Turning Seller Stress Into a Profitable Sub-To Deal

With working with you, with working with the other coaches, I started setting up time blocks on my calendar and actually scheduling my days throughout the week. And that's when I noticed it. And I would have kicked myself in the butt much earlier to get on the calls.

Yeah, keeps coming up, consistency. Annette, how are you?

I'm doing great. How are you?

I am just peachy. Thanks for coming on last minute again.

Happy to.

Annette, just briefly where you are, uh, quick background as usual, and then we'll do one of your deals. I also want to mention your office building.

Okay, so I am a little bit northeast of Minneapolis-St. Paul in Minnesota. And my background is primarily in mobile homes, mobile home parks. That's our 2 other businesses that we're looking to shut down is in that industry.

Awesome. And then before we do your deal, just because everybody asks me on podcasts and otherwise, can you do your techniques in other asset classes? We bought our office building this way. Annette just bought A building. Did you close on it?

Yes, I did.

Um, so tell these guys about that. Just what kind of deal was, um, owner financing or, or land contract?

That was an owner financing, and we ended up working through the numbers. Chris helped me a lot with this one. Um, but we ended up working out, I think, a really good deal. It's— we ended, uh, with 2% down And 2.35% interest for a term of 5 years.

That's sweet. Sweet. And they're going to occupy it like we did our building, which is fun, and rent out some space. So good job. What was the source of that? And that— I don't remember, actually.

That was actually Facebook Marketplace.

There you go.

And when I went to look at it, they had a huge sign. It sounds almost like what you ran into with your first one. They had a huge sign out in front in the window that said open to creative or open to owner finance. And nobody was finding it.

That's what I was going to say, that the owner said to me, the realtors weren't— they don't get it, Chris. They're trying to give me full price offers and he wanted owner finance. So similar. All right, Annette, uh, source was— no, we're not going to do that one. We're going to do the condo, correct?

Correct.

All right, so Zach took a trip out here, guys. He's now taking a trip. He's going to Jeff. Hey, Jeff. He's going to Jeff tomorrow. No, Thursday and Friday. So he's now hit every club, every President's Club member with a private visit to do appointments. And he was with Annette. And you got this condo when he was there, or you started it then?

We— it just came in that day, but we did not discuss this one.

Okay. What's the source of the condo?

Expired.

You know how long it was on? Just—

Well, often, often on. They were listed for 13 months.

Wow.

Okay. Um, how long did you have to speak to them and why were they selling? So these guys understand who we're dealing with for a seller.

The first time I spoke with them was more of just gathering information. And figuring out if we could help them, figuring out how we could help them. And then the second time when I called them back and I followed up with an email, when I had them on the phone, I sent the email and we got it that day, that phone call.

And you're going to see why. This is the guy that was really stressed, right?

Very much so.

Yeah. Okay. So deal type, is this a sub-to?

Yes, it is. And that is something I would like to share as well. Originally, I was going towards a lease purchase and even had them sign the original contract. And then in speaking with Zach afterwards, we changed it to a sub-to, and I went back to them and there was no issue with them signing the contract. I explained it and they understood it.

Especially when you have a seller who's motivated. Remember we talked about this yesterday, guys? Changes the entire conversation, as you're going to see. Okay. How much was owed on it? And is that how much you bought it for, owed and arrears?

Correct. So owed on it was $217,535.90. And $0.90.

You guys, I'll leave the $0.90 off. Was there any arrears on top?

No, that actually— they did a loan mod. Ah, with your advice and your wording that I used with them, they did a loan mod and had the late payments or past due payments put on the back.

Okay. So talk about that for these guys, because it comes up a lot where they'll say, well, if you could take my payments, my arrears, then I can sell it to you for what's left. Instead, what did we do?

We asked them to go to the bank and ask for a loan modification.

So we stuck the payments on the back end. Is that correct?

They put— they were, um, actually 3 payments behind, soon to be 4, and the bank agreed to put all 4.

I think the last 8 or 10 deals, that's what we did in the community.

What was that total?

Yeah, what was the total in arrears?

The total arrears, bear with me. At that time was just shy of $7,000.

Uh, so they put on the back no change in payment, uh, monthly, just put on the back end?

No, they also reduced the payment significantly.

Reduced?

They reduced the payment. They extended the loan, but they reduced the payment.

Good. What's the new payment?

$1,452.

Okay, you guys are going to come across a boatload of these given the market. Payment $1,452. Uh, you are on the market officially now, right?

No, we have not posted this one. It will be going probably this afternoon or tomorrow morning.

Okay, so you guys are getting brand new deals this week, like literally all the ones we've been hitting so far. What's it going to go on for?

$239,900.

Rick, oh, you saw, you zoomed in, you're on it. $239,900. How much for the rent?

