How to Buy Real Estate with Zero Money Down & No Credit with Chris Prefontaine - Episode 509

But it's very difficult to sit in a course or take a course or sit in a seminar and then go out in the real world and all these things that hit you, it's just called reality in real estate. It's tough to navigate that on your own. So when I say interactive, our coaches, and I'm still in the trenches coaching as well as my son and son-in-law, all of us, there's 5 or 6 of us, we're doing deals with the students, we're revenue sharing with the students.

Welcome to Streams to Impact and be inspired to engage passionately in the work of your calling while achieving financial prosperity through multiple streams of high yield returns on investment. To bring your dream of making a meaningful impact to reality. I'm your host, Dr. Allen, and I am delighted that you are joining us today. If you haven't yet, get a complimentary copy of our exclusive guide, High Yield Investment Blueprint: Secure 18%+ Returns in 60 Days. Go to our website, high That is www.highyieldblueprint.com. Just provide your email address and we'll send you a copy today. Hello, enlightened investors. Welcome back to our show, and we're so happy that you are with us today. And with us is Chris Prefrontaine, and he is no stranger to our show. He's the founder of Smart Real Estate Coach And he is a 4-time bestselling author, Forbes Business Council member, and 3-time Inc. 5000 honoree. With decades of experience, he mentors students in navigating real estate through his Wicked Smart community and globally ranked podcast. Chris runs the family business with his wife Kim and their entrepreneurial children, Nick and Kayla. So welcome back, Chris. We're so glad you are with us today. So let's just get into the show real quickly here and tell us, what does it mean to buy and sell real estate on terms?

Yeah, awesome to be back, Allen. Buying on terms to us means not using banks, not using gobs of our own cash, and never signing personally. And for us, that means what? Owner financing, lease purchase, or subject to existing financing staying in place. That's it, those 3 ways.

So no banks involved, no refinancing, so you're utilizing the financing that is in place. That's what you call subject-to, is that right? Can you tell us a little bit more about subject-to?

Yeah, let's talk about that and then I'll hit the owner financing because it's an interesting twist. Subject-to just means, if anyone's ever bought a house, for the listener, you came to the closing table, you had a settlement statement, and on that settlement statement there was a line that listed your new bank. You were bringing new money to the table. Instead, it'll say subject to existing financing with, in the bank's name. That means the seller that you're buying from remains on the loan as a guarantor. That is key. You know, we went into COVID, for example, with 70, I don't know, 74, 75 properties. We weren't ever on one loan ever, and that's how we intend to keep it. And so that's a little bit different going to sleep at night than when I went through the crash of '08 and had my name on everything, you know, for personal guarantees. So yeah, just a little context there.

Yeah, that— and that is how so many people who are investing in single-family homes, they are putting their name on that. And I think most people just do not realize the risk that is involved in that when you're doing it as a business there. So go ahead, you were going to tell us about owner financing and what is that? What's the twist on that?

Yeah, the reason I wanted to bring it up is, so when I say owner financing, it can mean a lot of things, as you know, Allen. And for us, it means that we live in the free and clear homes with sellers. That's sort of the pond we fish in. So about a third or so properties in the United States are free and clear. We look to chat with those sellers, and then we structure payments to them on a monthly basis. And 9 to 10 out of 10 deals, are structured with monthly principal-only payments. That's an enormous sort of what I call hedge against recession, against price fluctuations, because you're hammering down principal every single month.

So it's interest-only or it's principal-only?

Principal-only. Zero interest.

Okay, zero-interest loans. So all that sounds really fine and good. How is it that a person can get into that? I mean, most people who are They're entrepreneurs. They're working full-time in their businesses. They're professionals. They're busy people. How did they get into this business with and maintain their livelihood?

Yeah, that's most people, by the way. So good question. In other words, most people that look at the Wicked Smart community have jobs. In fact, our biggest, like, let's just say avatar are people in corporate America looking to transition out. And so we've sort of got a bunch of different blueprints of successfully doing that anywhere from 9 months to 2.5 years with people. And so the best way is what? The best way is to delve in free. I'm big on free. We'll give them some gifts here at the end, but also to allocate— when there's a predictable plan in place, Allen, let's say someone knows they can transition out of a W-2 within 2 years. I'll just pick that date. We put a predictable plan together with them, and as long as they're following the steps and letting us hold them accountable— It's some said certain that it's going to happen, right? So there is a plan there. It's just that when people go at it blindly and just kind of wing it, it can get frustrating because you're kind of burning the candle on both ends. So with some predictability in place, we'll put some confidence in there and make sure that there's a set plan to get that transition done if that's what they want.

