Slow Flips: The Secret to Long-Term Financial Freedom!

What is going on everyone? Investor Thrive Nation. This is the Painless Wholesaling Podcast where we bring experts from the real estate industry so we can learn from their experiences. So you don't have to go through the pain of doing this all yourself. We're trying to make it painless for you. So we got Scott Jelinek.

Jelinek. You got it.

Jelinek. What is going on? Will you please introduce yourself? Let the listeners know what you want to be talking about today.

How you doing? Uh, thank you for having me on, Nathan. I, I, you know, I do wholesaling. I've been wholesaling since 1994, but something we've transitioned into— we still wholesale, but I do a thing called slow flips. And for those of you who don't know what slow flips are, it's a process that's separate from the wholesaling. It's a process where we buy lower-end housing on short-term financing, 5-year mortgages, and we simultaneously sell them on long-term financing. We sell them on 30-year mortgages. And we just operate like the bank. We no longer are landlords. We're not fixing toilets. We don't do any of the stuff we used to do. We operate exactly like a bank, and we just collect payments. We don't make money our first 5 years, and then we make money— it's pure profit for the next 25 after that.

Where are you getting these 5-year loans?

So, private lenders. So, 100% through private lenders. So, you know, I know we're limited on time, so I'm not going to go through my whole story, but I can give you the short version. I got crushed during the bust. I started buying, you know, in 1994. And I did everything everyone taught through the BRRRR method, you know, refi and pulling stuff out and putting all the money back in. And in 2007, I got crushed. Then prices started coming down shortly after the bust as we're recovering. But now I also had no credit and no money left. And so I had to figure it out. And what I figured out was the prices have come down, but yet I couldn't use a bank. I was dead to banks, and banks want a loan for 30 years. So these houses got cheap enough where I was like, if I can borrow private money, I can get them done in 5 years. And instead of the chaos I went through previous to the bust where I'm all leveraged and every month making payments, now we only make payments for 5 years and then we own them free and clear. I currently have 178 of them and 79 of them are already free and clear, but they'll all be free and clear within, within the 5 years, the next upcoming 5 years.

That's amazing. So how are you getting— if you're selling them to like end buyers, right? Like people are going to live in them.

So the bulk of our business is actually to investors. Ironically, they're to investors who do exactly what I used to do prior to the bust. Most of the, you know, prior to the bust, I would buy anything I could that somebody would finance me and I can make a spread on $200, $300 a month. And so now I almost sell to my exact avatar of who I was prior to the bust, which is the bulk of investors out there who are just buying anything they can with financing. And so we'll finance them with $3,000 down or $5,000 down. They'll pay us a monthly and then they fix it up and they rent it out and then they make the spread. So it mostly, it's investors. We do sell to some homeowners.

Where are you getting the private money to do the $5,000, to pay everything off within 5 years? I'm a little confused about that.

So we raise, we raise from private individuals, and, you know, and I teach a lot about raising money. And it's funny because some people have this concept in their head of private money that it's a private lending company. And, and there are companies, there's even one called private lender.com or something. And my opinion of a private lender is not a person who's in the business of lending. It is a person who just has money in their account and you cultivated them to be a lender, and they are private to you. They are only lending to you. They're not in the lending business. To me, those people are lenders. They're not private lenders. When I'm cultivating a lender, they're private. Nobody knows them except me. And so that's it. We go through a whole series. I actually train on this, and I'm sure you do it as well, on cultivating lenders and raising them. Their money is out there. I mean, everybody— that's one of the big stumbling blocks people have is they have this belief in their head that, yeah, that's easy for you. I don't know anybody with money, right? Everybody believes that. And the reality is they're wrong. The money's out there. And we have a whole process for doing it to where you don't have that fear of rejection. So people can go through the raising money without having to worry about being rejected, because that's what stops people from asking in the first place. Of course.

So for my listeners, I think we— it's pretty simple in the sense with the private money, you find it. But I'm curious about the 5 years. I'm still trying to understand how you're able to pay that off.

So let me give you some real numbers. And before— Nathan, what part of the country are you in?

