Ep 171 - Our Journey Episode 3 - 12 Ways To Buy & Sell Real Estate

Hey, everybody. Flip and Danny here, founders of the Freedom Real Estate Group, family of companies. Do you like that?

Yeah.

Flip and Danny hair.

I think everybody's fine with your normal intro.

I'm not. We've done 160 of these. I'm trying to be a little fresh here, but it's not working anyway. And I'm just going right back to my normal. Anyway. Welcome to another episode of our podcast. And our podcast is called Freedom through Passive Income. There we go. Welcome to another episode. And this is part of our series. This is the 12 part series. And this is number three of our journey. And this one is called 12 Ways to Buy and Sell Real Estate. And in this one, I really like this because this is what changes. Changed. This has changed. This is what changed the game.

Yeah.

And so, so obviously we're going through this 12 part series. This is number three. And we've already talked about, you know, what we did before and, and how we became Realtors. And, and, and so when we got our Realtor's license in September of 2008. I'll remember that. And then, so now we're, yay, we're realtors. Let's go do deals and make money. But as you heard in the last episode, we didn't really have that inner circle.

Yes.

And we finally did. And it was a buyer. And, well, it was our only lead. So that was the golden goose. And we did. No matter what the golden goose wanted, we did it. And so we finally, we did find them a house. They were incredibly emotional, but we did find them a house. And when that house, when that house closed, we had a check.

Yes.

We got money coming in. And so that was our first deal. And it only took us eight months.

Yeah.

So to say only eight months. And so we were pretty much burning through our money, all of our savings that we built up over the years and to do what we wanted to do, which was real estate. And so now we're all of a sudden like, okay, one deal every eight months is probably not the best idea for a career. And so that was when you had said, hey, what about real estate investing? And then, so then you emailed three. I don't even know who the other two were, by the way. I can't remember, but I know that it was three. You emailed three people that were teaching real estate investing, and one actually replied.

Yes.

Thankfully, he was close by.

Yes.

And he was right there in Austin, Texas.

Yep.

So we were living in Round Rock at the time.

Yep.

And so it was Phil Grove, for anybody who does know the real estate world, and you're an active real estate investor, and you know us and our journey, then you know who Phil Grove is. And he is based out of Austin, Texas. He made millions of dollars. He had this, you know, huge, huge, huge, gigantic house that he bought as a foreclosure.

Yeah, yeah.

Which I love.

And he's a tech genius, too. Anyways, he's a really, really, really great guy. And he's really got. Got us started on our investing journey. And it was a class, and it was 12 ways to buy and sell Real Estate. And that's why we named that, this episode, that name, because it's why we became an investor in the first place.

That's right.

And so I really was attracted to that because the very reason why we're doing this series for you is because so many people don't know where to start. They're not sure if they want to be active versus passive. And even if they do want to be active or passive, and they know that they don't know which active they want to go, and they don't know which passive they want to go. So we're sharing our story with you and I related to that. When we were starting out, we were like, I don't know what to do, but 12 ways to buy and Sell Real estate surely gives us enough options that we can choose from what's best for us. And so loved that class. It was at his house. There was probably, I don't know, 30 people there in his movie theater room. It was super, super cool. Got a lot of information. And ultimately, out of the strategies, we chose short sales and mortgage assignments. And the reason we chose those was because of the time of the market. Right. We're in the middle of 2008, the Great Recession, the big crash. So short sales and mortgage assignments was the way to go.

And also, well, two of the other reasons why we went with short sales and mortgage assign at the time was out of the 12. These required no money and a lot of time.

Yes.

And we had both.

Yes.

And so it was great. And so we took that and we ran with it, and we mainly ran with the short sales. And we were getting lists. And this is 2008.

So before you go on, though, do you want to explain what a short sale is?

It's a sale that's.

We.

It's really short. I'm just kidding. No, no, it's when it's. It's when a property is. So the property is valued at, say it's valued at 100,000, but their mortgage is at 140. Right. And so they can't sell it because they can't cover the mortgage and they don't have the money to pay the difference in the two. And so they negotiate with the bank to do a short sale and the bank agrees with the seller that they will allow them to sell it and it'll make the note whole.

Perfect.

You like that?

Yes.

Thank you very much. I just thought before you went too far down the road for those that didn't understand what it was, I had.

To dust that one off. Been a while since I've had to explain that. But anyway, so we went into that because this was 2008, or actually this was 2009 by this point. And you couldn't throw a stone in where we lived, you could throw a stone without hitting a short sale. They were everywhere.

Yeah.