Yeah. Well, starting into any new entrepreneurial endeavor comes with all kinds of frustrations and you were mentioning how— I mean, the chaos and what whatever goes on with that. And having done that myself several times, I know exactly how frustrating that can be and discouraging. So you have a program in place that is essentially a blueprint that if people follow that, it will guide them through their— and help them move through that transitional phase. So tell us a little bit about the program and how it is that you— can really mentor people and provide them that framework so that they can maintain their livelihood while they're making that transition.

Yes, there's 2 things that come to mind when you ask that, Allen. One is the word interactive, meaning we do deals with the Wicked Smart members. We call them associates. We do deals with them. So unlike— there's a lot of companies that sell a lot of different courses in real estate. You and I know this over the years. That's great, but it's very difficult to sit in a course or take a course or sit in a seminar and then go out in the real world and all these things that hit you, just called reality in real estate. It's tough to navigate that on your own. So when I say interactive, our coaches— and I'm still in the trenches coaching as well as my son and son-in-law— all of us, there's 5 or 6 of us, we're doing deals with the students, we're revenue sharing with the students. So when a problem comes up, a curveball comes up, a tough call comes up and they don't know how to handle the next call. These are calls that we actually get on the phone and do them with them. So we do 3-way calls with sellers for them. That's the best way they can learn. We're critiquing calls they do live so the next time they do that call, it can be even more efficient, more, more effective. And of course, because we're revenue share with them, we're staying with them for the life of the deal. That's quite different. Like, in my 33— this is my 34th year— in my 33 and a quarter years, I wish I could tell you that I've figured out all the curveballs, right? But that's not possible. They keep coming. And so we get to take the community sort of like a microcosm of the market and then share that with everybody. And so we constantly are learning. So it's very interactive. And the second word that comes to mind is leverage. Because they're our coaches, you get to leverage their expertise and have them making that phone call for you. Or, you know, we run these tiny little boot camps in our office now, private, like 10 people. Where we're picking up the phone right in front of the Wicked Smart community member, right in front of the student, and calling the sellers and making the deals right with them. That gets super interactive, you know, in person. So that's how we break through that as a company.

Well, like you mentioned, there are hundreds of thousands of coaches and mentors in real estate, and I think that this is a real, real unique feature with your program that That you're in the deals with them. So in other words, you're, you're putting yourself into it, and which is— I mean, I'm sure you have liability protections in place, but it, it, it puts you in a liable place, which is very different than any of the other mentoring programs that I'm aware of out there. A lot of people are familiar with flipping, rehabbing, wholesaling, even Renovating for renting. How does this differ from those pretty standard types of what people refer to as real estate investing? I don't, but most people refer to it as investing.

Yeah, I mean, I've done them all and I have very good friends that have been on my show that make millions of dollars doing it. So I'm not downplaying any of that. But what I will say is the big difference is I, when I came through the '08 crash, Allen, aside from saying, okay, no more dealing with banks, The other thing I really came to the realization with some hindsight was, all right, all those deals that I did, like a flip or the things you mentioned, wholesaling, they're all sort of what I call the old way, like one-transaction deals. I do a deal, I get paid. I do a deal, I get paid. Well, I don't, I don't see how that's too much different now in hindsight from a job. So we trademarked coming out of the crash. It took a little bit, but we trademarked the 3-payday system so that someone's getting paid upfront on a deal. Okay, that's what they're used to. But then they're launching an income stream that pays monthly, and they're launching a set cash-out date in the future. So that's pretty cool. That's like an ideal, in my opinion, ideal cash flow for any business. So if you're opening a restaurant and I said, hey, Allen, we can start tomorrow together and we're going to get cash up front and cash monthly and cash in, you know, 3, 4, 5 years down the road, that'd be a neat model. So that's what we've done with the transactions the way we do them.

So you got into this after 2008. Say that it's 2008 again. Is this a good time to get into it? Or would you wait until 2012 when the market started coming back?

No, I wish I knew then, you know, during that chaos, what I know now. And I don't— I don't know why it took me 18 years to figure that out, right? Because I was in it by then, by whatever the— yeah, about 18 years or so. So, yes, here's why. When there's chaos, like that was a time, COVID was a time, you know, we've had a few more since then. Whenever there's chaos or uncertainty, The sellers and the buyers as a, as a down, you know, downdraft. But the sellers need us more than ever because they don't know. Like when COVID hit the first time in March, they were panicky. So we were grabbing properties left and right. And then when they figured it out a little bit and started getting comfortable, okay, it slowed down because they were selling on their own. But that window was an enormous window of opportunity. We took a record number. Still to date, we haven't beat that number that month. Um, why? Because they needed a guide. All that to say is one, um, one constant in real estate is it's constantly going to be changing. So why not get really good at what you and I are referring to as creative real estate, real estate on your terms, so that when it does keep pivoting, you pivot with it? You're just fishing in different ponds as far as what types of homes, what types of sellers, what the sources are of those, but you're not stopping doing business because in the creative world you learned how to navigate. That's pretty good leverage.