Salt Lake City, Utah.

Okay. So you're a great example. So for someone like you who's in Salt Lake, the first thing you're going to think when I give you these numbers is you're out of your mind. Houses don't exist in that price range, right? And I hear that all the time. Midwest, right? What's that?

Is it the Midwest?

Well, a lot. I do a lot in Virginia, but now we're buying a lot in the Midwest. Right. And so on average, we will buy houses for— are you sitting down— for $30,000. $30,000. We pay 12% interest. $30,000 at 12% interest on a 60-month mortgage is $667.33 a month. We simultaneously sell them on average for $89,000, and we sell them on a 30-year mortgage with them paying us $875 a month. So now for the first 5 years, we really really don't make any money because even though there's a little bit of spread, it goes to taxes and insurance. So we don't really make any money for the first 5 years, but once we hit that 61st payment, it's all ours.

Got it. Okay, that makes sense.

It's beautiful because we don't use any money to buy them, and you know, you don't make any money for 5 years, but then once you do, you're free. And my whole premise is not on making people rich. I'm always like, nope, you want Lamborghinis and yachts, go somewhere else. The people that I train, it's just training you to be free.

Yeah, it's very interesting. So, so I actually I wholesale nationwide. I live in Salt Lake City. So I come across these deals all the time that are like, you know, $15,000. I got one in Mississippi that was one like $9,000 that I got it for. So yeah, they're very cheap. Now, are these $30,000 properties, are they distressed or are they good to go and you just rent them out?

So it depends on— I buy in 4 different states. So it depends on the state you're in. Like in my state, I live in Virginia and I buy a lot in Hampton Roads. The bulk of my properties are here. Typically on those price ranges, we'll get them more distressed in my area, but they have higher ARVs. When we buy out Midwest, they really don't have much in the way of an ARV. That's it. They're just low priced and they stay low priced. And so a lot of those are not distressed at all. Like, I look at some of them and I'm like, how is this house $20,000? How is this house $25,000? It's insane to me, but that's, that's what it is.

It's the demand, right? They want to live out here in Cali. They want to live in Cali or they want to New York or wherever, that they got to pay a little bit more. But in the Midwest, yeah, you can find some good deals out there. So curious when you talk to your private money lenders, you tell them, hey, 5 years, I'm going to pay— I need your money for 5 years and then I'll pay— it'll be paid off. And is that the expectation you're setting with them?

Correct. It's not a balloon payment. We're not paying interest only. We're amortized. So I— and again, this is how I teach too, but I give them our program. I don't ask what would you like to lend or how much— what terms do you want? We borrow specifically— I do $30K and $50K loans, but we'd borrow $30,000 for 60 months at 12% interest. And that's the opportunity we're presenting to the lender to make that return. It's not a question of what do they want, what do they want as a return or what term they want, because if they don't want to fit into our model, then they're just not our lender.

And that's not interest only, it's 12% amortized over the 5 years. And correct. And then you just say, give me 30 or give— what's the other one? 50?

Yeah, 30 or 50. At $50,000, it comes out to $1,112.22 and that's 60 payments. And again, then you owe nothing. It's paid off.

Um, let's say you find a property for $20,000. Uh, your lender, do you still ask for $30,000 from them, or are you willing to just ask for whatever you need?

Well, we have one lender that just lends to my people in my program, and that one does the amount they need. But barring that, our private lenders, we always borrow $30,000 or $50,000. The reason we do that is because of confusion. If I changed it to the amount each time, it would cause a problem because sometimes you get a smoking unbelievable deal, right, and it's $20,000. And then if your next deal was just your normal average deal and it was they're going to be like, whoa, I don't want to loan $30,000 on that. I only loan $20,000 on that one. And so then they start comparing the deals. And so to get away from that, we borrow the exact same on every house. Now, if I buy a house for $35,000, I'll bring the $5,000 to closing. And if I buy it for $25,000, you'll get $5,000 back. So I always borrow— all of my payments are exactly the same. They're either $667,333 or $1,112,222. I borrow the exact same for every single one for a 5-year loan.

