value is. What will be the retail price that you’ll be able to sell it for?
So while you’re analysing your property, you’ll going want to start with the retail price or the after repair value. I mean all of your math starts there. Then you work your way back. That retail price will have a dramatic impact on what you’re able to purchase the property for and still make a profit.
Or if you intend to buy and hold, the fair market or retail price probably isn’t going to be so much of a concern for you. You’ll have to be more concerned with how much you would be able to rent the property for.
And will that rent be greater than the amount that you have to borrow? Will you be happy with that return? So I really don’t care as much what the comparable market analysis for sold in the area says.
I mean I’m not going to ignore that information completely but it’s not my primary concern. The return on my investment is my concern. For example, I own 4 properties in Illinois of which I know I paid more than market value for.
I was completely aware that when it happened. I had no problem with it though because the cash on cash return was 27%. After the tax deductions and depreciation, my total return is 40%. I’m okay over spending on a hold situation if the return on my investment is going to be 40%.
I mean maybe you’re not okay with that but I am. I mean I’ll do that deal all day long. You know, how fast you’ll get out of the rat race with that type of deal? You know how fast you can get out of the rat race for over paying for property in that situation?
If 40% return on your investment, I mean if you want to go down to ING, the large financial institution and open up a savings account at 0.85% annual percentage. Go ahead. (laughing)
You mean you know your situation much better than I do. You know inflation is around 3-½ %, right? I mean you’re actually losing money in that bank account. Anyway, I’m sure you know that. I’m preaching to the choir here.
But that’s why I love about real estate. I mean there’s no other investment vehicle out there that gives you that type of control. I love it but control comes to you by way of education. When you become a master of an acquisition strategy and get very well versed with your exit strategies, you will have that type of control over your finances, over your investments.
You’ll have that type of control over your future. I mean so much so that you can virtually eliminate the risks. When you start to master your acquisition strategy and master your exit strategies, you can virtually eliminate the risk. I mean there’s always risk.
So be careful if someone says there’s no risk. There’s always risk but you can virtually eliminate it. You can mitigate solo that there’s no really nothing to be scared of. For example, last example today. I mentioned a couple of episodes ago how I just picked up my first California property to hold. I did it through 100% seller financing.
Not a whole lot risk there, right? The owner called me from one of my yellow letters. She was somewhat abrasive at first. I answered the phone. I was like hello? She said, “I got this yellow letter from you stating you want to buy my forplex. How much are you going to give me for it?” I asked, “Well, how much do you want?”
She said, “$340,000.” I then asked well how much do you owe on it? She said she owned free and clear. In my head I’m thinking, “cha-ching.”
Then I asked well if I would be able to give you $340,000. How soon would be ready to sell it? She said, “right away.” I said, “great.”
So I told her I purchase property in two different ways. Here’s a tip for you by the way, you might want to write this one down. I mean this sentence has made me a small fortune. It’s my favourite line to say to motivated sellers. I said, “I purchase property in two different ways. I’ll give you all cash at my price or I’ll give you your price on my terms. Which one would you like to do?”
So she asked me, “What is my all cash price?” I was like, “50% of $340,000. I’ll give you a $170,000 within 7 days.” She told me I was crazy. Understandably. And then she asked me, “Well, what are your terms in the other option?”
I said, “well, I’ll give you your price of $340,000 but I want an all principle loan, amortized within 40 years with a balloon payment due in 10 years. I want a 6-month moratorium on the first payment.”
She said, “deal.” So real quick. Let me explain what this deal had to do with my acquisition strategy and exit strategy. My acquisition strategy is that of marketing to distressed property owners within a five-mile radius of my own personal residence. That’s my primary strategy and approach.
I’ve been doing this long enough that 2 types of people call off those yellow letters. The first is are those that curious because they never see like this hit their mailbox before. And that’s most of the calls I receive. I mean they’re junk calls mostly what I get. They’re not calling to really sell the house. They’re just curious as to how much I am going to pay them for.
The second type of call that I get is from people genuinely in a bind that are looking for solution. Knowing that, I’ve got a few basic questions that I ask that essentially sort these two people right away.
