Hybrid Deal Breakdown | From Airbnb Seller to Cash-Flowing Creative Deal

Hey everyone, I'm Zach Beach, smartrealestatecoach.com, bringing you another Deal Structure Sunday. We have an awesome guest coming from the West Coast all the way out there in California, and we're going to walk through his first creative financing deal. This is going to be a good one. This is a 6-figure deal out in the middle of California. Now, I know what you're thinking. Most of you, if you're even familiar with creative financing, is saying do not do deals out in California. But I promise we have multiple people in our community doing deals and doing deals successfully. Heck, we actually have 2 of our coaches are out there in California. So we've been doing deals in that great state for many, many years. If this is the first time that you've actually watched a Deal Structure Sunday, and you're listening to me and say, all right, well, what are they talking about with creative financing? I encourage you go to smartrealestatecoach.com/mastersclass and go through a 20 to 40 minute video that's going to walk you through all of our structures, how we buy, how we sell, and how we create 3 paydays on every single deal in which we do. Oh, and by the way, don't forget, click the subscribe button so that way you get notified every single time that we put out a Deal Structure Sunday. Anand, welcome to Deal Structure Sunday.

Thank you. Thank you, Zach.

As you guys can hear, we're going to talk about a 6-figure deal and his energy level is through the roof. Most people will be screaming about it, but that's okay. We love you, Anand. Anand, just so everybody can get to know you a bit, maybe just walk everybody through like what you do for a living, where you're located, and, you know, how long you've been How long you been getting after real estate?

My name is Anand. I live in sunny San Diego. I have been in real estate for the last maybe 5, 6 years now, creative for the last year and a half. I manage my wife's dental office. She's a dentist. So I basically have a traditional business with lots of headaches that come with it. We don't see In, uh, in, in this business, because you're not employees, you don't have contracts to take care of your monthly payments, cash flow situations, et cetera, et cetera.

For sure.

So my background, I'm an engineer by training, so that's what I went to school for.

Oh, makes perfect sense. We have lots of engineers inside our community, and you all react the exact same way when you make money. The exact same you act when you lose money. You just sit there very calm. If you've ever seen The Emoji Movie, this goes for everybody that has kids. There is— it's a movie about, you know, like emojis on your phone and like how they live their life. And the main character is the meh emoji. So we have lots of engineers in our community that are killing it but still have the meh face as their emoji character. Walk us through a bit. Anand, it sounds like you've had a lot more real estate experience before you joined our community. Tell everybody what types of deals that you were doing or were trying to do.

I still have an Airbnb from before. I bought it in 2019. This is around the Sequoia National Park. It's like a home right next to the park. So I have probably 5, 6 years experience with that. And I've also been part of like investment, more like passive, like syndications. So I've taken a lot of courses. I'm like a, how do you say it, a course junkie or not at all, but don't take the next step. That's something I really liked about Smart Real Estate Coach because you kind of are pushing us a little bit Giving us more accountability to ourselves. And I think that's very different from a lot of other people out there.

Well, what I'd be curious to know, like, why not just go do more Airbnbs? Or why not just invest in more syndication? Why did you decide to jump into creative financing after about 3 and a half years doing those other strategies?

So Airbnb sounds pretty sexy, but it's— you have to do the numbers. It's It's not as it's marketed. So with this property, I would say I'm about breakeven. I have a good manager, so I'm just keeping it. It's a very active business, so meaning you're putting in a lot of time into it. You're handling the day-to-day. It's like running a hotel. So plus you have vacancies, like off-season it's vacant. So that's That's eating into your numbers.

Yeah.

So if you average out everything, if you look at everything, then not every deal can be an Airbnb. It's not like what they showed in, what is that, HGTV, where they make it sound like every Airbnb is easy and easily doable.