And. And so we started talking to a lot of people and started talking to banks. The one, the one bad thing about it, and this is why we sort of went from the short sales to mortgage assignments is because the short sales, we were doing those and we had like, I don't know, it was like four or five that we, we went through a lot more until we got to the 4 and 5. We got these 4 and 5 that we're really working on and we're working on them hard. In fact, one, we even. My whole family went over to the house and we cleaned the entire house. Second two story house. Cleaning the entire thing. No electricity, no water, nothing at this house. Let me just say there was some things in that house that I never want to ever see again in my life. But anyway, and because we were working on this, we were going to sell this property and we were going to make some money on it. But the bank at the last minute said, you know what, nevermind. And they stopped the short sale and just foreclosed on them like the next week. It was something stupid. And oh man, we were so mad. But at the same time we're also starting to learn these mortgage assignments. And so we got these four and five that we're working on before at this point now. And. But then we started doing these mortgage assignments and we lined up a mortgage assignment. We got the seller.

Hold on, we have to explain what a mortgage assignment is.

Danny, what's a mortgage assignment?

Flip likes to get ahead of himself. Can you tell?

Doesn't everybody know what's in my mind?

So a mortgage assignment is when the example that you said $140,000 is what they owed. Right?

Right.

But the value at that point in time is $100,000. Now, that's a pretty extreme example, but we're going to use it because that's what you explained. For the short sale. Let's just say that flip has this $140,000 mortgage. Well, what we can do is we can just assign his mortgage to a buyer that can't get approved for a.

Loan, which are everywhere right now.

Right now because of the lenders tightening all the requirements. So now there's Joe over here that says, yes, I'll just take over Flip's loan. I don't care that it's $140,000. I plan to live there forever. The market's eventually going to get better, and then I'll refinance it. Flip goes, well, that's way better than a short sale. That's going to be on my record or foreclosure. That's definitely going to be my record. My record and hit my credit. So, yes, I'll absolutely assign my mortgage over to Joe, who wants to buy this property, and he's going to now take the. He's gonna now make the payments and take care of the house. So it's not a lease. It's actually going to be owned by Joe. Is there anything that I miss? I'm trying to let. There's so much.

There's a lot in there, and I'm sure people are gonna have questions about it.

I'm trying to be simple.

That's essentially it. Yes. So he assigned a mortgage over to him. So now Joe's paying this guy's mortgage.

Yes.

Yep.

And for those of you advanced enough to understand what a subject to is, we are gonna be talking about that in the next episode. But essentially, a mortgage assignment is wholesaling a subject to. That right there will answer every single question that you possibly could. Could want to know if you're an active investor and, you know, some of this.

And our little tagline back then is we were taking unsellable sellers and finding and selling them to unloadable buyers.

Yes, that's right.

Yep.

Yep.

And so, anyway, so we're working on the short sales, and then all of a sudden, we started working on a couple mortgage assignments. We found the seller, and like, two weeks later, we found the buyer. Boom. Next week. Two weeks later, we were closing. And the seller. The seller is happy because they're off and they don't have to worry about their payment anymore. Buyers happy because he's. Now he's got a house to live in he couldn't get before. We're happy because we just charged him a fee to get that house. And boom, we're on our way. I'm like, wait a second. We just made x in the last three and a half weeks, and we're still working on these four short sales that we've been working on for the last four months. And so we just dropped those short sales like a bad habit and went straight into mortgage assignments.

That's right. Yes. So some of the pros of this part of our career in real estate was number one. These two strategies that we chose was no money out of pocket except for actually running the business. Obviously, we had to run the business still. And it was the right strategy for that time in the market. Right. 2008 was just prime for short sales and mortgage assignments. And he, flip explained why we like mortgage assignments better.

Yep. And mortgage assignments is a solution people didn't even know about. I mean, there were so many neighborhoods around where we lived that when they bought them in 2004, they were getting 110 to 120% mortgages.

Yep.

And because they were rural. I hate that word. They were out of town. And so there was all these programs. They were giving them 110 to 120% of the value of the property. So now were they not only underwater, even if they would have done 100% loan, they were doing 110, 120% loan. So they were just neighborhoods. We knew where to go. And we're just like, hey, we can help.

That's right. And then, of course, and we always like to say it was the least worse option. Right. When we were talking to flip, the seller who has a market value house at $100,000, but he owes $140,000. When you're explaining the short sale versus foreclosure versus mortgage assignment, well, to flip the seller, the least worst option was the mortgage assignment. So that was a pro. And flip was able to get the highest price there. And for us and then everybody, it was very, very fast compared to the short.

I think the quickest week. Because we all said, next thing you know, after like 12 months, we had a pool of buyers. Yeah, you got anything? And so the second we got a property, we knew who to talk to. Boom. Right away. I think the fastest is like two weeks from getting it under contract to getting all the paperwork done and getting it closed at the title company.

Yes, indeed.

It was awesome.

So another pro was it helped avoid foreclosures on the market. So that was a time in, in our history where the more foreclosures, the more if an appraiser is do an appraisal on a certain part of a subdivision or something, if there's dominant foreclosures, they have to use the foreclosures as the value. Right. So even though there's some sellers who did not have to go through a short sale or foreclosure and were able to sell their property, their values automatically went down just because of the foreclosures and what prices those. So that really kind of helped some of the market because we didn't add another foreclosure in that subdivision. And we actually sold a property at the like $40,000 above what it was valued at that point in time. So it really kind of helped the areas in which we were doing this strategy that was a pro.

