EP 341 – Owner Financing & Subject To’s With Grant Kemp

This is the no Closer show where.

You get the latest developments in distressed note investing and learn the secrets of how you can control millions of dollars worth of property for pennies on the dollar. Get educated and entertained by someone who has closed thousands of deals and lives to support you in achieving the same. Now here's your host, CEO of We Close notes, Scott Carson.

Good morning, good afternoon, good evening everybody. Welcome to this episode of the Note Closer Show. As always, I'm Scott Clarkson, your host. Excited to be back here in the office after being out out of the offices for about two weeks, it's good to be back home in the WCN war room. And we are honored to kick off this Monday with our buddy Grant Kemp, who's just an amazing investor. This guy just rocks. It kicks butt. You may know him from showing up on CH teach me something grant on propellia.com but he's much more of a well known real estate investor with a big passion for owner financing. So. Hey, good morning, Grant. How's it going this morning up there in Dallas this morning?

Good morning. It's awesome to see, man, you're just such a beast. It's an honor to honor to be on the show here and looking forward to chatting some owner financing because like you said, I mean, I just freaking love the strategy. I think it's great for everybody and not enough people fully understand and appreciate it. You know, that's the truth.

So for those of our people at Note Nation that are either watching us live here on Facebook this morning or listening to the replay in itunes or Stitcher or catching us across one of our multiple networks that no Close show throws on, tell people a little about yourself, who you are, your company and we'll go from there first.

Sure. Yeah. So, you know, I'm one of the stories I, I didn't start from anything. I was in a, you know, small thousand foot house growing up with gang signs tagged on it and that kind of stuff. So I didn't really have a penny to start with, but I started searching for how the heck do I buy houses without having any money? I mean that's like my Google searching is like how do I do this? And fortunately got led down the path of owner financing. And this was back in 2011 whenever I got started and so got out there, saw that it's an awesome strategy to do, partnered up with Scott Horn for a long time and buying houses that way, ended up seeing that there was a big need for compliance because a lot of guys were out there just wild west in it, just like, whatever, nobody's ever going to find me, blah, blah, blah. And so created a company named Texas Pride Lending that you may be familiar with, which we grew that to be the largest RMLO service in the nation. And then I sold that company a couple years ago and now I am still focusing on investing and doing the training stuff and the mentoring and that kind of stuff.

Yeah, that's actually where we met was what, about five, six years ago that way.

Yeah. Because I think I came out and spoke at one of your things about the compliance side of all of this, didn't I?

Yeah, you came out to one of our virtual workshops here in Austin. Yeah. Talked about cool, man.

That was a fun time. You had a bunch of people out there.

The days of old have. Scott did what I call workshops.

Yeah.

So why don't we talk about a couple things here. Now you're buying properties here in Texas, primarily. You do it in other areas.

Yeah, yeah, pretty much all Texas. I'm a DFW guy. I like buying in dfw.

And let's talk about what's your big strategy is to buy the property to turn into cash flow with owner financing or what are you fix and flip it. Let's talk about your basic strategy.

Yeah, totally. So my favorite strategy is that of buying a house subject to and then fixing it up, selling it around on a wraparound mortgage. And you know, with that you're getting cash flow and you're getting a down payment upfront. Now I do wholesaling, I do fix and flips, I do rentals. But my favorite, the one that really makes the most money with the least amount of risk on the line is if you're able to buy sub 2 and wrap it. And so yeah, that's my favorite strategy. That's what I really push for first and foremost.

Now that's the beautiful thing. Subtitles. Let's talk a little about this because there's a lot of people out there that what you can buy a house with existing financing in place.

Right. It's gorgeous. And that's the key to when I say I was Google searching with how the heck do you buy houses without having any money? That's the key to it is because essentially what you do is you're going to sit down in front of your seller and you know it's on these guys that owe 85 cents on the dollar. Right. Who they can't really sell it to a cash buyer for 70 or 75 cents. And so cash buyers are having to pass up on it. Whereas what we can do is sit down in front of them, just say, hey, look, I'll buy your house, I'll become the owner of the house. But we're going to leave the mortgage in place as is with your name on it and everything. My name's not going on it, but we're just going to keep making those payments on your behalf moving forward. And so like you said, it's existing financing in place. I like to refer to it as it's unlimited, non institutionalized, non recourse money. And what better money can you get?

Well, let's make sure we state a couple things here because it is. I agree with you, it's a great source. I love sub twos if we can find them. Used to do a lot of those here in town and then would turn around and wrap the mortgage and sell the house under financing technically with a wraparound mortgage to somebody else in a higher interest rate and higher payment, higher her sales amount. So arbitraging the difference.

Correct.

But it's totally not true. Non recourse aspect of it. Because if the banks do find out sometimes they do have the right to call the due on sale clause.

Absolutely. And I'm glad you draw that differentiation because that's not at all what I'm referring. Like I'm referring to if something goes wrong, you personally will not be on the hook for anything because it's all going through your LLC and everything signed there. That's all I'm referring to. But yeah, I'm really glad that you bring that up because sub 2 is not without its risks. Right. And one of those is the due on sale clause. And basically every mortgage is going to have that which says, hey, if you sell this house, we do have the right to ask for the remainder of this payment to be due and payable at that point in time. But the thing is is that just historically speaking it just typically doesn't happen. Because my question is always what does the bank want? At the end of the day, what does the bank want? They want their money and they want their payments. And as long as that's happening, historically speaking, it's a non issue. My office is, you know, calling on the experience of Scott Horn. We've seen about 10,000 of those go through and under 10 have ever been called.