Well, I know that in 2008 I went through that as well. It was very devastating for me too, that it was almost impossible to sell a home. I was a realtor as well as an investor through those time periods, and inventories, I mean, they were— the stock was out 10 years in advance. I mean, there was that much inventory on the market. Nothing was moving. So I can see how sellers were grasping at anything because sellers all over the country were going underwater because they couldn't make their mortgage payments. So the way that you are working with that and subject to, how would you make those properties— you collect up money up front and then you have the payments coming in on a monthly basis. Those properties are upside down, can you make those viable properties or is it just an impossible case?

Yeah, good question. So here's— there's all kinds of pivots, but let's just stick to some basics with that scenario. So I'm putting in rent-to-own buyers who have a very specific mortgage-ready plan. So let's say you come into a home and your mortgage-ready plan's in place, but the market just caves again. A couple choices. One, extend their term to give time for the market to come back. That's always, you know, over the course of, say, a decade, we know that'll happen. Uh, 2, they can, per their agreement, walk away if they feel, you know what, I don't care what the market does. I know I risked my deposit, but I'm walking away. They could do that. Uh, and, and what could we do? We could put a renter in there and ride it out, or we could put another tenant buyer— we call them a buyer looking for financing over time. In there. So there's all kinds of pivots, and some of that has happened, uh, Alan, during the, uh, during the COVID Luckily, we're not landlords with these buyers, so they truly want to perform. So we had 4 people, 4 buyers out of 73 or 74 homes. That's not a lot of headaches. Most landlords had 74 out of 74 headaches. So we had those because they legitimately just could not— they were legitimately affected. They weren't using a federal grant or anything to say, I don't have to pay my rent, right? They just literally were affected. So we just pivoted. We sold 2 conventionally. That's also an option, right? Just say, we're moving on, because our principal was so low. Or the other 2, we just put new people in them and rode it out. So either way, it's— again, once you know how to pivot, you're not panicked by that. You actually capitalize on it.

So we're talking about transitioning from an 8-to-5 or I don't know who works 8 to 5 these days, but anyway, whoever's working a typical job and going into this, it is certainly different than fixing and flipping and holding and renting. But there's a time commitment here. You have to put your systems in place and you have to be reaching out to sellers in order to have sellers in your program.

Yeah.

What's the typical amount of time that— I mean, you say that people People can transition from their day job in anywhere from 9 to 18 or so months. What kind of time commitment are they looking at?

I'm going to say without knowing a particular person's goals, right, because some don't have big, big goals. Our deals are super lucrative per deal. You're talking $45,000 to $350,000, right? So some people say, well, okay, just show me how to get to 3 or 4 of those and I can move. So without knowing all that, I'm going to say that you've got to carve out, and counting your education time, right, to learn, you've got to carve out somewhere between 5 and 10 hours a week so that then we get to know you. Now we know your disciplines, your work habits, your work ethic, etc., and then we can get more specific. We can dial it up or down. All of our coaches, for example, came to us with J-O-Bs and have transitioned to full-time. They were just students at first. So what did they do? They knew the plan was in place, as I alluded to earlier, so they didn't mind saying, okay, I'll make 3 calls on my way to and from work. Okay, I'll make calls in, in my car during my lunch hour. Like, I remember these things happening with them. Um, one gentleman, quick example, just left the government. 30 years, Allen, he worked for the government.

30.

He tried flipping, he tried wholesaling. He just knew he didn't want to retire and have limited resources. He found us, and he now has transitioned into being a coach because he did his first 5 deals.

5.

There wasn't a lot and they were all 6-figure deals with the 3 Payday System. That let him see the light even though he had a great package, great salary and great benefits. That let him see the light to make his move. So it gives you an idea. They all did it because they knew there was an end zone, right? They didn't have to do it forever.

So they're trading out a job for a means of income that they have more control over. What are the big obstacles? I mean, everything comes with challenges. What are the Biggest challenges that people face?

