Creative Real Estate Investing and Financing | EREI 18

There are a couple of crucial questions — how do you find the money, and where do you find the money? — that plague many real estate investors who want to build their business but are unsure of the answers. Today Matt talks about the top three money sources that he counts on for his own investing business.

 

Recommended Resources:

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  • Need time? Work on your business rather than in your business by leveraging the time of others.  Access free information and find real estate-trained virtual assistants to help you free up your time.  Learn more at VAsForRealEstate.com.
  • Need training? The ultimate training environment for real estate investors: Version 3.0 of The Epic Pro Academy!  New look, new lessons & new content – we’ve got everything you need to know to get your first paycheck!
  • Need someone to do it all for you? If you’re an Accredited Investor, you can diversify your portfolio by hitching your wagon to our train and share in the profits. Go to EpicWealthFund.com to download the executive summary.

 

Podcast Transcript: 

(Voice Over):  Epic Real Estate Investing Podcast Episode 18.  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 through real estate investing, Matt Theriault.

Matt TheriaultHello.  Greetings from The Epic Real Estate Investing Podcast.  The podcast that will show you how to build wealth through creative real estate investing.  That’s what we will discuss today and for a long time to come 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.  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.

What does that mean to you? What does it mean in general? I mean what are the thoughts that come to your mind when you hear those phrases?  Because they’re used pretty liberally.  They’re used interchangeably.

I mean the word “creative”, I mean, can be a very broad stroke.  Perhaps it’s probably easier to define “creative real estate investing” and “creative financing” but first defining what it is not.  What is not creative real estate investing and creative financing?  So to answer that, this is about as un-creative as you can get.

First, call a real estate agent.  Let them know what you’re looking for.  Second, call a bank.  Get pre-qualified for real estate loan.  Then third, sit around and wait for your real estate agent to call you to go tour properties.

That’s conventional real estate investing.  There’s nothing wrong with that by the way.  You got the resources to get what you want to get what you want to get done that way.  Knock yourself out but even if you do have those resources available to you even if you have a lot of money to use, even if you have an amazing credit score.  There’s a limit to how many real estate loans the banks will allow.

I believe it’s four.  I think it used to be ten then it went back to four.  It goes back and forth to what I understand.  Just a couple of weeks ago, I mean, there’s a movement to get it increased to 20.  I’m not sure if that went through or not. Or if it was a rumour or if that actually happened or someone was just, you know, fantasizing.

Whatever the limit though there is a limit.  Once you hit that limit, if you want and or need to keep going in order to achieve your financial goals, your real estate investing goals.  You will have to get creative.  You’ll going to have to get creative at some point.

Then there’s the rest of us who don’t have a choice but to get creative.  Whether you’re limited by money or your credit score is less than desirable, you’ve got to get creative.  Up to this point in my real estate investing career, I have yet to get a conventional loan for a transaction.

Quite honestly knowing what I know now, I doubt that I ever will. I can create better deals than the bank could really ever offer.

Not to mention, I can take action much faster as well.  Sometimes the difference between success and failure in a transaction is the speed of which you can act.  On top of that, doing creative financing and creative real estate investing is just fun.

It’s where the fun is in this business for me. I mean the thrill of putting a deal together using no money or credit.  Everyone involved still ends up getting what they want is just that.  It’s a thrill.

There’s no limit on how much you can do.  There are no limits to the creativity either.  Now as I’ve been sifting through all your burning questions and lining up guests to address them for you. I noticed a great deal of your burning questions revolved around financing and how to find the money.

I’m glad that I asked because what this survey revealed to me was I haven’t covered the subject of money and financing as thoroughly as I had thought. I mean I created an entire free step-by-step free real estate investing course around doing deals where no money was required so maybe I missed something.

Actually, you know, I probably missed a lot, as there are countless ways to invest in real estate using no money or none of your own money specifically. I guess my free real estate investing really only covers two ways but they are the easiest ways.  They’re the easiest two ways.

Later on in this episode, it will probably start to make sense as to why you should embrace those two easy ways first.  So let’s begin with this question I received and there are 4 parts to this question: Where do you find the money for your deals?

How do you ask for it?  How do you present your opportunities?  What do you do to help increase your money partner’s comfort level in giving you money and doing business with you?