It's a small amount. The only reason I bring it up, I'm not one of these people. What about the do I sell clause?

But you should know about it.

You should know about it. And the important thing is Is if you're going to do something and take over subject to financing which you know, buying and basically taking over property with existing financing place is make sure you do some basic things to ensure that the bank can't get its panties in a lot. Right?

Yeah. You know one of the big things is insurance on that and getting insurance. Right. Because that's when a due on sale clause is going to get called. It's typically somebody did the insurance the wrong way. Other things that people can do that they'll point to is like using a trust, a land trust to put the note in. But quite frankly while it does add a veil and it does kind of help the I guess chances of due on sale not getting called, it's not a fail safe. So don't believe any of the gurus that are like I found the way around due on sale clause. It's called Garden St. Germain act and you can't foreclose if it's in a trust. And that's just not true. It's not.

Who are you imitating there? I want to know.

Everybody, Right?

We got some good stuff out there this morning. Ryan Harper. Good morning Ryan. The Daily Rye. Good morning. A solid Ray. Good morning. Paul Shaw. Paul Shaw. Loving the quality of the video. Love that. Thanks buddy. Appreciate it.

Awesome.

Matt Reed. Great. Real info. Exactly. There for. So let's talk about a couple things. Do you mind giving a tip or two and how you're finding deals that you can take over subject to.

Yeah, no, absolutely. So those are like I'll be completely frank right now. When we're in the super hot market is going to be the time that sub 2 is going to be less likely for you to find. Okay. But on the flip side, that's when you take advantage of all the cash. There's stupid cash out on the market right now. Right. I mean it's slowing down a little bit. But do some of your cash strategies at those times. Sub 2 really shines in that turn. Sub 2 really shines in like that down market. So the reason I say that is that when more people are facing foreclosure, there's not as much equity on the houses. That kind of stuff. That's when Sub two really shines. So I encourage you guys to learn now because we're not, I mean what are we 10 years into an eight year cycle? Like there's something around the corner where it will turn and this is going to be your number one strategy to keep you from losing your rear and along with the notes. Right. And I just want to be very clear that when I'm Talking Owner Financing Sub 2, this is inclusive to what Scott is talking about with notes, right? We're just creating these notes. But the reason why I go into the whole like downturn and that kind of stuff is because that's going to be where your best leads are. Your best leads are going to be people facing foreclosure, like a pre foreclosure lead. Because what is the best option? Okay, either lose your house and not get to buy another house for the next seven years or let Joe Investor buy the house sub two and take the chance that everything goes right and Joe Investor is going to come in and catch up all the back payments and make your credit look really good as you're paying forward. So those are going to be people that are highly motivated to do something in the subject to arena. The other next kind of step down is going to be the divorcees. A lot of times you can get divorced couples that are just done with it and they just want it off of their hands. That can be a great area for sub 2 as well. But you know, we've used owner financing in all kinds of leads. So I always say it's all the same leads you're already talking to. It's just if you don't know the strategy, you're passing up on a lot of conversions, right?

Exactly. Well, that's a good point about how in a up market, in a peak, in a hot market, everybody's trying to sell over. But one of the beautiful things is I was talking to our friend Melody Medley.

Oh yeah, yeah, right. I just like saying their name.

A couple weeks ago, talking about the market and how Dallas Fort Worth, especially the higher priced houses aren't selling as fast as they used to. They're starting to slow down, people are starting to just prices. And one of the things that I have seen in the past and then currently as well too is you see people have gone out, refinance their houses, you know, get really low interest rates, pulled some equity out, trying to do some fun things and hopefully they're not just spending that extra money they pulled out on toys. All right, toys and vacations, which a lot of them are. But those people that, oh, then you move their jobs or made something happen, now they have more mortgage on their house than what it's actually worth. If the market dips a little bit sometimes those can be great. Subject to deals, depending on what the. If the interest rate is low enough so the payment is a below what market Rents is that. That's kind of a strategy you look at as well too, don't you, Grant?

Right. If the payment is low enough. So basically what you're looking at is trying to see can you cash flow, can you get that money up front on one of these deals? And if you're not going to cash flow, that's okay. But there's still rules of thumb that you want to live by because you're analyzing a deal a little bit differently. But you still got to do your due diligence. And so you know, on those when the market has dipped and when you do have those close margins, you can totally make it work. You just have to make sure it's going to work. You have to look at all the numbers.

Exactly. Let's take it a different. Let's talk about true owner financing.

Yeah.

On some of things out there, when you're seeing a house out there and you're working with borrowers and stuff like that, what are some of the things that you like to approach the homeowners about trying to get them to do owner financing for you?