So when you say you— if it was $25,000, you'll give $5,000 back, what do you mean?

You know, it would be a loan for $30,000, but I only— I wouldn't give it back. I'd get it back. So if I buy a house for $25,000 and the loan is for $30,000, then I actually get money at closing.

So that $5,000, what do you do with that since you're paying— it's not into the house and you're paying interest on that $5,000?

So the way I teach my people is to keep all the money in the account until it's paid off. And even overages from the, you know, the payment that comes in and your payments, they might be $100, $200 a month positive. People hate when I say this, and I don't know what your methods are with your holds, but I, you know, I tell people you don't deserve to make a dollar off your properties until they're free and clear. And I know the world hates free and clear, right? Everybody's like, oh, it's dead money and, you know, burn, use leverage and all that's great. And it works until it doesn't. And, um, and you know, anybody who started in 2009 or later has only seen this. And so everybody, you know, I talked to hundreds of people and everybody has this finite vision of the way the world is and they're right. And it has been that way for a lot of— I talk about the bust like it was 3 weeks ago. And people, a friend of mine just recently is like, Scott, you know, that was 15 years, right? And I'm like, oh, I feel like it was just yesterday. Cause I'm, you know, it was a rough time, but people that got in, you know, in the last 15 years, you've only seen one way, and it might stay that way for another 15, 20 years, in which case they're right. The people who are using the leverage did good, and they're right. Problem is, is I'm too old to start over. And so if it doesn't stay that way, I'm not taking a chance on having to do this all over again. That's why I'm all about free and clear now.

Anything that caused you to choose the 35 years? How come not 4 and, and, uh, you know, anything like that?

So what exactly— what I started the slow flip model in 2011, and there's two sides to the slow flip model. There's the buy side and the side, right? So the buy side, what made us dial in on 30 is it was the most we can borrow and still have it paid off in 5 years with the amount of money that it brings in. Because on average, those properties were bringing in $875. So 30 was the most we can borrow. Now, these last few years, we've had a run-up in rents as well as in pricing, but which is why now we got these ones that we borrow $50,000, but we're getting $1,275 on them, payments $1,112. So it still works out. When you start getting into higher dollar properties, even, I mean, I say high dollar, they're still cheap. They're like, if you're talking $100,000 house, for instance, The numbers just don't work because in my market anyway, a $100,000 house might bring in $1,600 a month, but my payment would be $2,400. So it just wouldn't work because we don't tolerate zero negative cash flow. So that's why we structure the numbers the way we do, because it has to be able to support itself.

So let's talk about— you're saying you don't— you want your people— you're saying, hey, don't make any money until it's free and clear. What happens with that surplus if there is money? Do you just keep it in the account in case for expenses, any issues?

I leave it in the account. And the reason I do is because, you know, defaults happen. And so if a default happens, I don't want it to be an added stress on these people that are buying them. I don't want them to have that added stress to where now they have to come up with money to pay that lender. And so I'm like, listen, we always get $3,000 to $5,000 down. I'm like, just leave it in the account. And now if the default happens, or if you have a month— or if COVID happens, right, we have nobody paying for a little bit— you have that money sitting there so you don't have this added stress where you have to come up with money to pay your lender.

And when you say default, are you saying that the renter defaults and doesn't pay?

Well, for us, they're not renters. They're, they're buyers because we buy, sell, right? So yes, you know, if they were to default and not pay us and we had to go through either a foreclosure or an eviction, it's good to have that money so that we can sustain it.

Because I had on my mind you were renting this or sublease— not subleasing, renting or doing a lease option, but you're not doing any of that.

You're selling these on, on an agreement for deed. We're selling them on an agreement for deed. Some, some states call it a land contract or contract for deed. Same thing.

And these properties, they're, they're free and clear in the sense that they— your private money lender bought it completely. You're not like doing a wrap on any of these, right?

No wraps, no sub-2s. I mean, I do sub-2s also, but that's not for the slow flip purposes. They're not free and clear. They have a loan against them for the $30 grand. They're free and clear on the 61st payment, 61st month. That's when they're free and clear. Correct.