Okay.  So there are parts to the question.  Great question.  So let’s take the first part” where do you find the money for your deals?  Well, there are three places I always look for the money. I do it in this order.

First, I look at the sellers themselves to provide all of the money that I will need in the deal.  After I found out why the seller needs to sell and what they want out of the sale.  Then my brain starts to work with regard how can they help me help them.

Initially I start to think about how much money do they owe in the property.  That’s going to dictate a lot of what can and cannot be done.  I want to know if their payments are current.  One of the biggies is when do they need whatever it is that they want out of the sale?

I mean if they own the property free and clear, that’s pretty easy.  If they have a loan, however, my first choice is to leave the loan in place and do what’s most commonly referred to as a subject to deal of which I will take ownership of the property subject to the existing loan, which means after the transaction is completed.  I am on title but the loan is still in the seller’s name.

I now babysit their loans so to speak by making their payments get paid and done right. I can flip the property for a profit or I can hold on to it and cash flow.  That’s the first place that I am looking for the money.

I am looking at the seller and if there’s a loan in place. I want to leave that current loan in place.  That’s a lot of money typically that you should just found if you can do that.

Now if I need some money above and beyond the existing loan, I look to the seller again for seller financing for them to carry back an additional mortgage of which if they agree I would typically.

I used the word “typically” because really there are so many variables involved but typically I would hand this off to a third party servicing company to wrap that second mortgage into an AITD or An All Inclusive Trust Deed also referred to as Wrap Around Mortgage.

You might have heard it referred to that manner as well. Now you can keep the two separate, the two loans separate if you want, you can leave the first loan in place with the bank and make the payments to the bank then you can leave the second loan in place with the seller.  Make the payments directly to the seller.

However, I like using third party servicing companies to just wrap it all up into one loan deal or all inclusive trust deed.  Then send the servicer just one payment and let them distribute payment to the appropriate lenders.  That’s my first choice.

There are couple of other strategic advantages of using a third party service company but the primary reason is it keeps the transaction simple.  It keeps it clean.  So again, that’s my first choice of going to the seller for the money via good old fashion negotiating or seller financing.

You know the more that I do this that I deal with the sellers; the more I’ m finding that I’m using hardly any money at all.  I just think that’s just after a little over, I guess, a year of focusing on distressed sellers.  I’ve done it so many times that I just expect to not come in with any money.

I mean I mentioned in the last episode the four-unit that I just picked up in LA. All I had to come in with were closing clause. I mean it’s like anything.  It’s a skill.  A skill of negotiating and deal structuring.  Like any skill, it can be learned.  It takes some time and takes some practice to learn, develop, and become competent.

But it’s worth it. I mean it’s a skill that pays very, very well.  It’s a skill that once you reach certain level of competence.  It’s almost like a license to print money.

It’s that skill negotiating in creative deal structuring that’s going to encompass probably at least 50% of what I will training on inside the Epic Pro Academy of which I’m shooting for a November 15th launch date.

Yes.  That’s a shameless plug. More of those to come I promise.  EpicProAcademy.com.  You can go there if you want to learn more.

Okay.  Now if I can’t get all of the money I need from the seller, the next place I look to is private money.  You know, private money right now is very easy for me to get.  Because it is, I can move on just about any deal under $500,000 with relative confidence because I know I have access to private money but it wasn’t always that easy.

But I’ll tell you how it can be easy for you.  In fact, you can have all of the private money you need if you follow just one rule.  That rule is to pay your private money person back when you said you’re going to pay them back.  Simple.

I mean you do that you won’t have money problems.  You won’t have to go find the money ever.  I mean pay them back even if your deal was a dude even if you lost money.  You figure out how to pay them back.

Pay them back on time.  Do it with a smile on your face even if it hurts. Do it with a smile on your face.  I mean if you have to miss your own rent or mortgage, you do it.

If you got to sell the jet skis, do it.  If you got to sell the Sony Playstation, do it.  If you got to go get an extra job, do it.  If you to take the proceeds from another deal to make this deal whole and complete, you do it.

I mean I don’t care what you have to do, do it.  Your real estate investing future depends on it.  Well at least with regard to using private money, it depends on it.  I’m telling you. The word travels fast.  Your reputation is everything in this business especially when it comes to private money.