Yeah. So you're talking about, when we're talking to our seller, how do we acquire this property with owner financing. And this is when we say owner financing. And just to be clear. So owner financing, seller financing is kind of this umbrella term. And within that term you have like free and clear owner financing where you can just have them a note for you. You got subject to where you're essentially taking over on their payments. You got wraparound mortgages where you're financing it to somebody for a higher rate and payment than you're paying right on those things. So I just want to be clear if anybody's confused their owner financing. All these things are kind of synonymous that we're talking about with slight differences. But his question being, hey, if somebody does have equity on their property, they are a decent seller. How can you approach owner financing and have them be okay with letting you pay them out over time? You gotta have your negotiations ready on that. But the thing is, is that they will actually make so much more money by selling it to you on interest terms that make sense to you. Right. And you can give them a higher purchase price. They'll end up making a ton more money if they accept your offer. But it's a difference of time versus money. So how are you going to approach those sellers for these types of situations, saying, like, hey, you're trying to sell me this house at $80,000. What if I gave you $85,000. But I paid it to you like a mortgage over the next 20 years at four and a half percent. And ultimately what that means is you're really going to be making $130,000 off of this. Does that sound good? And for somebody who was just going to be sitting this money in a bank account or a CD, making.01% on it, hey, man, maybe getting four and a half on equity that they are familiar with on a property that they are familiar with makes sense for them. So just kind of pointing out to this seller, hey, what are you going to do with this money if I was to give you all cash? And what if I could pay you way more for your money than anybody else is going to offer? My favorite question to lead into that is, are you willing to take your equity in installments? Right. That's the key question in your negotiation. Don't say, do you want to sell or finance this to me? Or blah, blah, blah, blah, blah, blah, blah. Are you willing to take your equity in installments? And a lot of times you'll get yes. And that's when you know you can be creative and start offering them interest and terms for their purchase instead of having to go to your hard money lender and put two points down and pay 12%.

Exactly. We've got Paul Shaw says break out the 10B2 calculator and show them the numbers. Right?

Yeah, yeah, I can do that for sure. I mean, honestly, if I don't know, I haven't used this thing before. But if you're able to share a desktop, I can show you the calculator and run some of those numbers to show what that means. If you would like.

Not this time around. Okay. Yes, on a future thing, definitely we can do that. Our buddy, the Daily Rye, Ryan Harper said. Scott Grant, please point out while sub 2 may be basic in comps, it has a ton of pieces to it. Therefore, subtle plug. Find a mentor or JV partner.

Yeah, it is true. I mean, Subject two is by far the most complicated of strategies. When you're doing subject to and rapping it is, there's just more turning gears, there's more legalities. You've got to be aware of stuff like Dodd Frank that guys like you are going to really care about whenever. Cause what we're talking about here is we're setting up notes for our own portfolio that we can sell to guys that Scott is training on how to buy notes. Right. That is a way to get out as well. And so there's a lot of different Turning gears and absolutely find a JV partner. Somebody who's done this stuff before. My, you know, the subtle plug. I do personal mentoring. I do an online training course through creativecashflow.com I teach on all of this kind of stuff too. Like I said, it's a great synergy with what you're already learning through Scott.

Yeah, and that's the big thing I talk to people about. I mean, I may not buy a lot of owner finance notes, but that doesn't mean I haven't created them over the years. Right. Back in 2004-2008 was create a lot of owner finance people doing a lot of wraparound mortgage. Actually we were constructing deals with owner financing and then doing a simultaneous closed to sell the first and the second off at the closing table.

That's awesome. That's very cool.

Yeah. Selling the first off the Boston Note or the Alliance Group or variety of note buyers out there, then keeping the seconds for cash flow or putting the seconds in the ira. We get to so many creative stuff and things out there. So while I love the defaulted notes aspect is where most of my bread butter is very, very familiar to owner financing and going from there. Now let's talk about maybe you know what, I might as well just piss a few people off. It's my show. I can do what the hell I want. I want.

I have the camera, I have the microphone.

So one of the things is I get people that come to me, oh, they've come, gone through a workshop. They're like, oh, I want to do owner financing on my properties. I'm like, okay, why do you want to owner finance or fix and flip that you just did. And they're like, well, for the cash flow. I'm like, that's great. There's nothing wrong with cash flow. But what are you going to do with all that money that's tied up that equity in the deal that you've tied up for 12 months now before you sell the note off? Because that's what people say, oh, I want to do an owner finance note and then sell the note off.

Right.

Wait a second. It's not as easy as it's made out to. I like owner financements, but I think it's a strategy for those that a either can't sell the house, they can't sell it traditionally. Maybe it's got some title issues or some stuff on it. They can't get it moved. So owner financing that way or somebody that's maybe they do owe too much in the property or the fix and flip. Maybe they just need to hold on to it for a while, wait for appreciation to kick in. But a lot of people forget the fact that a lot of newly originated notes don't sell immediately at full value. Right?

Right. Yeah. So I'll agree with you and disagree with you on certain points there because fine.

So that's what this is all about, brother.

