EP 598 – How I Made $40K From A $100 Option Fee

Foreign 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 this episode of the Note Closer Show. As always, Scott Carson, Excited to be here with you today. Thought I'd do a kind of a recap. I know the last couple episodes have me been talking about some of our first deals that we did, and I only share those with you guys so that you can kind of see the, you know, I've been down that road before. I mean, we've flipped properties, we've wholesale properties, done a lot of short sales, dealt with a lot of interesting real estate and property deals along the way as we as I've been a real estate investor with almost 20 years experience, not only here in the Austin market, but in other parts of the country. But as I've been sitting here, most of us have been kind of sitting at home for the last couple months and the market's changing. I wanted to go back and take a look at what was going on in the real estate, what was going on with the properties that we've bought and sold over the last 15 years. And taking just a handful of those things, good, some bad, some ugly deals that stood out in my mind as being some of the most influential deals in my career that have helped shape me and kind of create who I am as a real estate investor when it comes to traditional real estate. But and you look at, there's always properties that you buy and sell or you wholesale and you look back at things and sometimes you just go, wow, why did I do that? Why didn't I do that? Why didn't I do this and that stuff? And that's every investor is like that. Not every deal is a home run. Others are knock it out of the park and go from there. But one of the deals that I wanted to talk about today in today's episode is a deal that we got very creative with. And, you know, in Austin, Texas, Austin's a hot market, has been for years. I like to say it's a lot overpriced on things. But you come across some people in your networking that turn out to be good friends and people you don't want to work with again, but other people that really do bring something to the table. And most people, especially as real estate investors, will shy away from dealing with realtors. I'm a big fan of working with realtors, especially on the note space. We need realtors to pull comps and need to be a listener agents and be our listing agents, that kind of stuff. Maybe they know contractors or they become the GC on rehabs or they got teams crews. Realtors are one of the most important aspects of our business. Okay, so one of the first deals that I did, I should say Scott 2.0, most of you know that we bought a couple properties when I was straight out of college, bombed on them on the market stuff. So this is really one of the most profitable deals that I did in that second version where I learned how to do real estate the right way. As an investor not going out and buying, you know, traditionally off the MLS, 20% down, 10% down and getting a 30 year mortgage, nothing wrong with that. And I highly encourage that. There's facets for that. That makes sense. Some of you guys are in the a.m. i buy a duplex, I'm gonna rent a half it and live in the other one. And then three years later I'm gonna do the same thing. That's a great way of doing things. I'm using my Fannie Mae or VA loans, whatever, totally fine. I'm not against that. Just a lot of people don't have those credit challenges and they may not have a lot of money to begin with. And so I wanted to share this deal that we did where we basically we, I should say me, we took $100 and turned it into $40,000 in profit in roughly 30 days. And it was a very unique situation. As I was out networking and talking, looking online, talking with people, I came across a listing from a Realtor who identified the top 10 fix and flip properties in Austin. I was like, that's kind of an interesting topic. You know, I was on Craigslist. Talk with me and I'll be glad to share with you the top 10 properties that are undervalued and fix and flip. And I was like, that's pretty cool. So reached out online, a guy by the name of Matt Keys with Keys Real Estate here in Austin. Him and his wife been in real estate for a while, I think about 10 years. And this is. Goes back over. This goes back to 12 years ago, 12, 13 years ago. I realized when I was looking at the timeframe of this 13 years ago and 1. So I was like, hey, I'm interested. Definitely an investor here. Bought, sold Some property definitely. She's like, great, you know, pre approved. I'm like, well I've got private investors behind me. We're golden that way. He's like, okay, great. So we go out and start looking at properties and we come across one property. I mean a lot of them are pretty rough, need a lot of work or a lot of heavy rehabs and things like that. And they had some upside if you did put a lot of work into them and go from there. But we came across this one property in the downtown part of Austin, Texas. Now Austin has Town Lake that runs through it and down around Town Lake Barton Springs, you have a place called Zilker Park. And this is where the A.C. austin city limits Music Festival's at. It's, you know, down by the long center. It's an ideal especially smack dab down in the