You might be able to talk your way into a 2nd or 3rd deal but if you’re not keeping your word and performing per the agreements you put in place.  It’s going to be a very short investing career using private money.

Here’s another pointer, an extremely valuable lesson I learned, don’t share your horror stories with your private lender.  I mean even if you pay them back, they don’t need to know how close your deal was to collapsing and losing of their money.  Keep it to yourself.

Here’s another pointer.  Hope you’re writing this down. I mean these are very expensive lessons that I’ve learned.  I don’t want you to make the same mistakes.  No need for you to pay it too. No need for you to pay the same price or more to learn these lessons.

These are yours for free.  The second pointer: if things aren’t going good during your deal and you feel you’re going to come up short or late to your payments to your private lender, don’t take your problems to them.

Don’t call them and make excuses.  Don’t try to re-negotiate.  Always go back to the seller first.  Always go back to the seller and try to resolve your problems and issues with them.

If you can’t resolve it there, figure out a solution without involving your private moneylender.  You see, you want to make such a pleasurable experience for your private moneylender so they’ll have no issues or nothing to consider the next time that you ask for money.  Going back to your private moneylender for solution is always, always the last resort.

In fact, if you run your private money relationships this way in the way that I just described, they’ll be calling you asking “what’s next?  Hey, can we do another deal?”

Here’s another, don’t make your private moneylender have to call you for their payment.  Don’t make them have to chase you.  Answer their phone calls.  If you happen to drop their payment in the mail on the day that it’s due, call them and let them know.  Hey, I just overnighted your check.  You’ll have it in the morning by 830 AM.

Maintain that type of integrity and courtesy in your business and your business will be a business not a frustrating pain in the ass.  You see I have access to enough private money to do my deals because I follow these rules. I have yet to breach a contract.  There have been certainly been times where it was uncomfortable.

There were certainly been times it wasn’t going so good.  I’ve definitely lost some sleep. I’ve certainly a few more hairs off of my head through the process but I’ve always been able to come through.  The biggest reason that has been so, I’m not bragging by the way, it’s like what we have discussed in the last episode.

The reason I’ve always been able to come through is because you’ve got to know your exit strategies.  I know mine.  You’ve got to know yours.  You’ve got to know how you’re going to get out of the deal before you get in.

I’ve never taken money from a private money investors is I didn’t know exactly how I was going to pay them back in the time that I was going to pay them back.  Okay?

So that’s why my situation is the way it is right now.  I’ve followed those rules.  You can create that situation for yourself also.  So that’s how it is for me right now but how do they get here?

How do I get that first loan?  Well, first of all, if you’re brand new and you haven’t completed a successful and profitable real estate transaction.  I’m sorry to tell but no one is going to give you any money.  They’re just not.

I mean especially in today’s climate.  But even when real estate was on the rapid rise just before the financial burst. I mean it would’ve been an extremely rare occasion for unexperienced investor to get a private money loan. I mean it’s probably easier to get a bank loan then but anyway how do you go about getting the first one?

Again, there are probably many ways to do this but this is how I did it.  I knew just from my sales background that for someone to do business with me let alone give me a large amount of money to invest. They’re going to first need to like me then they’re going to need to trust me then they’re going need to believe in my competence.

You’ve got to build rapport.  There are three parts to that.  They’ve got to like you.  They’ve got to trust you.  They’ve got to have confidence in your competence.  So first, to get people to like you, you must first like them.  Very simple.  Right?

You want people to like you.  You must first like them and like them genuinely and like them authentically.  If you want someone to be interested in you, you must first show interest in them.  Okay?  So how do you do this?

Well it’s really simple.  Just listen to people.  Stop talking so much.  Okay?  Just listen.  People like to be listened to and people like people that listen to them.  Very simple.  Just listen to people.

The second way to get people to trust you, this is simple too.  Just say what you’re going to do and then do what you say.  That’s it.  That little practice alone will have you stand out amongst the crowd.  It has you stand out because very few people operate that way.

Now third, to get them to have confidence in your competence, this is actually my favourite.  It’s probably the easiest.  Just don’t keep your victories a secret.

Let the world know about your successes.  But here’s the caveat.  Let them know about your successes but only when they ask about them.