The part that I will agree with you with to a certain degree is like, yeah, if you're, especially if you're using your own capital to purchase these properties, that's a lot of money to be on the line. Now what you have to look at is you have to look at your annualized returns and see if that fits within your strategy for what you need. Because again, doing it in this fashion, setting up an owner finance to note, it's a tomorrow money play, right? You've got today money and you've got tomorrow money and your today monies are going to be the fix and flips and the wholesales and that kind of stuff. And you got the tomorrow monies, which are like your rentals and even this owner financing. But the plus side is you do get 10% down up front. So there's a little bit of today money there, right. You're making what you would on an average wholesale just up front. And then you're getting 3, 4, $500 a month in a cash flow. If that matches your ROI requirements, then you're cool, right. Then you're good to go on that. But if it doesn't match your ROI requirements, then yeah, you've got to find some different ways to go. And like Scott mentioned, nobody's buying notes at full price. You can't on selling it, you know. Well, I'm going to set up this note and it's going to be a 100,000 house and I'll get 10,000 up front and $90,000 note and I'll sell it for 90,000 in a year. It's not going to work like that. They always need a discount. You should count on. Most people are buying in that 75% of your unpaid balance range. But a few good buyers out there, you know, some of your students are those that I've seen buying well. And I've got some institutional guys, Kristen has some institutional guys that are buying at higher percentages. You might get 87, 90%, but that's about all you can hope for in that one year seasoning period. So I'll agree with those things. Now the part that I'll disagree with Is like, man, if that equity that you have tied up is somebody else's 401k. Right. And you're getting your money at 6% and then you're selling this mortgage to somebody else as a wraparound of this IRA and you do have that for a little bit more long term. Well, that's a loan that doesn't have a due on sale clause on it. That's a loan that cannot be taken away from you. And you can play that arbitrage on whatever level you've got there and then you've got equity that you're making a full nine and a half or 9.9% on your sales side. So I would use it in any I cap at 250,000 which is our city's median range. Anything under that is great for owner financing. I don't really care much else than those price points except for there's a few parts of town that you know they're just not going to have 10, $20,000 down that might be a good rental or a good flip area, something like that. But to the point of like you can only buy these houses when they're low equity and it can only really work for you whenever it's a house you can't sell. That's the part I'll disagree with. But yeah, definitely look at what your cost of capital is and how that's getting you the returns you want. And if that lines up with your.

Strategy, I totally agree with you. I just was talking more so about the fact because people get excited, they put their own money into it. They don't understand that they're not going to get par for the next set. You know, and the thing is we deal a lot with First National Acceptance Corporation, which is one of the largest buyers of owner finance notes across the country. It's owned by a guy by the name of Fred Foot. They're the Lansing, they have an office, satellite office here in Austin, Texas. And they talk a lot about the 10-10-10 strategy. Getting 10% down, trying to have the interest rate around 10% interest. And if you're doing individual one offs every once in a while, you know, having a 10 year balloon on it if you can. All right. Because a lot of the note buyers out there that are buying, if I'm buying a note, I want to see at least probably a double digit return.

Yeah. Which most people do. I think most people are buying like 12 and 13 is what they're wanting to see.

Exactly. So that you have to realize if you're Originating that note for those people out there, if you do something at.

6%, you're taking a bigger hit 50.

Discount to somebody who's looking for a 12 return. Now don't get me wrong, like you said before, people that have a solo 401k or self directed IRA, things like that, they might be happy making a 6 to 8% return on their money, which is great. That's cheap money. You want to tie that stuff up as long as. But I think one of the great things you got to keep in mind is try to make that note that you're creating on a true owner finance origination as attractive as possible. Right, Grant?

Yeah, absolutely. And the one thing that I will pipe in there about their suggestion of the 10 10, 10 is I will vehemently agree with two and vehemently disagree with the third, which is the balloon. So the balloon payment because of Dodd Frank Act. And this is fairly recent, right? I mean in the grand scheme of things, because we're talking about laws that took place in 2012 and 2014, 2016, so it's fairly recent there. But you really want what's called a qualified mortgage in Dodd Frank's mind. And for us it's really easy because we're considered what's called a small creditor, which means we have less than 2 billion in assets and have done fewer than 2,000 owner finance notes the previous year. So you're a small creditor, so you get away. You don't have a maximum DTI legally, you don't have a minimum credit score legally to approve a buyer. And you know, there's several things, but your maximum amortization is 30 years. And don't have a balloon. Now if you want a balloon, you want it to kind of light a fire under them, to refinance or get paid off by that point in time. What you can do and still have a qualified mortgage is an adjustable rate. So if you set your adjustable rate to maybe a step rate mortgage that happens in that 10 years or something to start lighting that fire, you can still get that qm, that qualified mortgage. And that's what gives us all the court protections. If somebody were to sue in the future, saying, hey, I wasn't able to pay this house off and it's America, so therefore it's not my fault and I'm suing you.

You joke, but that's a lot of people have that.

Yeah, it's sadly true.

Oh my goodness. Funny, funny, funny. So let's talk about it because it's a different animal Than what it was 10 years ago of creating a note on a napkin.

Yeah, yeah, for sure. Although I still see people doing napkin notes. That's, that's not to say that doesn't exist anymore.

Should it hashtag, hey guys, that's a hashtag we gotta put out there. Hashtag napkin notes. Let's talk about the paperwork that goes involved with this. Because if you're. Yeah, you're gonna be doing this, you want to do more than something that's on a napkin. Why don't we talk about some of the things that you guys do to help make it a really good, I guess you could say underwriting when it comes to identifying opportunities or saying, hey, this is gonna work or not gonna work.

So when you say, is this gonna work or not gonna work? When you're saying paperwork, so I hear paperwork, I'm thinking about contracts. When you say, is this working or not gonna work? I'm think you are, you're. Are you talking about both?

Why don't you throw. Let's start off first with a due diligence and then we'll go to.