Oh, I completely understand. Makes total sense. And heck, if you end up getting some creative financing deals in places That you know have Airbnb, you can always use and combine your strategies as well. Let's walk through. What I'm going to do is I'm going to share my screen. Let's walk through the current deal that you're working on or that you got under agreement, right? So stuck with it. It sounds like it's been slightly challenging, but our coaches have pushed you and our coach Rick Abbiati, who's actually on one of our associate. Mastermind right now, sharing and helping people as one that helped you through this process. So as I go ahead and share my screen, maybe walk us through how you and Rick collaborated on getting this deal under agreement.

So this seller, so the seller has a— her name is Sandy. She's the property. Okay, let me tell you about the property. Property is in Palm Springs. It's in a golf course. It's like a resort town. I heard Coach Rusty has golfed in the same community. So that's interesting. I'm not a golfer myself. So it's set up as an Airbnb too, but she's long distance. She lives in the Bay Area, which is like a 1-hour flight away. So as we are marketing the property right now, it is still being used as an Airbnb. So even though I'm marketing it to sell it as a rent-to-own, There are some days where the house is occupied. I cannot show the property. So we work that out.

Yeah.

But I think she's running into the same problem that I ran into in my Airbnb, which is cash flow is not smooth. The peak season, which is the winter season, is booked, pretty much booked back to back. But the off-season, which is the summer season, is empty. There's no, you're not even making your usual rents. You are paying for the bills, basically. So she's motivated to sell. So the VA called her, she was interested. I spoke to her. She pretty much went through the, you know, the sell doc that we send out as soon as we first talk, that the VA sends out. She went through my website, watched all the videos, like what we do. And I think when I talked to her, she was easy to talk to because she was kind of, Learned some of the things from the video. I didn't have to explain on the phone. I think she has a business of her own too, and this house is owned with her brother, so they co-own it. I didn't know the brother was involved till at the very last part at the signing, and he didn't want to talk to us, but he signed the paper. So there were 2 mortgages on the property. The total was $122,000, but she also had $50,000 in credit card debt. which she wanted to pay off. That was her main motivation. She wanted to pay off her mortgage. So I involved Rick. Rick had multiple calls with the seller. I think what Rick brought to the table was his experience, his examples he can pull out for the multiple questions she had. She had complex questions like, what happens if there's a due-on-sale clause? What happens if The title, how do you do the title? And she also had questions like the mortgage is on my brother's name, can he go and pull out another loan? So I think Rick's experience helped a lot. It added to the deal and also really helped comfort her basically. So that's why we structured, okay, I'm going back. That's why we structured as I'm using my payday one to pay her the $35,000, which she can use to pay off her credit cards. Not everything, but most of it.

Yeah, let's walk through— let's walk through the deal structure now. Not sure where to get started? Go to smartrealestatecoach.com/getgoing for free books, strategy calls, and a whole bunch more. We're going to help you get going the wicked smart way. We've been after this for over a decade doing exactly that. An Airbnb operator that's at a break-even. And you already know that pain. So which is really interesting. If you haven't thought about targeting Airbnbs for acquiring properties creatively, I would, Anand, because you already understand their pain and you're working through and providing a solution. So what you end up structuring is what we know is like a hybrid deal. So you're going to buy it subject to the existing loan. Now, quickly, you mentioned that how much was debt on On the property?

$122,000.

Good. So I'm just going to flip-flop these. So we have $122,000 in debt and $578,000 in equity. Is that accurate?

Oh, no, no, no. Sorry. $578,000 in debt and $122,000 in equity. Sorry.

Okay, so we'll keep those exactly the same. Got it. And this lady had some pain because she has some credit card debt that she's trying to pay off. So one way in which you structured this Was to be able to utilize the buyer's money to pay the seller and get the credit card. So now you get a property. So let me go ahead. Let's start from the beginning. We'll walk through it. So you're buying it subject to the existing loan, which just means that you go ahead and close on the property, and you keep the existing debt in place. That existing debt is still attached to the seller, and then now you're going to go ahead and pay on that seller's debt. But title transfers to you. So. Now you have a property and then the seller actually has an owner finance component. So this equity position right here, $122,000, is what the seller is going to finance, which means that now the seller has a second position on the property for a certain amount of money and they're going to go ahead and receive the remaining balance of that equity in 48 months. This equity Other than the $35,000 down on this property, which is roughly a $700,000 purchase price, the seller is going to be receiving zero monthly payment, 0% interest, and just a balloon, correct?