Don’t walk around bragging and boasting. I mean, when someone ask you, “hey, what’s up?” or “what you’ve been up to lately?”  You’re going to tell them.  Tell them about your success.  Don’t keep them a secret.

I mean in the beginning, my answer was when someone say “hey, what’s up?” or “what you’ve been up to lately?”  My answer was I’m flipping a few short sales a month.  Things are going really good.  I would leave it at that.

But I always get a comment like “really?  How did you do that?”  Or this is my favourite “isn’t that illegal?”  (laughing) People love to tell you that things they don’t understand are illegal especially real estate agents.  Just a little tangent on this, you know why real estate agents think everything is illegal?

Because once a week in their office, I know this because I was a real estate agent. I’ve been in several offices and this was always the same in every office that I was in. because once a week in the office meeting, the brokers are pulling out the latest newspaper clipping or the latest bulletin from the DRE or the Department of Real Estate.

They’re pulling out this newspaper clippings and these bulletins about what agent just went to jail for some shady practice or what’s the latest scam running through the neighbourhood.

You know why they do that?  I mean they hear this every single week.  You know what they do that?  Because the broker is liable for activities of their agents.  They share those stories to scare their agents to keep them in line.

They try to scare them straight so to speak.  They keep them in line and have them scared to death to do anything outside of conventional real estate.

I so wish I knew what I know now when I was an agent. I mean there were so many missed opportunities because my broker had me terrified to do anything outside of the normal.

Anyway, where was I?  Oh, when people would ask me how do you do that?  Meaning how do you flip short sales.  I’d say, “Oh, it’s easy.” I would just walk them through the process with the intent of speaking just slightly over their heads so I sounded smart and competent but not too much over their head. I didn’t want to sound cocky.  I didn’t want to confuse them.

I still want them to understand to.  I didn’t want to sound cocky. I didn’t want to confuse them. I still wanted them to understand how it works and how it’s done. I wound sound like this, “you see, I network with real estate agents.

There are a lot of short sales in our market right now.  After a year or so, the agents have really been beat up by the whole short sale process.  When it comes right down to it, a short sale just equates to an agent that is going to take more work and less pay.

I understand that pain so I’ve addressed that pain.  So what I do is I call up real estate agents with short sale listing. I call up the ones that have had the listing for 90 days or longer.  I ask if they have any offers.

If they have offers I just let it go but if they don’t have any offers.  My next question is if the seller doesn’t get an offer is the property most likely going to foreclosure?  If the answer is yes to that then I just go ahead and present them.  That’s how I find my deals.

I want to know are they any offers on the table because if there are that means there’s competition.  I don’t want to waste my time with it.  If they’re going for foreclosure as eminent meaning the sellers are going to lose their property unless they’re able to sell it then I can move in and help.  There’s some incentive for the agent to work with me.

Because I know agents have that property for 3 months.  He’s probably spending money on marketing, spending their weekends on open house.  Nothing’s happening.

If after 90 days, they don’t have an offer, they’re probably not going to sell that property.  All that time is going to waste because the banks are going to end up foreclosing the property anyway.

So what I do is I present agents “hey, cancel the listing.  I’ll purchase the property directly from your seller contingent on a successful negotiation with the bank.  I’ll do all of the negotiating.  Once the short sale is approved, and then I go ahead and relist the property with the agent at a 7% listing.

This way, the agent doesn’t have to deal with the bank.  They get to conduct a conventional transaction with me.  They’re going to make more money.  Not only are they going to make a higher commission, they’re getting that commission paid on the higher price that I’m going to flip the property for.  Everybody wins.

You know, I’m doing one or two of those a month.  That’s how to explain it.  Then people would get it.  They would understand but what was really conveyed was I know what I’m talking about.  I’m doing it successfully.

Now you can do the same thing with my free real estate investing course. I mean I’ll walk you through the process step by step so you can first follow it and realistically do deals. I mean I want you to do deals.  That’s the primary reason.  Second, so you can explain it when people ask you what you’re up to.

I mean if you do this enough, keep doing deals and letting people know that you’re doing deals when they ask it’s only a matter of time before someone ask you this question.

This won’t take long by the way.  It’s only a matter of time before someone asks you out for coffee or asks you out for lunch because they want to pick your brain.  I mean it’s only a matter of time because you are now likeable.  You are trustworthy.  Most of all, people will have confidence in your competence.