So due diligence. For me, there's like three major rules of thumb that I like you to live by when you're in the owner financing world. Because owner financing, one of the things I commonly say is like, hey, you can buy a house at 95, 100 of ARV and still turn a six figure profit on like a $120,000 house. Right. Like, it is very possible because arbitrage and interest rates are so powerful. Right? So but this isn't like a cash purchase where we can just say, well, okay, so buy it at 75 cents and back out repairs. And that's your purchase price. Because we've got different things we need to look at. So the three rules of thumb that I really like to live by is if you're putting cash into the deal, for instance, you find a house that's facing foreclosure, they're $12,000 behind on payments, and you've got to put $8,000 into this house to make it look right. That's 20 grand that you're going to have to put on the market to make this deal work. Okay? Do you follow me? Does that make sense? Yeah, I want you to double that number and have that amount in equity of the deal. Okay? So that's how it's like, hey, if we find a house that's they owe 90 and it needs five grand and they're, you know, up to date, we're in at 95% of $100,000 house, but I only put 5,000 in and if I double five, I get 10 and that means 90 plus 10 is 100. That would meet my rule of thumb requirement because you're probably going to make that five grand back pretty quick and then start cash flowing. Well, that five grand will probably come back in a payment or something along those lines. So there's that. But then like in markets like this, we're running into a lot of people who have like $40,000 in arrears and like their houses, needs 30, 40 to repair that kind of stuff. Whenever the numbers start getting too big to reasonably expect a two times cash to even possibly work, then I get to an 82 cent mark. It's like, hey, if the loan you're taking over on plus all the cash you're putting into this deal adds up to 82% of that ARV ish, you're probably good to go because you've gotten a lot of your financing taken care of for you in that sub 2 note which is typically in like the 4 to 5% range and fully amortized and that's a good asset to have. Right. So those are those two things. And then the last thing is if you've got cash out on the market, that's not going to get made back by your down payment. Because if I buy a house, I'm going to get a 10% down payment when I sell it. If that 10% down payment isn't enough to catch me up for the arrears and repairs that I had to put in there, whatever money I have left over that needs to be made back, I want to make that money back within 18 to 20 months of originating that loan. Okay, so those are kind of the three ways to analyze your deal of does this make sense even though it's a thin deal and then as far as paperwork goes or did you have any questions on that or you want me to jump into paperwork?

No, hang on a second. I'm just saying there. Let's see here. We got any questions from people out there? Ryan? Thanks buddy. We'll come back to you on that question. Ryan's I love it. He likes to jump in and try to take over feed sometimes. Let's dive into the paperwork side of things now.

Yeah, so paperwork is so stinking important because there is, like I said, a lot of trip wires, a lot of gears that are turning. So you need to use an attorney that knows how to do this stuff first and foremost. I use Scott Horn. Like I mentioned earlier, he and I were partners for a very long time. We just split our partnership about a month ago. He's still the attorney I use. He just has the best paperwork that I've seen out there. But Galen Lonergan also does this stuff. She's up in Dallas. And those are two that I've seen a lot of the subject to stuff go through if it's not sub to, but it's also owner financed. Maybe you're doing free and clear or something like that. Another fine attorney is going to be Matt Aycock. He will give you some really good paperwork and stuff like that to get going on that. So you need to get your paperwork from a good attorney. It's going to be a lot. You sign the Trek, well in Texas, the track, the promulgated realtor contract, Texas word to come up with and then you're going to have an addendum on it. And like in Scott's case, that's a 29 page addendum, right. So you need to know how to explain all of this stuff to them. And once you get that contract for the acquisition, then you start marketing to find a buyer. And when you find that buyer, you do basically the same contract with them, the track and the addendum. You agree to terms, hey, 10% down, 9%, whatever, 30 years. And you're going to send them to an RMLO company again. Texas Pride Lending is the company that I founded several years ago. They're who I send all my stuff through. There's others out there. But you just send the buyer to the RMLO and you say, hey rmlo, I need you to gather up everything from this person that's going to make it to where if they ever say America and sue me, I can just show this to the judge and get that QM status and be protected. And so that's what the RMLO does is they gather whatever information is needed so that you can say Paul America, so that you can say, yes, your honor, I felt like this person was going to be able to repay me and here's the paperwork. I came to that conclusion. Then you're solid. The RMLO does not approve them. You approve them, they give you all the paperwork, you say, yeah, this looks good. Then you close with them, you get a down payment and you start getting some cash flow off of it.

Let's talk about some of those forms though that the RML is collecting. Besides, obviously the Vendom and the Trek contract. Are we talking about they pulling credit on the people, they pay stubs, they get W2s. Is it a ninja loan? No income, no job?

No, it's not. But. So, for instance, Texas Pride is going to do. They're the only ones I can really speak to because they're the only ones whose operations I've obviously been involved with. What we'll do is, you know, or what we did. What they still do is gather the W2s if they don't have W2s, because you're going to run into a lot of people who just get paid cash. That's okay. It's actually okay. It's not something to panic about, because Dodd Frank outlines how to handle something like that. And so we will collect their income statements. Verified, Right. So you've got verified income. They do pull the credit, they do get a loan application, and then they're providing all the truth in lending documents. Right. So there's going to be everything that you would have to sign if you were going to the bank and getting a loan for yourself at a mortgage, all of that same stuff. We want our buyer to sign for us, the true till, a package. So they'll give that, the loan application, all the income docs, all the verifications, that kind of stuff, along with the terms that you had agreed to. And that's what you need to have in what's called your underwriting package. Because you've got to make sure. Because we are talking mortgages, we are talking regulated, we are talking something that the government cares about. You got to make sure that you're looking at the right things and have proof that you did. But at the end of the day, because we're small creditors, it's really. Our requirements are very low on what we have to turn away.

Yeah, I totally agree to that. What's the cost for having Texas Pride kind of do that paperwork for you?