right now their homes are worth million, 2 million somewhere in between there. Very, very easily. Going back 12 years ago, we come up on this one property was an older home. A lot of homes were being rehabbed around it. We walked in and it was a two story, you know, kind of a one, one and a half, two story house. Most of the houses single story. There's parts of the second story above the garage in the back. And the guy that owned the property was trying to sell the property. And we go to see the property and this guy comes out, meets us. His name is, it was Dreads. Literally he was a drummer here locally. He had dreadlocks all the way down to the floor. Nice guy, Dreads. He also went by Sash as well and it was, it needs some work. But he was looking to sell a property and as we're just visiting with him there talking, we find out that he's in foreclosure. And we were able to find out, looked at he was in a few months, he was basically about 30 days from losing the house because he'd done everything good. And unfortunately trying to sell the property was not in a very happy situation too. I think he was being forced to sell because he had some equity in the property, but not a lot based on the condition it was in that need to be upgraded. So it was pretty interesting. We're like, okay, what if we say let's, you know, we came back. So just buying it outright, didn't want to do that. We did some research on it and Select Portfolio Services. SPS was the guess, the servicing, the lender, the foreclosing company on the property. And he was about 19 grand in back payments on this and so we're like, well, what can we do? What can we do? Instead of us going and buying it, maybe we can take on a traditional loan. We can come in, take over payments on it, make up the payments, keep the existing financing in place, but. And then we can go out and wholesale. Because when we started running comps and saw that if you dropped, somebody dropped 50 to 150 to 75 grand in the property, it would be worth upwards of half a million, you know, 450,000. And he owned about 280, 250 at the time. Somewhere between. I got remember exactly the numbers talking, the listing agent and we were looking at this and there was our agent, Matt, the representative agent. I guess the lady that represented Sash didn't get along with it because she couldn't go in the property. He didn't like her. He was being forced into the deal, tried to sell. So he was, the seller was a little bit moody, you can understand that. Being gradually lived in the house for 20 years, seen it spring up around him. So we said, well, let me go talk with a guy. Let me, let's talk and see if, look, I'm not trying to cut realtors out of the deal at all. Let's try to. So we went and I met with Sash himself. I said, well, what if we did this? Sash, I know it's getting ready. You're going to lose this house in foreclosure and not get anything for the most part. I said it needs some work. Yes, there's some value there, but it needs some work. Do you have the work, the money to put. No, I don't have the money. Okay, then you don't have really the equity. What if we do this? Let me take over your payments, I'll give you ten grand to sign the property over to me and we'll deal with the bank and then getting the loan paid off in six months as we sell the property last. He's like, really? You mean I could get out of here and have ten grand in my pocket? That's really what I need to get moving on. I'm like, yeah, let's do that. So we agreed to that. So give me an option here, short term option to buy this basically subject to financing plus 10 grand in your pocket, plus realtor commission. So the realtors are happy as well too. And that's what we did. Hand him a hundred dollar check. He basically signed the property over to us on an option. I went out, ran some numbers, we started saying, okay look, you know, based on the numbers that we see, we figured that based on everything was owed and we paid the back payments to the bank, it was about 19 grand. We knew that if we got a wholesale fee for about 75 grand it would be feasible. Like that 100 somewhere around that six figure mark on a wholesaling fee because value was there in the back end. Well, we had several people come through, several investors like, oh, we want to take it over 72 and we could pay the end. Like no, no, no, we want the fee on the front end. We don't be paid in the back end. And guy by the name of Nick that know another real estate investor was doing some higher end flips, done dabbling, some small commercial came to us and said, hey, I really like this deal. I got your email, I'm definitely interested in and yes, I can make it happen on that. Roughly, you know, I don't mind you guys taking 75 grand. I understand that like 20 of, you know, some of that went to some. Someone's gonna go to your realtor commission, someone's gonna go to paying sps off so they don't go away or that they don't foreclose on that property. So sure enough, we signed the papers, showed up to closing and that's a beautiful day when the realtor's getting paid their commission. And we walked out with a $40,000 check. Very nice day. Paid the investors off really quick on them letting us borrow their