$1,975 plus HOA.

Yeah, HOA always goes to the buyer, guys. Okay, are we missing anything that you guys want to know before we do the paydays? Yes.

Why, what was the conversation with the seller to switch from lease purchase to subject to?

Do you hear that, Annette?

No, I did not. I'm sorry.

What, what was the conversation with the seller to switch it from sandwich to subject to? Tim is asking. Good question.

Part of it was, and this Zach helped me out with, I said there was a clerical error. And then the other thing was when we actually were talking sub-to, I told him about the ownership, that it was more important that I actually own it. And he understood that and he was okay with it.

Because he had pain. Like, you're probably going to tell Annette whatever you want. Uh, again, if you want to hunt for these, you can hunt for these deals and niche lists. Yeah.

The thing is when they have, when they mentioned down payment, Or monthly payments to them, that almost always pushes it to a sub-to owner finance.

Yeah.

In this case, they got pushed to the back end, so you shouldn't have to, but yes, if it comes up. Steve, you had a question before. Did we answer it? No, not yet. So when you went to the bank, I guess the seller has to go to the bank. Well, did you go on the phone with the bank? I think that's what I had suggested. Oh, you didn't have to.

No.

I did not have to.

Why would the bank want to do a mod and what would be their reason for it? They don't want to foreclose. They don't— banks don't want the properties. Okay. So if I'm behind on my payments and I go to the bank and say, hey, just push those to the end, they'll do it? If you qualify for a loan mod, whatever their qualifications are. I'll try it. Yeah. Qualify for the loan mod. Okay. All right. So I missed the deposit. Loan mods weren't just during COVID guys. You know, banks don't want to foreclose on your house.

So, okay.

I must've missed something.

Was there at the start, was this like going into foreclosure or—

Oh, there were 3 going to be 4 payments behind. Just that far behind. Not quite at the end zone yet.

Yeah.

And what I always say, and I probably said to her now, but this guy took care of it himself. Great. I say, get on the phone with the bank. You don't say they're selling it to me subject to the loan staying in place. The bank doesn't want to hear that. But what you can say is Rob's behind. Sorry. He's behind on his payments, and I say, "Look, get him on the phone with me on the phone." Hi, this is my friend. He can maybe help me out, but we gotta do something with these payments because he can keep them current, but he can't come up. He's not gonna be willing to do that. So you talk to the bank, and then they gotta make sure the loan mod works. It's like three months, three months, and yeah, it wasn't like a default notice going out or anything.

Okay.

So I have a question.

Okay.

So the back end of those missed. Payments that the owner had, or when she sells it, or is that going to be absorbed into that final? Yeah, it already is. Good question. It's already in the 217, right? And it's already here.

Correct.

Correct. It's a brand new loan all wrapped in already.

Okay.

Okay. Thank you.

So, okay, so I'm still lost though.

What do you—

you're on the phone with the bank. She didn't have to, but got to. Okay. And you're just a friend? Yeah. You're saying, hey, I want to help my friend.

Yep.

And the bank's okay with that? Why not? I got my Uncle Steve on with me. Yeah. Uncle Steve says he can keep these payments up starting next month if I can do a loan mod with you and put this on the back end.

Oh, so she was on the phone.

She didn't have to with this guy. That's what I would do.

It was just the owner and— yep.

And the bank.

Okay.

All right. I got 2 questions, please.

Yep.

All right. First question is those missed payments, they get added to the, um, the backing of the balance, but that those payments include interest payments, the interest that would, would've been paid, right?

Whatever they wrapped in, I'm assuming they probably have some fees in there too. The end result was this amount.

Okay. And did, is it recommended and did Annette buy the property in a trust?

Or yeah, depending on what state you're in, there's a way to paper these properly so that you either mitigate or totally get rid of the due-on-sale.

The due-on-sale.

I have a video if you send me a note on Slack from Charles who spoke at last year's QLS Live, who talks about how to paper them so we don't get in a whole legal thing here. But he had fought and won against the bank trying to foreclose on one of his clients because he papered it properly. Very important. So send me a note. You're in the computer now. Send me a note on Slack and just put Charles Castellone and I'll send you the video. Okay. And now, yes, we got what? Let's go to the paydays. Those are all great questions. Payday number 1.

I have $23,990 for the first one and then other deposits. I have the same amount because we would like to get them to 20%.

So you're going to do similar. You weren't on earlier, I don't think, with Abby, but you're going to do similar where you might want to owner finance them later, correct? Yeah, same deal. You guys have seen the repeat here. If you own these things long term, I don't know how you figure this. Again, I'll go whichever way you went. Hey, day 2, guys, just to make sure you're with me, is the rent $1,975. Minus her mortgage payment for the nice new package loan of $1,452 is what, almost $500?