So Texas Pride, last I used them was 850. I think they're still at 850 a file. They've opened up an office in Houston here recently. They're up here in Dallas as well. So, yeah, definitely get the buyer to pay for that entire fee as well as the rest of the closing costs. Your buyer should pay 100% of the closing costs for you. That's one of the great things about doing the owner owner financing is that you're going to pay an attorney a little bit of money to acquire, but your buyer pays for all the closing costs on the disposition side. So you charge that to them. Doesn't come out of your pocket. But they're paying to protect you and them, for that matter. They get the best disclosures that way.

And do you get title insurance on your deals?

Ha. Good question. You're just one to poke the fires, huh? We'll just tell.

The whole thing here is I'm not afraid to mix it up, but I'm. I'm not afraid to ask the questions most people won't ask, you know? Well, I know.

I'm glad you did, because that's one of those things that it's a really good illustration if we're in person and we've got like a whole crowd of people, because what I will ask is, who in here has paid for title insurance before? And about 80 to 90% of the people will raise their hand and I will say, who has ever had to actually make an insurance claim? And every so once in a while, somebody will leave their hand up, okay? 99% of the time, you will never have to make an insurance title insurance claim. And of that 1% of the time, 99% of that time, that claim is going to be for under $2,000. So if you're watching out there, think about that. How many title insurance policies have you bought? How many times have you actually made a claim? It is not a legal requirement to get a title insurance policy. That is something that we just decide to do. Now, if you're going to put a lot of cash on the market, whether that is through a loan from one of your lenders or your own cash or anything like that, please get a title insurance policy, protect that money, okay? But title insurance is there to protect you from losing your house, protecting you from losing your investment. If you only put in $5,000 of cash on this deal for subject to. Right. And a title insurance policy is 1500 bucks. You're paying 1500 bucks to protect $5,000. At the end of the day, if you do whatever, 50, 100 of those in a year, that adds up to a lot of money that you've paid in title insurance policies that you're never going to use. And so if you. A title claim does come up, it's like I said, typically less than 2000 bucks. Just pay the title claim and be over with it. And out of that, even like 50% of the time that a title claim comes up that wasn't caught by title insurance, it's past their statute of limitations anyway. So please don't interpret that as. Grant told me never to buy a title insurance policy and I lost a bunch of money because Grant said not to. I'm not a lawyer. Scott's not an attorney. We're not CPAs. We don't represent you. But what I am saying is that's how we do things. I don't buy title insurance on sub 2, but I do on any kind of cash.

There you go. Let me have you restate that one more time for everybody out there, Grant.

I don't buy title policies on sub 2, but I absolutely buy it on anything cash related. If you're doing a cash purchase, get title insurance, protect yourself.

I love it. Love it. Brady Durr says it's if you're in the notes space, it's easier to pick up on grants acquisition strategy in a tough note market. Hashtag rap donut.

Grant, teach me something. That was, that was a, that's a call back to a very early episode of us being idiots on Grant teach me something.

But then Paul loved the gold nugget there. That was good.

Awesome.

Yes, buddy. We know you are watching out there this morning, buddy. Ryan Harper out there this morning from Papelio. What are some big mistakes that you see investors making with. With owner financing? Right?

Big mistakes that I see investors making is. And this is actually, this is owner financing and just general market. But I want to be very clear with you guys. This is a Facebook world. This is a social media world. Volume of deals does not qualify as quality of deals. Just because people are taking deals down doesn't mean they're taking good deals down. So don't get so desperate because you see people flaunting that they're going on appointments or this or that the other that you're like, this isn't a deal. But I've got to make it work and owner financing is the only way to do it. So I'm going to squeeze it in there and do it right. Don't just do owner financing because it doesn't work for some other strategy. That's not where owner financing sits. Owner financing is a viable and phenomenal strategy that, that you need to again do proper due diligence on and if it's a deal, take it down. But what I'm seeing a lot of people do is they're like, well, it's in the sticks, it's a piece of crap. It costs $30,000 more than it's worth. I'm going to own or finance it. And then they get into a bad spot. So again, that's my crossover there is that the people are paying too much attention to social media and getting pressured into feeling like they need to do deals even though it's not a deal. And two, again, owner financing is a great strategy, but what it is not is this doesn't work for anything else. Therefore I'm going to own or finance it. Sometimes it's just crap lead.

Amen to that. Sometimes it's just even a white stuff on top. Chicken. It's still chicken.

What's wrong with you, man? I love it.

Well, but, but a lot of people get it. They get delitis. Or is it, as we say something sometimes in our neck of the woods, the OTSC syndrome.

What's that?

Oh, that's so cute. You know? You know, they get so excited about the house and the numbers. Don't want to bang their head against the wall trying to make something happen. I'm like, sometimes you just got to walk away right now.

I know. And just straight up because of the market that we're in. And the market's hard. I'm not trying to act like it's not. It's a difficult market right now, at least in Dallas. And I know, I mean, you. Shoot, you're in Austin. Austin's been ridiculous for a while, right? It's a difficult market on the single family side. So again, sometimes it's just a crap lead. And when I say sometimes, I'm going to say a lot of times, like you're going to have to say no to a lot of stuff. This doesn't just fit every single thing in, but it does give you the best chance to convert leads that are already on your table that you may have said no to in another strategy. But now that you know this strategy, it totally fits in the mark and will make you a lot of money.

Question for you there. Have you ever bought? I'm sure the answer is probably yes, but I'm not sure.

