How to Make Money Like a Bank By Being the Bank
If you knew how to make money like a bank, you’d never run out of cash and you’d never reach limits on your bank loans.
Does that sound appealing?
Luckily for you, it’s very possible to make money like a bank, even if you’re starting with NO bank at all.
Along with money concerns and bank loan limits, slow-growing cash flow can be really frustrating.
Dealing with tenants gets old, too. I mean, you can have 10 properties, and if you have one bad tenant in just one of those properties, it ruins all 10.
The fear that building up your cash flow will take longer than you anticipated grows with each one of these problems.
But if you can figure out how to make money like a bank, there will be no limits regarding your access to money. There will be no shortage of money to buy and hold properties, and your cash flow is going to grow faster. You’ll have significantly fewer headaches, and your journey to financial freedom will accelerate significantly.
Kelly Makes Bank
I have a student who took this strategy like a duck to water.
She’s actually just about to leave her day job, so she wants to remain anonymous for the moment. We’ll call her Kelly.
Kelly has completed 10 deals – and she has less than $10,000 of her own money in these properties. She’s cash flowing $6,000 per month, and she’s done all of this in less than two years.
Kelly is committed to doing 10 more of these deals, and then she’s going to quit her day job to alternate between traveling and living off of her $10-12,000 per month and building on top of her portfolio even further.
Note that this didn’t take her a giant marketing budget. She didn’t do five deals per month – she did this on the side.
But Kelly is patient, persistent, and waits for the right deals to come along. She’s constantly looking for them, and she delegates a few hours a day to her real estate business.
It took just a couple years of doing one deal every other month or so for Kelly to replace her day job’s income. In two more years, she will have effectively doubled that income and she’ll be ready to quit.
How To Make Money Like a Bank: 5 Principles
I have five hot principles for you to make money like a bank and follow in Kelly’s astronomically successful footsteps.
Principle #1: Strategy Overview
This is how it works:
You find a house and you buy it…
…in the same manner you would with any other strategy. This part doesn’t change.
Once you own the property, you resell the property…
…by offering and providing seller financing.
So, you don’t sell it outright. You provide seller financing and allow your buyer to buy it from you over time.
When you do this…
You are no longer the owner of the property.
Rather, you are the owner of the note on the property, just like a bank.
It’s just like how the bank may be a holder on one of your properties right now – maybe even your primary residency. You have a mortgage, and the bank is holding the note on your property.
It’s the same thing.
You can do this.
You can jump from being a landlord to being a bank.
In most cases, you’ll receive a down payment from the new owner and they’ll make monthly payments to you. (I say “most cases” because with this strategy, it’s up to you how you structure your seller financing. Remember, you ARE the bank! You get to receive loan applications and decide who gets approved and how they get approved. You’re the boss.)
And that’s it for you. Everything else is the new owner’s responsibility – property taxes, maintenance, tenants, making payments to the “bank” (you) – everything that comes with owning a property.
You can make this even easier by passing off the handling of collections and accounting of payments you receive to a note servicing company. By doing that, you’ll create a truly “passive” stream of income.
This all isn’t to say that you’re not supposed to manage or watch the property. You do watch it and make sure the payments are coming in, but that’s about as much work as it’s going to take.
Principle #2: Source of Funds
This is your source of funds to buy the property in the first place, and not a whole lot here is different from how you’d normally do it.
You can do this with a conventional loan, private loan, credit card, retirement fund, or cash – either yours or your friend’s/family’s/associate’s.
My personal favorite method of funding is the seller, and that’s how Kelly did most of her deals. Then she financed the purchase on top of that financing to a new buyer, so she essentially created an arbitrage. She might have a $100,000 loan with the seller at 5%, and then she’ll sell to her new buyer for $120,000 at 7%. She has that gap, and she’s collecting more than she’ll have to pay.
But you can do this with any loan in place, right? And even if you did all cash, it’s still a really good return on your money. You can always go in after your put in your cash and refinance it out later with a private loan. You can let your friends, family, or associates look, and they can come in and buy that loan from you. Alternatively, they can place a note on it for you so you can pull all your money back out and go do it again.
Principle #3: Identify Your Customer
You have to know your customer and what they want.
This is important because there are many different types of customers.
For example, if your buyer is someone who plans to fix the property up and flip it, what will they want? Some equity in the deal, right?
But if your buyer is a buy and hold investor, they’ll be looking for someone to rent it out to, and they want to receive the cash flow. So in this case, they’d be looking for some sort of decent cash-on-cash return.
Still another customer might be someone who plans to actually live in the property. They’ll want a cheap monthly payment. And most people would rather own than rent their own place to live, so if you can structure financing terms that will provide a monthly payment similar to what they would pay in rent, that will appeal to your customer.
