Owner Financing vs Traditional Deals Explained

And they'll help you. But this is a very specific checklist. Every checklist that me and Nick and Sue use in this office, you guys have. Uh, congrats first of all on that deal.

Thank you.

I think you would agree with me when I told them all to listen to Zach's, um, lead gen training. So that's how you got your deal here, wholesaler.

Yep, absolutely.

Okay, so we know the, the, the source was a wholesaler. Um, did you have a fee to the wholesaler?

Yes, $20,000 upfront.

When?

It's going to be when, when we close.

Okay, so Avi was willing, you guys, like Zach does. Zach doesn't have time, so he gets his deals from wholesalers and he's okay paying an entry fee. And in this case, Avi paid $20,000. What's the house tied up for? How much?

$175,000.

So purchase is what? So you're in it for $195,000?

Correct. Plus closing costs. Right.

Let's call it $200,000-ish. Okay.

Yep.

I want to follow this sheet, you guys. You should be putting this in your In your notes, I'll try to follow so I don't screw you up. Uh, deal type is owner financing, correct, Avi?

Correct.

Did the wholesaler already negotiate the 10 years, or did you?

The wholesaler negotiated this.

That guy's probably worth his weight, huh?

Yes, he is. Second one that he's done for me with the 10-year, no principal only payment.

Guys, when you see the numbers in this, you got to see why you paying $20 grand all day long. If you don't have it, Where would you get it? The funding that you studied last night, I hope.

Okay.

What do you— I know you haven't talked to Nick or any of the coaches yet, but what are you thinking you'd go on for with rent-to-own?

Say $229,000.

$229,900?

Yeah.

Without— again, digging deeper, guys, there's 2 phases to this. Abby, correct me if you're going to go in a different direction, but the 2 phases are he does a rent-to-own like we were talking about yesterday, Tim, for like 2 years or 3 years, whatever he decides. He puts the carrot to the tenant buyer to say, you got to be on time with the payments. You know, everything's got to line up. You got to get your deposit up to 20%. Then he'll switch it to a wrap and owner finance the buyer.

Yep, exactly what I always like to do.

Okay. So I know you haven't done the 3 paydays yet. Let's do it real quick, Abby, and then I can let you run. Um, so payday 1, you guys stop me if you don't get it like yesterday. Uh, what are you figuring? 10% at first?

But yeah, 10%, but we want to get them to 20% ultimately.

Yes. If you're going to change, if you're going to do the deed. So payday 1. Payday 2, what are your payments to the seller?

Let's say $23,000. Payday 1, $23,000. It's not $299,000.

Oh, $229,000.

Sorry. $229,000.

What are your payments to the seller?

$400 a month.

$400?

Yes.

Man, oh man. This is sweet. Jeff's coming on later. Jeff has a deal in Florida in the $300s with a $350 principal payment. Why is this happening now, by the way? There's a market. People are afraid because the media is screaming at them. And I say, good, keep screaming at me because it's not the truth, but you're scaring the shit out of them. You can rent this for what?

$1,400.

Okay, so I don't— let's just do phase 1 of this because this can get— we can spend an hour on this. Let's just do the first I don't know. Are you thinking two years or three years? You don't know because you don't know your buyer how much time they need to get up to twenty percent. But you want to figure three years for now?

Three years. Let's do that.

Okay. So payday two is thirty-six thousand.

Yep.

It's slightly less. Obviously, you'll have insurance, right? But I'm just giving you guys the potential. It's crazy.

Chris.

Yes.

So when in general we do these deals, when we're paying the seller, are we paying them? Because I think I remember I read in your book that on your terms that it's coming from the payday one.

Of course. Yeah. Avi's collecting $1,400.

Yeah.

He's going to turn around and pay her $400. Yes. So therefore he has $1,000 profit over 36 months before he turns this into him being the bank. He's got $36,000.

Okay, and where's the payday 3 coming from? The one you just circled, the $1,400?

Nope, that's the rent. Payday 2. Oh, I'm not there yet. Right, right. Okay, payday 3 is like this. Um, by the way, so now we get almost all his money back on payday 1, almost, because he has some closing costs.

Yep.

And he's in President's Club, so he only has a 10% split. So he's almost whole. He'll be whole in a few months. Okay. By the way, did you delay this closing a little bit?

No.

How quick?

Probably about a month.

Okay. Then I'd get on it with Nick like this weekend and try to get it sold.

Yeah.

This is a sweet price range too, right?

Yeah. Sweet price range.

Yeah.