You're sure the answer is probably yes, but you're not.

You didn't hear the second part of the number of quantity there. Picked up. Any non performing owner finance deals that you've had to take down?

You mean like acquired a non performing owner financed deal from somebody? I haven't. No. So if the seller has already owner financed that mortgage from somebody, I typically let a sleeping dog lie because I, you know, I might call that lender and see what's going on. If they want out, I can buy the house. But personally I'm just not trying to step on other people's toes. With the exception, actually, I take that back. You said you were sure it was yes. It is yes. I just remembered one with the exception of one time where the person who had owner financed it had really screwed this guy over. You know, he had him sign a non homestead affidavit, even though the guy didn't really speak English and he didn't know what he was signing. And so that way he could charge him 17 on his mortgage and was doing a five year balloon or something like that and didn't do any kind of underwriting and had this guy in there and like first chance of him being late was trying to foreclose on him. And this dude was in a bad spot. And I just, I hate the snakes out there in the market because they're there. There's a lot of snakes in the market. I hate that crap. But I bought the house, got him out of foreclosure so that he wasn't facing that anymore. Right. Helped him out a little bit on that.

What is some of the best ways that your marketing define under finance deals?

So you know it's about those targeted lists, right? That's really where it's all at is, is not just pulling a zip code, not just pulling an area, but making sure that they've got some sort of motivation. I mean, it's the same list you'd be looking in otherwise, you know, probate, foreclosure, those are great places. Divorce is a great place. I mean, even your code violations, anytime that you've got some kind of motivation there. Now I will say that like mail, I'm not ready to say mail is dead, but like it's pretty much, it's on its last leg right now and everything is cyclical. So it'll probably come back eventually and be the great new thing that everybody's like, have you tried mail? But for now it's kind of not there. So you're having it because the problem is, is by the time your piece of mail is arriving in somebody's doorstep, we've already talked to them three times, right. Like it's an information age. You got to move on it and get there quick. So those phone calls are big, the door knocking is big. I'm hearing a lot of people getting success with the bandit signs, but I don't personally do them just because of the laws. You know, it is against code, it's a code violation. And you know, I just, I don't want to have to lie to a code enforcer to keep from getting fined. So we just don't do the bandit signs. But I've heard that those are working well for people as well.

What do you Mean by that, you're talking about people putting on the corner of the street or in front of a house or what?

Yeah, put it out on the corner of the street. These we buy houses signs that are on city property. Now, if it's in personal property, like you're putting a sign in your front yard, or you're putting the sign in the front yard of somebody who, like, lives on the corner, and you knock on their door and you're like, hey, is it okay if I put the sign out here for a little while? Then it's okay with Citi, but most of the time, people are not doing that. They're just kind of sticking the sign in the yard and hoping that city code compliance doesn't call them out on it.

That makes sense. Yeah, it's tough. All these people that are sending out postcards or yellow letters or things like that, waiting for a response back. Because if you're smart about it, like, if you're pulling, you know, the code violations and actually being active and aggressive and going out and door knocking and things like that, you'll beat a male direct mail piece anytime.

Yeah, and direct mail has its validity. It's just when I got in this business, my first pieces were getting 13% returns. And right now we're happy to get one and a half. It's a drastic change in what's out there. And I will say, too, like, with the Internet marketing, and right now, I have yet to see somebody get really successful with Internet marketing for home purchases. We're just not quite there yet. As our selling generation gets younger and younger, then we're going to be more and more in the area of people who go and look on Google first. But right now, I just haven't seen it. So I've seen a lot of people pour a lot of money and regret the Internet marketing side of things right now. But it's soon. It'll turn soon. It's just I'm not sure when that is.

I have a little tip from a Dallas Fort Worth agent who gets a lot of his investment leads through social media, but he does it a little bit differently. He's an agent. He pulls a list of all the agents, emails and their cell phone numbers off the MLS or direct from, you know, the border realtors there in Dallas county, whatever. And he uploads those lists, those emails and cell phone numbers as custom audiences into Facebook. And then he creates a short video like, hey, do you have a property? You can't sell property. That just is ugly. Josh says he probably gets about 30 leads a month off of that.

Oh, wow, that's awesome.

And it's pretty inexpensive.

Yeah. And just to further that tip, if you are wanting to go that way, which is cool, I'll probably try something like that out. You got to go with like your business Facebook and go to business.facebook.com and not facebook.com and just have a page on there. If you've got business.facebook.com that's where you get to upload custom audiences and that kind of stuff. And that's where Big Brother really comes into play. That's all the Big Brother stuff out there. Out there. But if you're just on regular Facebook, you don't have some of those capabilities. So there's a follow up tip to that.

That's a good correction on your part there. Mine, yes, I agree totally. We did an episode called Hacking Facebook a while back. Cool about that. Having a business page. But that's the thing.

Powerful, man. It's a powerful tool right now.

It is. And like somebody said here, one and a half percent is a good response compared to Houston.

Yeah, man, it's tough.

What is Jeff Wolf here? The Wolf man says bring on the custom Facebook audience. Amen.

Bingo on.

Bingo. Bingo. Exactly right. He's out of San Diego. That's the thing is a lot of markets are hot out there. Dallas, Fort Worth being one of those. A lot of the other areas, Houston, I mean, I haven't bought anything in Austin in over a decade just because it doesn't make sense. And I'm talking investment because the fact is I buy so much stuff outside of Texas. But the thing is, when you're going to be originating a loan, because we get this where we, we take a property back, you know, we take a note back what the borrower walked with. Dean Lou and I've got some of our friends that are out there. Oh, we're going to own or finance it to a borrower. And I'm like, make sure you double check some things. Make sure run it by an mlo. So make sure everything's in place. You make sure you get some skin in the game. I think that's probably one of the biggest things we agree to. Agree.