Yes.

Okay. So it's just a placeholder then. What we are then suggesting is we went ahead and we bought it creatively. And now, Anand, these are all projections. Because Anand just got this under agreement and Anand is now marketing the property to buyers that cannot qualify for bank loans. He's going to go ahead and sell it on a rent-to-own program. If you're looking at our 3 Payday Systems, this is exactly what we're going to walk through and explain how we buy the properties creatively, then we sell them creatively. So, Anand, out of curiosity, how long you've been on the market so far?

It's been a week and a half now.

Oh, okay. You're right at the beginning. How's your activity going?

I do see a lot of renters interested, but I'm talking to Nick. He's making sure they watch the videos on the website, understand the rent-to-own, and then they reach out to me again. So I'm at that stage.

So in non-being part of our associate community, who are people that we buy and sell real estate with all across the country so that way they get to earn While they learn, had access to Rick, who Anand mentioned, who's up in New Hampshire. He's been in the business for almost five years now, just doing creative financing, and actually is a retired engineer as well. Defense contractor helps Anand get the deal under contract. Now Anand is working with my brother-in-law Nick, who's been our buyer specialist, which means he helps all of our. Associate communities sell their properties and get the most amount of money through utilizing this rent-to-own program. Now, Nick is working with Anant, so now Anant has access to 2 coaches to get this deal done. On average, just to give some averages, it's going to take roughly 30 to, say, 60 days to sell this property on rent-to-own and get to this first nonrefundable deposit. Now, the nonrefundable deposit for my buyers was known as a payday 1. This is going to typically be anywhere from 3 to 10% of the elevated purchase price. So that's this price. We bought it for $700,000. We're selling it for $739,000. It's going to be anywhere from 3 to 10%, either upfront or over time. So that's the money that goes typically in Anand's pocket. But Anand is going to go ahead and utilize that buyer's money To go ahead and purchase a property. So if you think about it, Anand's actually buying it for free because he's using somebody else's money to acquire the property and now gets to step into ownership of a property by doing so. So that's where we're getting that $35K that gets put down. We're going to go ahead and use it for closing. Anand, you are— you're currently on the market, it looks like, for $47,500. Now, does that include everything— taxes, insurance— as you're marketing to this rent-to-own buyer?

Yes. So advertising is $3,500.

Okay.

That doesn't include the taxes and HOA and insurance.

Awesome. Got it. So now I'm just going to put it out to the rental market because most buyers that we work with have no idea that a rent-to-own program exists. especially in their area. So he's out there marketing it for roughly what the rental market is, plus taxes, plus HOA, which if you're utilizing our systems, our processes, we actually have the videos in place for you to actually educate these buyers so that way they know they're acting like and are treated like a homeowner. And that's why they're expecting to have these additional expenses. Anand is also responsible once he closes on the property to make the $4,200 payment. Which is PITI. Is that accurate?

Yes.

Okay, awesome. So the projected amount to make each month is roughly $557.

It doesn't include the insurance.

It doesn't include insurance. Okay, so minus $102. Okay, so right around $557, give or take, which is always interesting because this seller, right, is roughly at a break-even. When it comes to her monthly, and she's utilizing a short-term rental strategy. Now we are able to now take this property and utilize a rent-to-own strategy, which makes it cash flow positive and makes it profitable, which we're going to walk through in just a second, in just a short 48 months. So if you're listening to this and you do Airbnb or short-term rentals, know that this is another strategy to capitalize on. You with your current properties, especially if they're at a break-even, because this is going to be extremely hands-off because our buyers are acting like and are treated like a homeowner versus Anand right now on his other Airbnb is very active or actively managing the manager of the Airbnb. So we would expect that $557 in cash flow over the 48 months is going to generate him roughly $26,000. $1,000 in cash flow. And this is as passive as you can get because the money is just simply being paid to him from the buyer. And then the buyer— and then he's going to go ahead and handle the expenses. Okay. So you bought the property for roughly $700,000. Now you're going to go sell it for $739,000. How did you guys arrive at price premium or the elevated purchase price? You're on mute. I don't want you to waste that voice of yours.