I'm doing an inspection Thursday. So I'm saying, you know, assuming that's good, then I'll get on with Nick.

Yeah, since it's only a few days. Yeah, I'm fine. I was gonna say start now, but you are. Thursday's now. Okay. Payday 3.

I totally missed something. How does he have payday 1 of '23? If you're renting it, you're not taking that, right?

Yeah, he's not renting. He's not doing conventional rental. He's gonna find a tenant buyer like our typical Standard exit.

So they'll pay the $23,000, but you talked about having 2 to 3 years of doing everything right and then wrapping it. I guess I'm not— so that's a $23,000 deposit that's non-refundable. And if they—

Non-refundable.

After 2 to 3 years, then you can— I don't— I guess that's where I got confused.

That's okay. Then in the normal scenario of the rent-to-own, if this didn't have 10 years, he would find his rent-to-own buyer. They would come up with a down payment. That's his payday 1, right? So forget about after 3 years for now. That might've messed you up. We're just going to stick with rent-to-own for now. We'll talk about phase 2 later. So they, yes, they come in with a $23,000 down payment, non-refundable, gets credited at closing, which you'll see in a minute. We're going to act like this is closing.

Did you say something about at 3 years that you, you, you School in the, you know, for 2 to 3 years they have to do everything appropriate. And yeah, because there was a consequence if they didn't.

Well, yeah, a typical deal, if you didn't have 10 years, if they didn't, if they didn't get financing at the end, they're out, they default.

Okay.

Yeah, that's about 2 to 10%, just so you have that stat.

Okay.

Not bad. Because Nick's buyer systems that he's built over the last decade are super strict and they They put the buyer in the best light to win, whereas a lot of investors don't. And they'll say it publicly.

So it's not you that's doing something. It's just if they do things wrong that make them unable to qualify for that mortgage at the end of their period.

Got it.

Yeah.

Yeah.

Bingo.

Sorry.

No, don't apologize. These are good questions. Okay. Everybody good so far?

Okay.

What's the $36,000? The difference between the rent coming in at $14,000 And the outgo to the owner, first mortgage, owner financing, $400 a month principal only. Okay, so that's the principal payment. $1,000 a month. We didn't figure principal benefits yet. We're going to do that next.

Oh, okay.

That's just cash flow.

Oh, okay.

By the way, is $1,000 a month cash flow on a $229,900 house good?

Yes.

It's like 3 times the norm. Yeah.

Yeah.

Okay. Again, this wholesaler, I would be buying him lunch every week. All right. Payday 3. If you look at your sheet, what's the price premium? We buy it for $195,000. Remember, because he has some cash in it and we're selling it for $229,900. $35,000.

$35,000.

So I'm going to say PP, price premium, $35,000. What's next on your sheet? Principal paydown. Principal paydown. We're figuring only 36 months. What's 36 times $400?

$14,400.

Does everybody understand where I got that? It's just a $400 a month principal paydown. Can't do PP again, can we? Okay, $14,400. What's next on your list? Payday deposit, payday 1 deposit. They come to the closing table if they did in 3 years. You know, we didn't extend it. They come, they get credit for that. So we got to take that back out. We're counting it as a payday 1 already. What is that total for payday 3? $25,000-ish? Someone?

$26,000. Oh, $26,000.

That's just about $26,000. Wait, you with me, everybody?

We'll be.

Okay, so payday 1, to recap, is $23,000. Yeah, payday 2 is $36,000. We're at $59,000. Payday 3— I mean, pay 1, payday 2, payday 3 is at $26,000.

Yep.

$69,000, $79,000, $85,000.

Where do you get the— doing the math, the $26,000?

$26,000 is, uh, price premium, $35,000. Principal paydown, $14,000 from the monthly $400. And then we got to give them credit for the deposit. Remember, we're acting like this is cashing out. That's the markup plus the principal paydown minus the deposit. Correct. Right on the sheet. And then, so that gives you— if you— if he closes it, and he could choose to, but he'd have $26,000 more. His total, all 3 paydays, about $85,000. Not a bad deal if he stopped, right?

Right.

Um, so Dana, back to this scenario. What I said was Instead of cashing it out, he could tell them at the buyer's meeting after they've been accepted. So they still have the mindset that they got to go to a bank and go through all that crap. He can say to them, hey, good news, we have a plan where I can help you avoid the bank entirely. Now here's the punchline coming. Does he have an interest rate on this that he's paying the seller?

No.

He has 0% interest. So could he say to the buyer, I can do much better than the bank?