It's $522.72 a month.

And how many months are we figuring here? I know you have forever on this, but how many months are you figuring today?

I just figured 60.

Okay. Who was that? Tim was gonna ask something.

Yeah.

So the Get to get them up to 20%. What is that, year 1, year 2? What is it?

It would be the carrot thing I said earlier and let them take their time. When you get it up, if you're not late and you can do this, then we can auto-finance you.

Okay. Within what time?

Do you have a plan on this that you thought that you want to get them to 20%? Everybody's different, but—

Ideally, I would like it year 3 or 4 to be at 20%.

Okay.

And then she considered doing that. Flip-flop tone of financing for them if she wants. What's payday 2 total?

$31,363.

Okay, let's do payday 3 again the same way we do it always. Price premium is how much?

$22,365.

And principal paydown?

$7,200.

How much was it monthly? Not much, right?

No, it was— the principal paydown is right at $120 a month. It's $119 and change. But the previous payment was $1,711, and the principal paydown was considerably more.

What's the rate on this new loan mod?

4.87%.

Oh, that's not all that. Okay, what's total principal paydown?

Uh, $7,200.

Okay. And then we're doing just the first down payment, right? Because we're only at like— are we doing— are you going to take off the whole— how'd you figure this?

I took off the whole thing for both, the 20%, which was $47,980 for payday 1, which brought me to a negative payday 3. Yeah, that Of $18,415.

Okay, you guys tracking with this? Because there are deals. Rick had one, didn't you? Rick's very first deal had a $90,000 payday 1, which made his payday 2 a negative. So does— should Annette put some money aside during this in case this cashes out at year 5?

Yes.

She shouldn't go buy a Lamborghini, and she should put some of this aside to or some of her payday 2s, right, to make sure she has a buffer when it closes if they cash it out early. So we got 47, 31, payday 1. Yeah. Payday 2, payday 3. What's the total if it cashed out and you've done it 5 years?

$60,928.

So she may, or she may keep going as the bank or other, or just extend the rent to own. Up to her. Is this— you guys tracking?

Yeah. So on page number 3, that $22,000 is principal paydown.

Price premium.

Right.

Yeah. Yeah. And then the principal is tiny because that new loan mod is not that great as far as that goes. It's not bad, 4.8%. It just hadn't been in place brand new. And the $47,000 is just the sum of $81,000 minus $47,000 because we already get— we already counted it up top.

Yeah.

Yeah.

So she might have to pay when— if the seller exits in 5 or the buyer, if they do.

Yeah. She might have a negative at the end. And so she's got to take that second, put it away or something to save $20,000 on a piggy bank somewhere because you're going to need it. Okay. Yeah, you should.

Chris, what's the— I missed it.

PRIN equals principal paydown that took place over the 5-year term based on her payment up here. It was small, but it totaled that.

Okay. What's the PRIN stand for?

Principal paydown.

Oh, principal paydown.

In this 100-something box.

It's nothing. Okay.

One thing that's consistent in a lot of these deals, and especially in this price range, $217,000 $61,000 in payments.

Yeah, all these are in the 2s.

So, you know, to get that kind of return and you're not doing any updates, no renovations, no work, just getting a buyer in there, um, you can't really beat that.

Okay.

All right, so I got a question. Yeah.

Um, so, um, what was, what was their reason What was the source of their pain?

Oh, he was falling behind. He was 3 months behind.

So was the agreement in place before the modification happened? And if it happened after, why would, why would they go?

Why they still want to go forward? Good question.

Okay.

And that, did you hear both those questions?

I did. And so the main reason that they want to go forward is they've already bought another home. They're actually living. In the other home, and they just can't afford another payment on top of that.

That hurts.

Okay.

Yeah, along with moving, because this is right in the heart of St. Paul, our capital city, and they moved out to a further suburb. So along with taking on another house payment, they took on another car loan.

Oh, remember guys, it was solving a problem or helping a customer accomplish a goal that the market can't. In this case, it's both.

Okay. So this question for you, Chris. So in this situation, if they had not bought a house, yep.

And he maybe would've decided to stay. Did the— okay. So that question, was your agreement signed before he got his loan mod okayed?

No.

So he might have, because in your case, he could, I mean, your example, he could have said, well, screw you. I'm going to stay at my house now. Right. Okay. Congrats. You saved your house. If you, if you fall behind again, because habitually this has happened with people, right? They do the loan mod and they go, yay. And then they fall behind 6 months. Right, right, right. It's happened all— that's been happening since COVID big time. And it's at record highs in where Jeff is right now. Uh, any other questions for Annette? And then we'll do Jeff. Yeah, I got a question for Annette.

Question about the buyer presentation. Why would a buyer, if they came up with the 20% down at year 3 or 4, why would they stay in them? Why would they stay in the rental place for another 2 years?