The buyer gets ownership of a property when otherwise they couldn't. Because again, the lenders were so tight in 2009, 2010 that, you know, people that wanted to buy a house couldn't.

Yep.

Another one was we were able to get the fee for our services. So really, when I say we are wholesaling a subject to. Wholesalers get a fee. Right. We were brokering a transaction. Brokers get a fee. So we got a fee for understanding how to find a solution for this seller and for this buyer. And by putting them together, we got a fee from the buyer to be able to put the transaction together. So that was nice and that was a pro.

And then the sellers, they're not leasing the property, so they don't have to do repairs. They just literally handed us their keys.

Yes.

Yeah, exactly. So some of the cons, short sales are very, very long play. That's why we switch from short sales to mortg assignments.

And then another con is it's dependent on lots of bank guidelines, delays, approvals, red tape, etc. You have to. That's. That's the hardest part about short sales and being able to find the right person to talk to.

Yes.

For the mortgage assignment cons, the seller is now dependent upon the buyer performing. So when I sold Flip's house to Joe for. And I got that fee in the middle, well, Flip's happy and so is Joe. But what happens when Joe starts defaulting on Flip's mortgage? So Flip is very dependent on Joe actually paying, performing on the note, so it doesn't hurt his credit.

Yep. There could be a whole episode just on that.

Yes.

And then there's the due on sale Clause. And that's the little clause in the. In everybody's mortgage contract that you sign where it says, and this is the keyword that the bank may call the note due. May.

If they see that you transferred it to another buyer, in which in this case, Flip did transfer it. Right. It was an ownership transfer, but the mortgage stayed in place. That's why it's called mortgage assignment. He assigned his mortgage over to Joe. And there's legal paperwork, there's attorneys involved in all of this. It's pretty crazy. So everything was 100% legal, but we always disclosed. There is, Flip, there's a due on sale clause. So the bank could say, hey, Flip, I saw that you transferred this over to Joe. You didn't get our permission, so we're going to call your note due. But what was our line back then? They don't care.

They're in the mortgage business, not the housing business. They don't care if Santa Claus is sending them the check every week.

Yep.

Exactly.

Every month.

Yeah.

They just. All they care about is that they're getting their monthly check.

Yes.

In the business of loans, not homes, they don't want the house, they want.

You to pay the check.

So whoever's signing they don't care is very unlikely as long as the note is performing that that due on sale clause was like a 0.00001% chance that it actually happened. We had attorneys who had done thousands of these and never had a note due. And we also went to the precaution of our attorney said, well, let's just write the bank a letter. We're going to put it in the check and say we transferred this note. Here's the first check. If you negotiate this check, that means you approved. Thank you very much. And he kept track of all that. So there's a lot of strategy involved. And I know that we're going over time in this series here, so we're not teaching you exactly how to do it, but that's what we did in that environment. And what's really, really great about that is because knowing what to do in an environment that moves, that's really, really, really wise to be working with people like that. And we wanted to pass on some of the knowledge that we had of a down market.

Right. That's just estoppel by acquiescence.

Yes.

That's the only thing that I know that sounds like that. And that's actually more than four syllables. Ac.

Stop it.

We say. We don't even talk like that. It might be in our head, but we don't put it out.

Okay, sorry. I'll edit that part up.

Just kidding.

All right, let's go over our quick five risk tolerance.

There's risk here.

Yes.

There is definitely risk here. You may see a lot of attorneys when doing things like this. And we did, fortunately.

And we won every time.

Yes, that's right.

Time availability.

You need time.

Yes.

Knowledge.

Lots of knowledge.

We did not do this without a whole lot of help, especially on the legal side. Inner circle.

Well, you need the inner circle to learn how to do it.

Yep, exactly. Access to capital.

Still don't need that.

Do not need that. So here's some of the factors of this part of our journey of what we did, why we did it, the pros and cons of each. I hope it helped. Tomorrow is episode number four, where we're going to be talking about subject to and wraparound mortgages.

Subject to wrap.

That's right.

That's right. Well, again, make sure you head on over to our website, freedomcapitalinvestments.com to join our investor club. Make sure you hit the like button. Hit the like button. If you like how long these episodes are.

Please don't give us a thumbs down.

We're trying to get through these and we didn't realize. Boy, Danny's a chatterbox. Can't get her to stop talking. But hit the subscribe button, hit all those buttons. Give us 5 star reviews if you think that what we're doing is valuable. Valuable and worth it. But we like to end all of our episodes with invest smart, live happy. Bye, everybody. Nothing on this show should be considered specific personal or professional advice. Please consult an appropriate tax, legal, real estate, financial or business professional for individualized advice. Opinions and information on this show are not guaranteed. All investment strategies have the potential for profit or loss.

Sam.