But, but in the sense, like, at least the lender owns it outright. Right. Because they bought it with their—

No, the lender just loaned against it. Just like Bank of America doesn't own your house. You own it, but they have a lien against it. Same, same difference. We own our properties, but the lender just has a loan against it.

Got it. Okay. And you're paying them. I'm sorry.

Correct.

Yeah, that's interesting. So you did this model just because you're like, hey, I'm not trying to start over again if something crazy happens. So let me own these free and clear. I'm not trying to drive or show people the Lamborghini, people that want to get rich quick.

Right. So basically what happened is I came to the realization that we all, you know, we chase money. I make a lot of money now, and I made a lot of money then, but in between it was a tough time. And we always are chasing dollars. But what I've came to the realization after the bust is it wasn't the money that we were really after. It's freedom. And everybody talks a good game with freedom, but the reality is, and I go through a process with the guys in my program that I'm like, I'm like, if you put a number on it and I make them go through an exercise, how much does it cost for you to actually be free? We call it a freedom number, right? And it's usually not always, but usually it's about $10,000 a month, which is so easy to achieve. Go $10,000 a month. We can do that with 12, 13 slow flips, and I can get anybody there in 5 to 7 years. So people don't want to wait 5 to 7. In other programs, they're like, no, I want to make money next month. And I'm like, listen, you could, you know, a saying I'm always saying is you can do what's easy and life will be hard, or you can do what's hard and life will be easy. And so I try and push them. I said, just take the hard road, which is, you know, plow through for 5 years, but then you're free for the rest of your life. And people don't appreciate it until you're actually free. And it was tough on me as well. I started this in 2011, 2013, '14. I kept, you know, am I doing the right thing? I'm buying all these properties and I'm not making any money. 2016, all of a sudden they started getting paid off and I was like, this is great. Now all the money comes in and I get to keep it. And it's been a straight uphill ever since.

I love it. No, I agree with you. I think the quick, fast way to do it is not sustainable. Like even wholesaling, which I think is a great strategy, exit strategy. It's a good way to do certain deals. It's not something I think anyone can do long term and be able to just continue.

I love wholesaling too, so don't get me wrong. I've been wholesaling for a long time and I just did one. And I'm going to tell you, I know we're talking about slow flips today. My biggest one of my life. Was last month, $250,000 assignment fee. And, um, and I've been doing this a long time, and that's my biggest. I had a $200,000 years ago, but $250,000 was insane on a multi-unit or what. No, it was a, uh, it was a, it was actually out of the area, about 2 hours away from me, and I don't buy out of the area, but my wife answered the call and the seller was from out of town, and, and everything lined up. It was distressed, it was inherited and free and clear, and I was like, let's go for the drive, and we did. And, um, it was—

yeah, that's amazing. Well, so how can my, uh, listeners, if they're like, hmm, look, I like wholesaling, but I kind of want to try the slow flip thing, how can they reach out to you to learn more?

So I'm going to tell you in a second, but let me tell you, if you like wholesaling, I said I'm, I'm a fan of doing both. Even me, even I do both. And the reason is you're wholesaling, you make money today, and you make money— and, you know, I'm big on the slow flips, like, well, you don't make money for 5 years. Well, you're not going to sit around and and not eat for 5 years, right? So that's why I say you do both. You wholesale, and that's how you make your living now. And you probably still wholesale forever because wholesaling is fun. And but slow flips is what sets you free so you don't have to anymore. So the easiest way to get a hold of me, actually, I wrote a book that just came out called The Art of the Slow Flip. And I think I was telling you earlier, I'm going to give a free copy to your listeners. So all they got to do is just go to slowflip.com, slowflip.com, and fill it out. I have 250 copies printed and just pay the shipping. I think it's $7.95 or something, and I'm going to send it right on out to you. And it goes— I held nothing back in there. So I went through detail step by step from start to finish.

How long did it take you to write your book?