money for just, you know, for basically a week to pay the 20 off to SPS, take the property over. If we need to wear, we could go the right way doing the big rehab. But when you look at, hey, I can make 40, 50 grand in just a couple days versus me going through the rehab and trying to build the property out and deal with the city and all the other things. Nick, the buyer, he had some plans to add a whole second floor to the property and go from there. So we were excited and literally $100 turned into $40,000 in less than a month roughly right about two weeks from the time. And the realtor was all excited. Well, that was interesting. I never figured out a structure he hadn't heard of subject to deals. That's a big thing with realtors. Realtors are worried about their commission. And that's the thing we structured and said, listen, we're going to still pay you your full commission for bringing us the deal and we're still going to make money on this. And you know, I worked with Matt on a few other deals in the future. The listing Agent was excited to be done with the seller. You know, that's the thing, is he wanted to sign the seller, wanted to cancel the contract with his agent. But they just like, well, I got a contract. You're still going to pay me. You sign this contract. It can be difficult, but anyway, it is what it is. So you would think everybody's all excited and rock and roll. Yeah, most people are. Except for the buyer. He was excited about it and he had these big plans. Well, then he sent his workout crew. And this property had original hardwood floors in the property. Had some really great features to it. Well, his rehab crew went crazy on it. They ripped the roof off, they pulled everything out. It was just a shell of a property, which resulted in the numbers and his rehab going through the roof. Nick was like, oh my gosh. My rehab crew just completely demoed the property. Almost tore all the way down to the studs. It really did, for the most part. And here's another funny feature. They didn't have to talk because in the timeframe from when we agreed on taking another property. So we shoot the point. We sold it. The seller was in there selling off the. Selling off the stove, his fridge. He was selling off anything he could. The cabinets. When we found this out, we had to interrupt him and said, whoa, whoa, you can't sell anything more. This stuff, they're features of the property. You don't technically have the right to sell these anymore. So we have to deduct some of these, what you paid for, got some of the stuff from the ten grand we're paying at closing. He's all upset about that. Like, listen, no offense, you can't do that. So that's a big thing. If you're gonna take over something subject to or put an option on something, make sure it's as a property, as is cabinets, and make sure you bring that up. That was one learning thing. Fortunately, it didn't affect our back ends with Nick when he was buying it from us. He's planning this stuff out, but it still would have been nice to have those cabinets in the garage or something else like that or the big island that they had in the house. He was planning on keeping that in. But anyway, how did we structure this? He basically talked with a borrower, came up with, hey, what was the borrower's needs? It wasn't the fact that he was interested in selling the property. He wanted at least 10 grand and move on. That was the big thing. We found the pain point. Second thing. We were able to dictate to that and figure out something that works. We didn't have to go out and get 230 or 250 grand and get financed. We were able to go out and find 20 grand to pay the back. You know, 20 grand plus a 10 to secure the property. Even though the equity was there to bring the mortgage back up to date if we needed to, we did along with a having money there but three having place. So we had investors that were allowed to do this. So I didn't need to bring two feet to the table. If I could take that subject to financing down and keep that in play that would give us a lot of flexibility. The monthly payment was like 2,300amonth now that I think about it. So he was about six months behind going into it. You know when the deed was properly sent over to us. We didn't record it immediately. You should probably. They say you probably should but last thing you would have wanted anything is to trigger any due on sale clause. Now that's not going to happen. Most of the time when you take over properties which especially if you, you can put the property in a land trust and do that or you could. As long as the banks giving the payments most of the time as long as they're accepting payments, they're not going to really care. All banks are going to care. So when they don't get payments at certain digging into things is when do on sale clause get filed more so than anything else. So anyway, going back to the story Nick's. Unfortunately the property stayed vacant for over a year because now the rehab was double rehab cost. Budget was gonna be twice what he originally expected. Fortunately during that timeframe the market had rebounded. Actually the market dropped. It started to rebound it and Nick was able to sell it off to somebody else. That basically