I require a 10 down payment because note buyers want to see a 90% LTV max. Right. So I require that 10% down. Now there's some creative and cool ways that you can get that 10%. If they only have five right now or they only have eight right now, I can show you some cool ways to capture the rest of that still as a down payment and still meet the requirements that we need. But yeah, you've got to have them get some skin in the game or else the default rate is going to shoot through the roof. But with like a 10% down payment our default rate is less than 1%. I mean these guys are ready to stay in their house.

That's the beautiful thing. You get some 10%, you got some emotional equity. You're giving people maybe an opportunity. We're not talking. These are all people that are bad people. It could be.

No.

Yeah. Self employed. They may not have the W2, they may not have the credit score because something bad happened in the past but they've got the down payment. I mean or they were their credit.

They can't get a loan from a bank. You know there's lots of reasons why somebody's going to buy owner financed and that's one of the reasons why I push like hey whenever the market gets worse that's going to be a prime owner financing time because then the banks close up. They don't want to lend as easily but there's still a lot of people that have cash that want to own a house. So your buying pool gets up higher even as your seller pool gets higher.

Exactly. I'll give you an example. We've been tracking the non prime lenders out there. Okay. And there are roughly about 90 different banks. Lean institutions. That's just on the low end. I know there's more than showing up on where we track here but they're doing loans with a 500, a 520Fico.

Yep.

You know doing 70, 75, 65 LTV day out of bankruptcy. Yeah.

And you start to see a lot more of those pop up or these last few years.

Yep. Means it'll be a whole lot. I mean that's if you get somebody in at 10 down and I started change who's who's got a good job. Maybe if they had gone through a financial hiccup, a divorce, been laid off for a while, stuff like that. There's some great opportunity to help some people out there and really truly make it a win win.

Yeah absolutely. That is one of the cool things. You know if you've heard me talk before you've probably heard me preach about like I've stinking hate when people are like well why do you do this? And it's like well I just love helping people because I think that's bulsh and I don't think that that's why you do this. I think you do this because it's real estate and it makes a lot of money, so why not be honest about that? Right? So. But the flip side of that is that's not to say that we can't be happy that we're also helping people out. Right. If you were in this to help people, you'd be working for the Red Cross. You're in this because it makes a lot of money, but it is nice. You are setting up a win, win, win situation. You're helping a seller out who typically was unable to sell their house in any other way and they were probably going to lose it, you know, really hurt their credit, really hurt themselves, and you're helping that happen. And then you're helping put a buyer in there that would have never been able to buy a house through conventional mortgages. And, you know, like I said, our default rate is very low, so it proves that these guys are taking it seriously and really wanted that homeownership. And then you win because, hey, you make a lot of money in the middle.

Exactly. Make it a true win, win, win there for you. That's what we're all about, making something right.

You're right. Wind Cubed. That's going to be my next company name a little three on it three.

Times before you use it full time. All right, Good stuff out there. Well, hey, man, I don't want to take too much of your time. I want to say thank you for coming on the show today. Excited to have you on here, and we've talked about this for a while. We're also going to have you come on to note camp here in the next few weeks as well and talk more about some of your own finance strategies and stuff like that too, right?

Yeah, absolutely. Like I said, it's just such a great strategy. You've got to have all the tools in your tool belt and. And I feel like you need to have something to hit every type of niche. And we have the wholesales and fix and flips and, you know, rentals and add your owner financing and then set that up before your note sales. Like, you know, the note space is very cooperative here. So, yeah, I think it's awesome. I can't wait for that note camp. No, I really appreciate all you're doing and spreading this knowledge out there. I'm looking forward to it. Thank you so much for having me onto your show. This is. It's a lot of fun.

Hey, what's the best way for people to get a hold of you, Grant?

You know, Honestly, Facebook is good. You can get us at, you know, my name is Grant Kemp. Obviously you can get me there, but look up at CCF mentors, creative cash flow.com and you can check out my website, creativecashflow.com Like I said, I've got an academy where I truly teach, like, literally everything from start to finish. It's not one of those, like, hey, give me a thousand dollars so you can teach me how to pay another $20,000 to you. Like, it's actual, real information that's going to help you out with that stuff. So check me out@creativecashflow.com creativecashflow.com everybody or.

Grant Kemp on Facebook, man. So, hey, man, thanks so much. I'll reach out to you for some creative MC lessons that Ron suggested. Guys, you're gonna be at the DFW Real Estate Investor Meetup. You'll be there as well, right, Grant?

Yep. And you'll be emceeing and killing it. I was like, ah, there's not a better solution than a good old Scott Carson up there.

Good stuff, man. Hey, have a great day, man. Thanks. All right.

All right. I appreciate you having me out. See you later, guys.

All right, guys, that's going to wrap it up for this episode of the Note Closer Show. As always, check grant@creativecashflow.com owner financing. Easy. Great strategy for some things out there for some of the real estate deals. Definitely something we have used a lot in the past and continue to help our other investors out there make some things happen. So go out, make something happen, everybody, and we'll see you all at the top, everybody. Bye, Sam.