I know which one you are but she was so blunt, so fast on the phone. I just responded bluntly back to her. I purchase properties in two different ways. I’ll give you all cash at my price or I’ll give you your price on my terms. Which one would you like to do?
Now there’s a lot of flexibility in my terms but those are essentially my dream terms. That’s where I would like to start especially if I’m pressed for an answer. They’re my dream terms because I know my market and I know my exit strategies.
If she accepts my first option of 50 cents on the dollar. I mean even she has grossly over estimate her property’s value; I still know that if she took that option. There’s a pretty good chance that I will be able to flip it for a very healthy profit.
Now if she accepted my 2nd option and that what I always hope they would go for by the way is I prefer to hold and cash flow property. That’s where I’m headed. I want that passive income.
So I hope they choose that option because with this option I know paying full market value, amortized over 40 years that there’s probably not going to be too much problem me cash flowing just about any property in my area at the moment.
Since this was a forplex, I mean it really was no doubt in my mind that this thing was going to be cash flowing if she accepted that option. I was going to cash flow quite a bit. Now I threw in a couple of extra terms. I threw a principle only loan.
So that 100% of my monthly payments go to debt pay down of which at the end of the 4-year period, I will have paid off with the ridiculously low payment because it’s amortized over 40 years so the payment is small.
But with that ridiculously payment, I would have paid off approximately 40% of the property’s value. That’s if the value stays at exactly what it is today. Now that’s serious wealth creation there by just inserting that one term or principal only loan. I’m paying interest. All of my payments go to the principle. It pays it down.
Because it does, it creates a massive amount of equity really fast. So that’s serious wealth creation there. I insert it out one term. It’s not me that’s making the payments. It’s my tenants. They’re creating 40% of my equity for me through their rental payments of which I really think is my worst scenario.
Even if the entire market goes to crap and never recover, I still cash flow the entire 10-year period but I really that’s going to happen here in California on the next 10 years. In my opinion, we are only going up. What pays? I don’t know but it’s going up in 10 years.
I’m confident in that. I mean it might dip a little bit before it goes back up but I’m confident that it’s going to go back up. The 2nd term I put in place was a 6-month moratorium on my payments of which I don’t have to make any payments. That’s what that means. I don’t have to make any payments for the first 6 months.
What that does is it allows me to build a reserve to properly and responsibly manage the property. I did all of this without one dime of my own money. Well, I did have to pay a few grand in escrow fees, transfer taxes and insurance but sheesh. (laughing)
With that deal, if you couldn’t go out and find a few grand to close this. I don’t know what to tell you. I mean the first month’s rent alone is a little over $3,000.
That right there pays my closing cause and I don’t have to make any more payments for the following 5 months. The point here is when you commit to mastering your acquisition strategy and you understand your exit strategies, the sky is the limit.
That’s why I end my podcast with living the dream. It’s really amazing once you’ve chosen to master your acquisition strategy, once you become really competent at it. Understand your exit strategies. I made a commitment to myself to mastering negotiating and to master creative deal structuring.
What are you going to commit to? It’s your choice. I mean if you’ve got nothing from today, what you’ll want to get is just choose. Stick with what you choose. Never stop investing in your education and don’t give up.
Then all of the time, money, and freedom that real estate investing can provide is going to be yours for the taking. You’re going to have an amazing amount of control over your current situation and your future.
Not just your future, your children’s future, and your children’s children future. That’s what’s available for you. I mean that’s why we are here. Isn’t it?
That’s it for today. Until next time, as a very wise person once said, “commitment unlocks the doors of imagination, allows vision, and gives us the right stuff to turn our dreams into reality.”
To your success, I am Matt Theriault. Living the dream.
(Voice Over): Thank you for spending this time with Matt Theriault and the Epic Real Estate Investing podcast. When you have time, stop by iTunes to leave your comments and let us know what you think of this show. And if you haven’t done so already, get started investing today by visiting FreeRealEstateInvestingCourse.com to access Matt’s free course on how to deals, no money required. Until next time. To your success, to your success, to your success.[End of Transcript]