That's actually my second book, and it takes a while. My first book, I'm embarrassed to say, but it took me about 5 years because, you know, I just— I'm not a writer, so I didn't just sit down and write and it took a while. This one I got done quicker because I had a more methodical process. But it's, it's, it's challenging.

Would you go back or would you going forward write another book using ChatGPT to like have it write or you like like—

I probably wouldn't, but I can't say I wouldn't without actually trying it first to see, like, try a chapter and see what it sounded like. If it sounds like your voice and it sounds like what you would have said, I don't know that it could, but I guess the technology is evolving so fast that it probably could.

I think books are great lead magnets. I think they're great things to give away for value. So that's amazing. So flowflip— slowflip.com? Slowflip.com.

Yep.

That's a great domain name too. Great job.

Yep.

I feel like a lot of people would look that up.

Yeah.

Well, yeah, I think that's awesome. So, hey, Scott, thanks for coming. Do you have any other things you'd like to share with my viewers or anyone that will listen to this?

You know, just one of my things I always like to share when I close out my meetings with people in my group, always with it is, you know, and it's the basis of slow flips, is do something today that your future self is going to thank you for. We're always focused on making money right now and making money today. But I'm like, if you start thinking in terms of what are we in 2023, if you start thinking in terms of 2028 version of yourself or 2030 version of yourself and do things today that aren't for you, but they're for him, you'll, you'll be surprised on how far you can get when you're keeping that person in mind. And that person is you, but it's you in 2028. And so I'm always telling them, do something today that your future self is going to thank you for.

It's a good— that's a, that's really good because a lot of people don't— they want that instant gratification, right? They want that, the results right now. So that's good to think about, you know, how you're going to benefit in the future. I do actually have one last question. So private money lenders usually when I talk to, you know, hard money lenders that use those people that you're trying to find, they usually can sometimes get like 6, 7, 8%. You're getting 12%. Is that because it is not interest only? So it all equals out or—

Yeah. So when I started in 2011, I went— when I originally started, my thought process was let me offer a super high interest rate so that I can start raising money. And then as I start having more lenders than I have deals, I'll start to lower it.. But what happened is all of my lenders are still my lenders to this day, and all of my new lenders have stemmed off of my old lenders. So I didn't want to make it like, oh, well, you're getting 8%, he's getting 10%, he's getting 12%. So I just left it alone. And the way I looked at it is I'm not paying it anyway. My buyers are paying it, paying it off in 5 years, and it's covered in the whole thing. So I'm one of those win-win-win people. So I'm like, my lenders are happy, my buyers are happy, I'm happy. Let everybody make money. And so I never want to try and chew them down just to save a buck.

Okay, that makes sense. Now, one last, one last thing, because I do— this thought just came up. If you sell it on to a seller and you're selling it on technically on a land, right, land contract, are you trying to get as much down as possible or typically get $3,000 to $5,000 down depending on the condition?

If it's in good condition, I usually go for $5,000. If it's a handyman special, needs work, we'll go for $3,000.

So it's generally $3,000 to $5,000 down because the more you get down, the faster it gets paid off, correct?

Not, not for them. We're— it's still a 30-year mortgage, so they're paying on a 30-year mortgage. I have a vision, and I know we're out of time, so I got to go, but you got to go. But, but I have a vision in my head. I always tell people, I say, you go to any city in the country, right? And you look at the tall buildings and they got the bank names on the side. And that's because we, as regular conventional landlords or homeowners, we're running around and do all the work. We do the paint, carpet, put out the signs, rent them out, fix the air conditioner, do all this stuff. Collect the money, and then we send the bulk of it up to that building and they're sitting up there waiting. Well, with the slow flip model, we pretty much turned it all on its head where we're the one that just sits there waiting. And on the first of the month, everyone else is running around doing all that work we used to do and they're just mailing us the check. So we kind of twisted the whole thing around now to we just operate like a bank now.

Let's do it. All right. Thank you, Scott. Appreciate it. And reach out slowflip.com if you want to learn more.

Thanks, Nathan. Had a great time.

Yeah, me too.

Thanks. Mm-hmm.