Yep.

You can give him a 5% rate. Avi, you thinking of a rate yet or no?

No, I have not thought about it at all.

I mean, well, you're smiling.

I'm smiling because we'll see what the rates are when it comes down to it.

Yeah, that's right. Yeah, exactly. So let's say the rates are still 6.5%. Could he say, I'll give you 5% or 4.5%? He could be like a hero and still make a killing. So he's now going to take this $85,000 and leave it on the table, right? And keep moving. He already took some off the table, but at $1,000 a month cash flow, I don't see why not. So why even bring that up to the buyer now? Good question. Because he wants them to do 2 things. Never be late. Go get the deposit up to $20,000, uh, 20%. That's why you bring it up.

Okay.

You got to give them a carrot. All right. I didn't mention it. It's a good question. Yeah. Okay. That's why you bring it up. Um, cause they go, yeah, yeah, yeah, I can do that. Cause I'm thinking that might work against you, that they might go, oh, he's going to owner finance us. We don't have to really worry about going to a bank. Well, but they gotta, they gotta make the other 2 hoops. Okay. The other 2 hoops that you cannot be late and late in your state. Obviously it might be the 5th of the month or whatever it is. That's what's considered to be late.

Okay.

Um, and they got to get this $23,000 up to $46,000. Okay. So the owner financing is contingent on don't be late and get me 20%. Yep.

Okay.

Cause I don't personally wouldn't want him to transfer a deed without 20%. Okay. Everybody has a different opinion on this, but I'd rather not. And on owner financing, when he does it with the seller, that's when deed transfers to the new buyer at that point. Uh, he already, he has a deed the day he closes. He's closing in a month.

Right.

When does it go to the new buyer? Only when the owner finances them way out here somewhere.

3 years.

Yeah. So let's play with this. Someone have a mortgage calculator, please? What is the purchase price of $230,000? Let's use round numbers, minus $46,000. They have to go get a mortgage of $2— sorry, $184,000. What's a $184,000 mortgage that this buyer would have to go get in 3 years? Let's just use 5%. What's that over 30 years? Is everybody tracking with me?

Yep.

$184,000.

So we're 3 years out. They owe Abby $184,000. He says, it's okay, I'll be your bank. You don't have to cash me out.

$987.75.

$987,000. Would he also be a hero with that? Because they just lowered their payment.

Oh yeah.

They went from $14,000 to $987,000. Everybody following that? Right. So they're psyched and now they're, they're in homeownership. Which was their goal. And Avi's the bank. Avi, cool?

Very cool.

I don't even want to go from year 4 to— he wouldn't push to 10 because you want to give him a buffer, but 4 to 7 or 4 to 8, you got a lot of money in there. You got, I don't know, 5 more years of $12,000 a year here, right? If he did what?

What are you talking about, 5 more years?

Well, the deal's gonna keep going.

Right?

Past.

Actually have a little less with payday too. Hey, Nick. Past 3 years. When he owner finances them, he still has a nice spread. Right. How long is that term for exactly? Well, he's gonna think about this. Oh, okay. He's happy, but he's gonna think about it. Okay. Avi, it's awesome deal. Avi, I was talking this morning about some people doing a deal in 3. Nick, he just got this last night, so you probably didn't hear yet. I said congrats. So you guys got to talk, you and Nick. Um, and some people taking longer. You had some struggles at the beginning because you had a lot of shit going on. How long did it take you to get your first taken? And now you're at your third in 5 weeks.

Well, uh, well, I had a taken early on, but it was a classic, very difficult to sell taken.

Okay.

That was about 9 months in. Then it took me at least another year to, to get to my next one. Okay.

So would most people quit, guys? Yeah, Avi owns a brokerage too. You still own the brokerage?

Still do.

Okay, so he has other stuff going on, right? And family and back and forth to Israel. So he's stuck in there. And congrats, because that's— you find one of these a year, Avi, I think you can go to Israel and not worry about it.

Yeah, yeah, I'll be happy.

Any other— you guys have questions for him? I mean, this is about exposure. You got, you got him here. Anything at all about his journey, about this deal? Apparently that does. Okay, go ahead, Colin.

Sound?

No, you're on mute. You're on mute. I mean, was this a rehab project?

Can you repeat that?

Was it a rehab project?

No, it's not a rehab project. It's standard house.

Oh, why, why were you giving $20,000 to them?

Look at the numbers.

He gave it to the wholesaler, Naren. Wholesalers are gonna give you their deal, but they have— they charge an entry fee.