When this happens, this is your prime opportunity to find private money especially your first private moneylender.  So I recommend you take everybody up on their invitations when they ask you out for coffee or lunch.

First, I mean you’re going to get a lot of free coffee and a lot of free lunches.  Second, you’ll get to answer all of their questions to first further convey your competence and second you’ll be able to help them out as much as you can. Don’t hold back on your answers.  Don’t try and protect your secrets or anything like that.  Let them know everything that you know.

Just about when that meeting is over, you might say something like well, here’s what I say, “so Mary, I mean you probably wouldn’t be asking me all of these questions if you didn’t plan on profiting from it in some way.  Right? “  And Mary or whoever it is would say, “yeah.  Of course.”

Then I’d respond, “ well if you plan on doing that, you probably have some sort of resources to pull it off.  Right?  What are you working with?”  Then Mary would say something like, “well I’ve got a 100 sit in the bank. I’ve looked into putting that into use.”

Now your response might be, “well, I’ll tell you what.  Why don’t we partner on a deal?  You put in the 100k.  I’ll put in the rest.  I’ll do the rest.  You can do the deal right along with me.  You can take notes and you can learn first hand how it all works.  At the end, you’ll get your $100,000 back then we can split the profit.  Does that make sense?”

That’s typically how the conversation went for me.  That’s how I got my first private money partner.  Three years later, that person still funds some of my deals.  I mean she’s moved on to other things as she saw how much work was actually involved in real estate investing. She’d rather just loan me the money while I go out and make us the profit.

The more deals that we have done together; the more the partnership has turned in my favour.  I mean we began as 50-50 partners.  Today, she loans me her money at a simple 8% interest only monthly payment and 10% profit at the back end.

Then when I’m not using it, she puts it back in her savings account earning 0.75% or whatever the miserable rates are these days.  Now you can see actually why you’ll get calls from your private money people asking you when’s the next one.

Okay.  So there are three key elements at play here for this to work.  First, you’ve got to be likeable.  You will be likeable if you start genuinely listening to and showing interest in people.  Second, you’ve got to be trustworthy.  You’ll be trustworthy if you simply say what you’re going to do and do what you say.

You know what?  You do that in every area of your life.  You’re going to notice great things to people that do that.  They keep their word.

Third, people must be confident in your competence.  For you to be competent, there’s no way around this.  You must be doing deals.  You must be doing them successfully and profitably.

If you haven’t completed a deal or you’re not doing on a regular basis or as frequently as you’d like, please go to FreeRealEstateInvestingCourse.com to learn how to do deals.  Do that right now. I mean regardless of your situation.  Do deals right now and do them consistently.

Everyone around you will begin to have confidence in your competence whether you’re talking about it or not.  There’s something that just kind of magically that happens.  People are attracted to people doing good business.  People want to do business with people that are doing good business like lending their money.

You got to get on the court.  You got to win a few games first before you expect to have private money flowing your way but once it’s flowing your way. It is flowing your way.  Just pay back your private moneylenders and pay them back when you said you’re going to pay them back.  Do it with a smile.  Make sure it’s a very pleasurable experience for your private moneylenders.

Then you’ll have all the private money you need for your real estate deals.  I promise you that.    Now I know that was a lot of information. I know.  I’m sure a lot of questions were raised so if you have those please send them to [email protected].

I’ll answer them via email.  Also I’ll read the questions and answers on future episodes.  So to sum it up, the first place that I look for money is through the seller themselves.  The second place is through private sources.  The third way is through hard moneylenders or transactional funders.  Not so much of a mystery there on how to access that.

I’m actually out of time today so I can’t go into it but for now just know that hard money and transactional funding are typically my last resort.  The reason being is the money is expensive there.

Because it is, it doesn’t work for every deal.  You’ll typically need a bigger profit margin to make it work for that type of money. Nonetheless, I’m not going to leave you hanging.  I will be a hard moneylender and transactional funder on a future episode to answer all your answers about that.

I don’t think I got all the parts of the initial questions either.  My apologies but I will. I promise.  Okay.

That’s it for today though.  Until next time, as a very wise person once said, “An essential aspect of creativity is not being afraid to fail.”

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.

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