How did we— I think I just had a call with Rick. I don't— not too much thought. It's a little bit over. The rent-to-own demands a little higher price. So it's the price, $700,000 is like the market price. So it's a little few percent up.

So I'll kind of simplify this and Anand. So Anand had multiple calls with his coaches. They went ahead and looked at the comps in the area and increased or added an elevated percentage each and every year. And depending on the market, you know, a guesstimate would be anywhere from, say, 6 to 10% year over year. All we're adding is roughly 5%. So extremely conservative in this transaction, but Very doable now for a new tenant buyer or a buyer that's working towards qualifying for their loan. So you guys added on the $40,000, which is just the difference between what they bought it for and what they sold it for. Each and every month, as Anand pays the mortgage payment on the seller's behalf, he's going to be receiving roughly $1,166 in principal paydown. Now that's going to, of course, lower the mortgage payment or the mortgage balance, which Anand is now creating equity in the property for himself. And over the 48 months, he's going to receive roughly $55,000 in equity. That's amazing. And this is how you step into a lower interest rate loan. And I say that without asking, but what is the interest rate on this loan?

So the debt is actually 2 mortgages. Okay. First mortgage is, you know, I actually don't remember the interest rate. It's a pretty good interest rate. That's what is doing most of the paydown. The second one is like a smaller loan, like an $80,000 loan, but has a higher interest rate. So the paydown is only like $200 a month. The principal—

You got a first and a second, and the first one, which is the majority loan, is at a good interest rate. I mean, $1,000 a month, I'm guessing it's somewhere Around the three to five percent range of this property. So you can't get access to that on a secondary property nowadays unless you're utilizing these strategies.

Okay, so second I remember is set up around seven percent. The second is around seven percent.

Got it. First one's lower. Second one's a little higher, but much less. But it all equates to it nice. A nice chunk of change for Anand. Okay, so Anand's already received $35,000. Now I know Anand collected the money and paid the seller utilizing the $35K. So what that's going to do is actually going to subtract it from the initial equity because it's going directly towards principal. So on the back end, it's all equal. And that's why we didn't make any adjustments here. He's going to receive roughly $60,000 At the, at the cash out, meaning when the buyer eventually goes and qualifies for their bank loan, they're going to cash out. So and then we're going to go ahead and cash out the seller and pay off the seller's original loans. You're going to receive roughly $60K out there in that time frame because all we did was take the price premium, did the $55,000 in principal paydown that came from the 48 months. We're subtracting what we've already received. And then we went ahead and we are left over with about $60,000. So if you add up all of those and those 3 paydays, which is the nonrefundable deposit upfront, monthly cash flows payday 2 over time, and then payday 3 is the equity that then is received in the, in the future. So you get paid now monthly and at the end, you're going to see roughly $122,000. On this deal, and he was able to get into it with none of his own money and simply utilizing the buyer strategy. So I know before I go ahead and ask you this and that, if you're listening to this, you're like, "How do I get into deals with no money down or not using my own money?" This is one of many strategies that we use by simply utilizing the buyer's deposit to go ahead and get that down. And now now that you've. You know, made it through this deal or you're almost on the other side of this deal. Any lessons learned or any ahas that popped up, you know, while you went through this process?