Yeah.

Oh, I see. Okay, I missed that. They're your— but they're your ants. They're out there getting you deals. You don't do a thing. He got 2 deals from this one wholesaler. So if you guys didn't watch that lead gen training, please do. Uh, Tim, question?

Maybe just ask my question. I was going to ask, uh, Avi, uh, how did he attract that wholesaler?

Yeah. Did you and Zach hook up with him? How did you attract him?

Yeah. Zach actually made the initial phone call. I'd seen this guy posting deals on— these are on Facebook groups. There are all sorts of subject-to creative financing Facebook groups, some local, some nationwide. And I'd seen this guy posting a bunch of stuff in my area. So finally I, I, I had tried calling him somehow, never connected. And Zach called him, reached him and made that relate, started the relationship. So you, uh, so the post actually laid out the terms in that post of what the—

you did.

Okay.

Correct. In the training, you guys will see Facebook and other— I don't live in there, but Facebook and other social media is where you're going to find these groups and then get in there and chat and then find the wholesales in your area.

Yeah. And really, like anything else, just be careful. You know, there's people out there who are legit and there are people out there who are selling air. Yeah.

Yeah.

Let me tell you all, you guys, another way to do this. Zach is flying to these different RIAs, right? If he hasn't been in your area, get him in your area. Ask your RIA to bring us in as a speaker. Then he positions you like he did Avi as the expert in the area for creative. And you get the deals. 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. So one of many ways.

I want to say something about that because, um, I get a lot of deals sent to me from wholesalers and realtors, but those terms are not great. They want too much down.

That's so you pass. You happen to have a good wholesale.

Yeah.

Me and Nick and Sue have looked at one guy, one outfit from Canada is doing business in the US. They sent us like 30 deals. They all suck.

Yeah.

You gotta decide.

Yeah.

I'm not saying every wholesale is gonna hand you that.

Yeah.

Yeah. But is it worth like going with relatives to start shuffle through those?

Sure. Right. Yeah. And I've passed on a bunch of his deals.

Yeah. And you know what that did? That established you as more of the authority, right? Obviously now he knows you're not taking his crap.

Right.

Yeah. Now you guys, just for the— so you don't feel bad for Avi taking that long, his other 2 takings, he took them with rentals in there, if you have any questions from this. But the 3 paydays, once he converts it to rent-to-own, because he bought these 2, is, uh, the 2 of them together over $300 grand. So 3 deals, probably approaching a little over $400 grand, Avi, correct?

Yeah.

Okay, smiling again. Okay. Avi, thank you so much for last minute. I just asked him this morning, guys, to come on. So thank you for that, buddy. Thanks, Avi.

Thank you, everybody.

Wait, one more question.

Okay.

So what was what was the change from after your first deal at nine months to to that year? Good question. That second deal. What changed in you? Like what happened?

What changed in me, I think it's just perseverance. A lot of it, you gotta follow the steps. I mean, I'm looking at the— just follow the steps that, you know, I know it's brought up every once in a while on a Monday morning, you know, the rants and whatnot. It's got to be done. And that was part of my problem was I was kind of sometimes I, I just look back at my history of phone calls. Some, some months I was up, some months I was down. It was like very random. Honest, it's just gotta be consistent.

That, that word's come up 3 times today already, right? If you guys read the book, has anyone read Undeniable yet? Cameron Haynes, he's a nut workout guy and he, he talks about this consistency. No matter where you are, no matter what you do, consistency. And it's already come up in this room. Good morning, Annette and Jessica. Okay, Caroline, you have another question? She never got out her first question.

Hello.

Hi.

Hello.

Hi.

So excited to be here. I'm sorry that I missed the training yesterday, and I found out that I had a glitch on my email, so that's why I didn't get confirmation to jump in the class. So But I'm here. And, um, for the gentleman, he, um, so then when he decides to rent, then there is a— I know probably it's the second part to this, but, uh, the rental will be, uh, he will advertise it and, uh, you will guide us how he'll advertise the, the rental part of it. The second part of this situation when he decides what's the—

He's never gonna rent it. The first part of the situation, Rent to own. And yes, to get buyers. And Nick, who's in the room here, the coach, and Rick's in the room. They, yes, they help you do this. And it's also a whole module in the QLS. So when you get your first take-in prior to, you'll go through the buyer mod and then you'll have a conversation with your coach and they'll help you. But this is a very specific checklist. Every checklist that me and Nick and Sue use in this office, you guys have.