If they came up with the 20%? Yeah. Why would they not cash out?

Yeah. Why would they continue for like another, the next 20, you know, for another 2 years? Because you were saying that you would like the Second, the second $23,990 down at year 3 or 4, ideally. Would there be a reason for them to continue in that?

Yeah, I can think of one, and Nanette might have another idea, but the one reason I can think of is her rate is in the 4% range, and if rates stay at 6 or 7, she can beat the market rates, and that would give the buyer incentive to stay and work with her. That's one reason.

That's what I was thinking as well.

Okay. That makes sense.

Well, would they be staying in though, paying that rent, or would that be a time where they would be asking for you to owner finance, or would the owner financing not even pay into it?

Yeah, she would do it. She could pivot to the owner financing, and that's how she could get them a better rate than the market instead of them cashing her out by getting a conventional loan. Which they can. They have a choice. Because look, if they cash her out in year 4, they don't give her extra money. And she didn't— so she didn't get this $23,000 extra grand, but she's got $23,000 extra grand down here.

Doesn't—

you know what I mean? She got it upfront or she gets it at the end.

But if they gave her the $23,000 extra grand at year 3 or 4, would they be asking her then to— you said that maybe you would continue owner financing or be happy to owner finance. Is that a point where you would have that discussion, or is any of that upfront? Or I don't know. I mean, some of this I know is just—

No, these are good what-ifs. I, I could go either way. I love doing it upfront because they think coming into this program of rent-to-own that they have to go through all the hoops of the bank. And so Annette could put that carrot out front so that the monthly payments never go behind. And they have a nice incentive to stay current. Or she could leave it for a pivot later. If she leaves it for a pivot later, might they cash her out on their own someday? Just call her and go, I'm cashing out. They can, unless she puts in some kind of penalty if they cash out early. Like, that's another variable that we do.

All kinds of—

there's no one— these are all good what-ifs because they're all legit. Like, you could do either one of these.

Could you write that into the agreement?

Yes.

That at year 4, it will switch to an owner financing.

You definitely can. You can write in, you can't— here, here's one to get you thinking. David and I in Michigan had a house with $185,000 of liens on it. So the seller's like, I'm outta here. Like, I don't wanna deal with this. Well, we checked with Dave's attorney. Those were gonna drop. The statute of limitations are gonna drop in like 3 and 3/4 years. They go away.

Right.

So we didn't let the tenant buyer— couldn't cash out before that. Wasn't an option. Your option to purchase starts this month. Anyone, any bit of this could you control it? That's why I said earlier today or yesterday. I said that all these deals are different, unique, and cool. That's what keeps it fun. Can't get bored doing these. Yeah.

Oh, question.

Chris. Nice amount for that.

As I'm writing everything down in the deal structure page, I might have missed it writing it down. Yeah, it says a term. What was the term?

No term because she owns it. Oh, the term for the buyer, she's figuring 60 months.

Okay. And what was for equity?

Equity, there was—

they—

she bought it for what? So no equity for the seller?

No equity.

Yep.

That's why you didn't have— you didn't miss equity.

Okay. And then, uh, what was it for sold?

Uh, $239,900.

Yep. Um, and specifically, what was, uh— I did write down payment 2. But I may have missed something. Payment from buyer and monthly cash flow.

Monthly cash flow, $522.72. Take a picture actually so you have it too.

Okay.

I had something else, but I had a brain fart and I lost it. Do you guys have any other questions for Annette? I have one question. Good. Annette, would you have done this if the loan mod didn't go through?

No.

Okay. A higher monthly payment and cash out.

The numbers just didn't work.

Okay. Annette, thank you and congrats.

Thank you.

Annette, for— I haven't asked anyone else to do this. Maybe while Jeff's listening. So with the exception of a few people, everybody's new here. So anything you want to share with them about Uh, I don't know. Uh, you, you've changed levels once. You've met us only a year, what, a year ago in September?

Yeah, it would. That would be a year. Yeah.

Yeah. Um, so any thoughts to them? Like, let me say it this way. If you were, if you went back 13 months, I should have said it this way. Anything different you would do? 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?

Well, yes, I would, I would be on top of my calls immediately. I'm very happy with the choice that I made to jump up to High 6 right away. However, I did not take advantage of everything that was available to me. So I believe it was Avi that said in the beginning he wasn't consistent, and that was completely me. It would be, I would make calls one day, and then a day or two later, I would make a few more. I wasn't consistent. I wasn't in any kind of pattern. And so with working with you, with working with the other coaches, I started setting up time blocks on my calendar and actually scheduling my days throughout the week. And that's when I noticed it. And I would have kicked myself in the butt much earlier to get on the calls.

Yeah, keeps coming up, consistency.