What EVERY customer wants, though, is the ease and simplicity of obtaining your financing. They don’t want banks involved and lots of hoops to jump through. Customers hate getting together everything banks ask for – letters of explanation, tax returns, debts, etc. It’s a huge hassle, so when people can avoid it entirely, they’ll be attracted to your deal.
So when you get a property under contract, analyze the deal for your specific customer. Identify what they want and analyze your deal to see if you can provide it. And once you’ve done that complete analysis and know what your property is capable of offering to your customer, you’ll know who your potential customers are. If you can make a match here, the rest is pretty darn easy.
Principle #4: Find Your Customer and Give Them What They Want
Now, you just have to find the customer!
This is very similar to how your find your sellers: Look for problems and promote your solutions to the people with those problems.
You want people who are in the market for what you have. Look for people who are searching for something they could finance through a seller so they can own their own property. Then, promote your seller finance property to them. You’re their solution!
Really, this is the easiest part of the process. We’re in a seller’s market, so it’s probably 10 times easier than it normally is.
But if you haven’t done so already, you should download the Epic marketing checklist for free at epicmarketingchecklist.com. You can just start at the top of that checklist and work your way down like you would any other deal.
Finding your buyer is all just a matter of getting exposure, which is what the Epic marketing checklist will help you with. Exposure creates demand, and then demand drives value.
And make sure that in your marketing, you’re promoting what’s in it for your customer. Focus on what THEY want, and promote your solution.
For example, if you can offer double digit cash returns, seller will carry, no banks involved – that will speak to an investor owner. Or to appeal to a resident owner, you could offer owning the property for the same price as renting and ensure that every deserving person with a small down payment is approved.
Facebook ads have provided us with tremendous results. It’s not like the use of Facebook ads is anything new, but boy, they sure do work like crazy for this strategy.
We’re living in perhaps the greatest time ever when it comes to marketing to people. And with the type of targeting Facebook offers and the amount of people you can reach for just a few hundred dollars, this isn’t a tactic you should ignore. I mean, even just $100 goes a long way.
For example, we ran a $100 ad in the zip code where one of our seller finance properties was. Within seven days, we reached more than 100 applicants. So now we have a huge buyer’s list for that zip code, which has empowered us to carve out a bigger portion of our marketing budget to that zip code. We have so many buyers lined up that we don’t even have to find that great a deal for this type of strategy to work!
Principle #5: Mitigate Risk and Headache
With this strategy, because you are the bank, you have all the security of a bank.
If your borrower or buyer defaults, you can foreclose on the property, take it back and sell it all over again. You can collect a new down payment and recast your loan however long you’d like. If the property is hit by a fire, hurricane, flood, or earthquake, you get paid first, and since you’re the bank, you can dictate what type of insurance your borrowed has to carry – so you’re not even paying for the insurance!
You get to dictate all of this AND you don’t have to deal with repairs or tenant issues. Those are all your borrower’s responsibilities now, making this an ideal strategy for properties where you think the tenant pool might require a bit more attention than usual.
Sound too good to be true?
At this point, being the bank might sound like such a great strategy that you want to use this strategy with ALL your properties!
Well, despite its many pros (big/monthly cash flow, accelerating your rat race escape, not having to deal with tenants/repairs, etc.), this strategy does still have a few flaws to take into consideration.
First of all, you miss out on all of the profit centers of real estate except cash flow. You don’t get the benefits of appreciation because the property might be worth more 20 years down the road, even if you made a good profit when you sold it. Depreciation doesn’t go to you, either, since you don’t technically own the property. And amortization doesn’t go to you – it actually works against you since you’re the bank.
Second, you’re not hedged against inflation, meaning that if the value of the dollar drops, so does the value of the notes you’re carrying. And if you’re any type of conspiracy theorist and you’re thinking about the dollar potentially collapsing altogether, that means your notes would collapse as well.
Third, the income from notes is taxed at a higher rate than the income from the rents you’d receive if you maintained your landlord status.
So there are some pros and cons to this strategy, and it’s up to you to decide whether or not it makes sense for you and your business. Get with your CPI and figure out a good balance f0r yourself to where you can have the best of both worlds, and the pro and cons can hedge against each other.
Learn More In Person
I’m going to cover a lot of cash flow strategies at the Epic Intensive, but this is the one I’m going into detail on – how to make money like a bank! I’ll walk through several different scenarios in regards to how you can analyze properties like this for each potential customer, and I’ll go over the new strategies we’re using to easily find these types of customers.
So if you’re already trying this strategy a bit and finding the right buyers has proven a challenge for you, you won’t want to miss this upcoming Epic Intensive. Plus, I’ll also be covering how to leverage other people’s money to turn your returns into infinite returns AND how to put this all together to accelerate your exit out of the rat race.
There are still tickets available at epicintensive.com, so if you’re interested, go reserve your seat ASAP.