Making this transition? Well, first of all, I will say for the person holding a W-2 right now, I think your biggest risk is your job, not the biggest security. That's just my opinion because you don't know what can happen tomorrow. Biggest challenges, believe it or not, are not real estate related. It's, in my opinion, the mind space of becoming an entrepreneur. Like, it's not easy, as you know, right? It's hard. If you're leaving a steady J-O-B with a steady paycheck, the biggest challenge has been getting you through all the challenges that are more mental and growing into being the entrepreneur, sort of the CEO of your own business, so to speak. I remember one of our coaches transitioned, and the day— he was ecstatic the day he no longer had to go in, but he literally said to me, like, day 2, Chris, I'm a bit lost. Like, I don't know what to do. I'm used to going in and here's what you do. And I was surprised. I was kind of taken aback, like, oh wow, I thought this is what you wanted. And he's still here today since '17. But the fact is, he was a little flabbergasted by it because it is so different. So it's the mind space, to answer your question, and all those mental things that will come up because you're just not used to it. It's a different paradigm.

Yeah. Well, it is a huge shift. They tell us that on average, people die within 2 years after retirement. And because, I mean, they're so used to a schedule that tells them what to do, where to be, and so on and so forth. Suddenly they don't have that, and, and they lose their, their purpose and their meaning in a lot of respects. And so it is a totally and completely different mind shift, and, and it takes an adjustment. I can, I can see that. So you've talked a little bit about these 3 paydays. So go into it a little bit with a little bit more specifics. How—

Sure.

Do we get the 3 paydays?

Yeah, and this is important, uh, to precede this with this comment. So I mentioned earlier we work with buyers needing time, right? We call it rent-to-own. But the reason I'm saying it's important to make a distinction here is there are also, just like people selling courses, a lot of people that educate on rent-to-own, and they will publicly say they don't care, they're not attached to the fact if the buyer gets to the end zone and gets their financing or not, because they can just do it again. And that might be okay for them legally. It's just that morally and ethically, we've set a standard here for the last decade plus now to— with my son Nick heading the buyer side up— to make sure the buyers are set up to win. Now, life happens, so there's a 2 to 10% default rate still, but that's dramatically better than anyone else doing it nationally, frankly. So the 3 paydays act like this. Now that you know who we're dealing with, we're dealing with buyers that need time There's a record number just after COVID. And now I'm reading, Allen, that in '25 they're expecting yet another record number of people leaving W-2s, starting their own business. Okay, so that buyer is a great buyer because they're not financeable yet. They have to get what the bank calls seasoning for 2 years. So they have cash, they might have 401, they had great income, they started their own business, and now the bank says, great, show me 2 years of proof of income. So that's a great buyer. Now, how do the 3 paydays work? Let's use that buyer. They come in with a down payment just like they would have, but they're just not financeable yet. So that's payday 1 for us. With our family team, we're kind of on the lower end of the averages in our community because of our price range. So average is like $27,000, $28,000 for us. The payday 2 is the delta, the spread between what I'm paying on the underlying debt on the property, or perhaps directly to the seller if it's owner financing, and then what I'm collecting from that buyer while they're going through their mortgage-ready plan. It's just a lease. They don't get any credit for that yet. It's just the lease. There's a delta there. Our average is around $300. You can see in the community anywhere from, you know, $50 to $1,000 a month. So you launch the income stream immediately, you launch a monthly, and then the 3rd payday is pretty unique because it's also the largest because it's a combination of what did I mark the house up, how much principal paydown did I accrue throughout the entire term of this deal, and that at the very end, that's going to be my mortgage is a lot less and I, and I also marked the property up. So that's my payday 3. And that's the number I gave earlier when I said, hey, in the community they run from like $45,000 to $350,000. That's all 3 paydays per deal. That's kind of the community average coast to coast.

So are your buyers— what percentage of your buyers are actually the tenants you put in there? Because you start off with a tenant rather than a buyer, but a tenant who intends to be a buyer. What's the percentage of those that make it through to to actually bank finance the property and purchase it from you?

It's 90 to 98%. Our default's in that 2 to 10% realm. Now, I talked earlier about learning from us, right? We're in the trenches still doing this every single day, all of us with the family. So in 2000, I think it was '19 or '20, it was right before COVID we had a rotten year with conversions. And it was because 3 or 4 years earlier we made bad decisions on qualifying the right buyer. We were anxious to get buyers in the house. And so now with all those years of hindsight and getting banged on the head a little bit, Nick, my son's process is a lot tighter. It's, you will be accepted if you have, you know, the right debt-to-income ratio, if you have everything in place except for you may be working on your credit or you may be working on the seasoning if you change jobs or careers. That's it. Everything else has to line up properly just like any other underwriter would do. And then we let them go in the house and they have that mortgage-ready plan. Why still 2% to 10% default then? Well, life happens, right? Divorce happens, death happens. We've had it all. And so you're still going to have that. And I think— I haven't checked bank defaults lately, but I think 2% to 10% is a super good, strong— it's a low default rate.