I think the biggest aha, so I have seen another property in the same community a few, like 8, 9 months back. Same thing, Airbnb. The seller is long distance, meaning 2.5 hours away within LA, and he wouldn't pull the trigger. He's just in double mind saying, should I keep the property? Should I not sell it? Should I still— it's like, how do you say it? Airbnb is like a carrot. It sounds like you're making a lot of money, but it's like the pain was not big enough to pull the trigger. So he didn't actually go ahead. But this person, when I look at Zillow, I think she has been trying to sell the property for more than a year. Put on listing, off listing, on listing, off listing. And the other big kicker with Airbnb is the TOT tax, the transitory occupancy tax. I pay 10% for my home near Sequoia. This one is 13%. Like Palm Springs charges 13% of gross. Or if you collect $100,000, $13,000 is taxes. They don't account for any of your expenses. And unlike renting, you are paying for the water bill, the electric bill, the gas bill, you have everything. It makes a big difference. People don't do the numbers. The biggest takeaway I got through all this is work with a seller who's ready. I think I had a lot of sellers who are just not ready. I put them on the hopper, check them periodically. I can't decide for them, but I can work with the ones who are ready. So the hardest part is to get over that barrier, meaning it's not you, it's just the seller is not there yet. So you just have to go through more sellers. So I think that was the biggest takeaway, I would say.

Yeah. And if anybody— that's awesome. So what I'm getting is there's a lot of hidden costs associated with Airbnb. So my takeaway, go out and attract people that are unhappy with running their current Airbnb or their current returns and share with them how they can get out of that headache for sure. Because I know especially during COVID there was a lot of people that thought that was a really, really good idea because everybody was kind of working from home or relocating. Now everybody seems to be coming back towards reality or back toward what used to be reality. So one final question. And then, all right, if you're If you're somebody on the outside looking at me, you're like, watch a couple of these YouTube videos and they're trying to figure out like, should I do creative financing? Should I look at ways in order to, you know, increase my income? Or I'm looking for ways to retire, or man, I'm just looking at the right community to join to start doing real estate deals. Any thoughts for those now that you've kind of been working with us for quite some time?

I think the biggest realization I I have now that I actually have a deal under contract is, you know, I was like a junkie too. I'm an engineer by training. I like to learn and know everything. Knowing something doesn't really mean that you're doing it. And I was in that knowing situation without actually doing things. And doing is actually, I mean, it's a process. It takes time. You need to, you're doing a lot of mistakes, you're fine-tuning, you need active coaching. And I think that's something Smart Real Estate Coach really gave. I also came to the ITDB, which is the in-person coaching that you do once a month in Rhode Island. And I think it's, I mean, these people are real. That's all I can say. It's, if you really want to get into this, just watching YouTube videos is not going to help. You have to actually do it and doing it, doing a lot of mistakes and fine-tuning, and having somebody to correct it makes a huge difference. It'll make or break. I think I know Chris shared some statistics on this. I don't remember, but I think it's really true.

Well, Naeem, it's— I mean, you've obviously shown some perseverance, and that's really what it takes to be an entrepreneur and be in the real estate business is constantly innovating, improving, and sticking with it. I mean, then you automatically win by just doing that. So that's awesome. And I love that you talked about knowing versus doing, right? We can know a whole bunch of stuff, but if we're not actually putting it into action, then we're just doing the same things we did day in and day out for many years, getting the same results. If you're watching this right now and you're interested in looking at how we could work with you and do deals inside your market, go to smartrealestatecoach.com/deals. Apply and go ahead and put your information. We'll have an in-depth conversation with one of our advisors. I also— he mentioned, uh, now I mentioned a couple things, a couple events that we have coming up. We have the QLS Live, which is in Boston in October. I'll include that in the show notes. You're going to want to be there. And also the In the Trenches Bootcamp, where we literally get in the trenches with your business for 2.5 days at our home office in Newport, Rhode Island. You go ahead and put your application in there as well. Put that in the show notes. Lots and lots of things happening right now. Anand, thank you so much for coming to another Deal Structure Sunday and sharing your story, how you acquired that real estate deal, so that way people can learn from you. Appreciate that very much. If this is the first time again you've watched a Deal Structure Sunday, go ahead and click the subscribe button because we come to you each and every Sunday and share with you another deal that we have with our community. Thank you again, and I'll see you again next, next week.

Thank you.