Well, in the last recession, the 2008 recession, One of the segments of residential properties that was hit hard was the higher-end properties. Do you foresee that happening another— I mean, we're going to have another recession, who knows when, but I mean, that's— we just— it will happen. Do you see the same thing happening again, that the higher end is going to be— where your opportunities are going to lie?

Well, let's assume that's spot on what you're saying, right? And we do have one, whether it's tomorrow or next year. So I'm not, not— I'm not in a position to say whether that's going to happen or not because I'm, I'm not— the billionaires don't know, right? But let's say it does happen, then certainly the, the condos and the higher end tend to get hit. It's just like there's pockets. I hate when people talk about the market in general. I'm sure you agree. Like, there's pockets within pockets of markets, right? Like, is Florida different now with the condos because of the floods? And yeah, insurance and all that. So there's pockets within pockets. But yeah, I would think the condos in the, in the high end tend to get hit first.

Yeah.

Yeah.

Well, tell us, Chris, about the program. You have a free offer of a book. Tell us about the book, how they get that, how they get in touch with you. Sure.

I appreciate that, Alan, very much. Just go to wickedsmartbooks.com. Wickedsmartbooks.com and then forward slash your name, Allen Lomax, so that we know it came from your tribe and we honor that. You will get a physical book. It's not here's a free book offer but pay for shipping. We ship it out at our expense. We actually usually send a couple. The first one is Real Estate on Your Terms. That's the bestseller. It was revised coincidentally, not planned. I wish I could say I planned it right during COVID because we had already embarked on, okay, let's update it. We're big on updating things. And so that came out somewhere towards the end of '20 and was all updated. So that's, that's a good one, Real Estate on Your Terms. And then there's a small one in there called Deal Structure Overtime, because on our YouTube channel you can watch hundreds now, probably 400 or 500 of deal structures. This was sort of— the overtime word is meant to say kind of like behind-the-scenes nuances, and we tear apart some deals and we walk you through case studies. And that's usually an interesting— it's in demand because people get to see real, real associates, real students doing deals. Those 2 things will, uh, We'll go out to you. wickedsmartbooks.com/AllenLomax.

Well, Chris, one more question. You can get into this with essentially not your own money, but you're going to have to have a marketing budget. What is the typical marketing budget?

Yeah, we don't mail or anything big like that, probably because when I came out of the crash, I couldn't.

Right.

So I knew I could do one thing. I could work my cell phone, right? So the marketing budget I would classify under hiring a VA. I couldn't at first, but shortly thereafter I did, after I did my first deal way back over a decade ago. And then the VA now calls the initial calls. So that would be your marketing budget, if you will, along with the software for $100 or whatever it is a month that produces the leads for your VA to call. And that's all you need. Let's keep this simple. I mean, some people love CRMs and all that, but the basic, basic bare bones is I'm going to get you set up with a lead source, get you set up with a virtual assistant to call, and then you're going to do the follow-up call to the more highly qualified using the proper scripts.

That's it.

There's not a heavy marketing budget.

So I don't know, I'd say less than $500?

Yeah, you can be in business and get this to about a deal a month over time, right? I don't know the PBM being general. For about anywhere between $500 and $1,000 depending on if you want to add that VA. Because let's just talk numbers. If a VA is going to work for you for even 5 hours a week, right? 5 to 10 is the norm. They're going to cost you— we don't hire low-cost Philippines from other countries. There's nothing wrong with them. I just want to make sure that we hire trained creative real estate VAs, not just people that are used to fix and flip and wholesaling. These are very unique VAs. And they're going to cost somewhere between $12 and $20 an hour. So just budget that in and then your software. So yeah, somewhere between $500 and $1,000. We used to have to add websites. It's all part of the software now, which is pretty cool. So much cheaper than even 5 or 6 or 7 years ago.

Wow. Well, Chris, it's been wonderful having you back. It always is a pleasure and a delight to be able to talk with you. You have such an interesting concept and a well-developed program and What I really like about your program is that you're not just providing instruction for 3 or 4 days and charging people $20,000 to $30,000 for that and sending them home and saying, good luck.

Right.

You are part of the process and you're with them all the way through those first few deals. So it's a remarkable program.

Thank you.

I'm glad you were here to share that with us and our listeners. So listeners and viewers, I hope that you've enjoyed our show today. It's been a pleasure having you with us, and I do hope you will take some time to like, share, and subscribe, and also take a moment to give us a rating and a review. It really does make a great deal of difference in the growth of our program. Thanks for being with us, and we'll see you in the next episode.

Thanks, Alan.

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