what he's into it for. And that person put some rehab into it. And now the house is worth about 1.2, 1.3 million. It's a beautiful property in Zilker park there. Here's what it looks like now. Not even close to what it looked like beforehand. Still the same. I mean about 6,000 square foot lot. I think it's a three bedroom, two bath. You can see second floors behind it there. Watching this on YouTube. It's absolutely a beautiful house. Absolutely gorgeous area down in Zooker Park. Seen some of the interior photos. They did a really great job going in and designed the property. But the property in the last 12 years has doubled in value from where it was worth 4 to 5 to being over you know, the 1.2, 1.3 mark in valuation on it. Not very big homes. I mean, we have a big thing here in Austin with McMansions where people have gone in and tried to build up because the, you know, lots are kind of small and you run into issues with water and utilities and things like that. But this house is now worth 1.2, like I said, 1.2 to 1.5, depending on where it's at and things like that. But I was happy because we made 40 grand, made 40 grand from 100 bucks, got creative and was applied. What I learned by reading a book by Ron Legrand, you know, how to make money in options and wholesaling. And it's one of the best books that you read still out there. Ron's got over 40 years experience, but I learned from sitting in a lot of his classes and talking about wholesaling and options and then reading the book on a flight home and then going out and applying, looking for opportunities, networking with realtors that had the investor mindset. If I had never responded to that Craigslist posting, hey, and went and met with Matt and talked with anybody who found this property, found this deal. And so that's one thing to keep in mind as we look at what's going on in the economy right now. I mean, Inman News came out on Thursday or Friday this last week and mentioned that we're at like 9.5, 9.6% of all mortgages in the country are in forbearance agreements. We expect that number to increase, obviously. I've been saying for years, especially the last 12 months anyway, that, hey, there are still a lot of people in default out there. You know, one out every 10Americans was already a month behind before this happened. So you can imagine if we're seeing an increase in forbearance agreements and things kicking in by the banks at 10%, I expect us to see probably closer to 15 to 20% in the next month or two as this continues to drag out, as the economy struggles on, things like that. So what does that mean? You're going to have people in six months here, I mean, who have been in default, they can't make their payments and now. Wrong. Virginia Fannie Mae are doing some great things by saying, listen, hey, we'll just take. If you've been laid off or you're late because of Corona, we'll take your six months of payment, just add to the face amount and they'll just start paying when you can start paying again. That's phenomenal. Not everybody has that option though. You know, investors who have finance properties and owner financing don't have that government bailout, non va, non Fannie Mae programs may not have that option to them. So you're going to see a lot of people in default, people that need to downsize, people like I bought Overbought. I'm in a short sale process. So that's the thing to look at. You're going to see some options that are available to you. You just got to kind of get creative and think outside the box. It doesn't always have to go the traditional route of I got to hire an agent, I got to close it out, moving on. Sometimes you've got to educate the realtors. Like I was just exchanging messages back and forth a few minutes ago with an agent in Dallas and I see that she has a show and I say, hey, I might be, I would love to come on, be a guest in your podcast talking about this. And she's like, what do you mean the notes market? Oh, I just do traditional real estate. I said, well, no offense, that's great. We're becoming, returning into a non traditional market. We're turning into a non traditional economy. Especially on the niche that you're in, you're going to be seeing these options. I think it's best to educate yourself so that when these things pop up, you know how to react. And so I'm looking for a response back. But if you're out there listening in not nation this morning, everybody, keep that in mind. You may have to educate people on some different options and get creative. I think taking over a note deal subject to is great opportunity. You've got financing in place if the interest rate is low. We all know interest rates have been low for a while. It's cheaper than going out and borrowing money at 6 to 12% and trying to make our hard money, make things happen. Yeah, maybe you got to come out of pocket 20 grand, but it's easier to find, you know, an investor with 20, 30 grand who can be in a mezzanine second lien position behind that first while you're rehab. As long as the numbers make sense on a either selling the property, rehabbing the property or you know, having to foreclose and take the property back if you. There's a lot of people that want to get out of their nightmare. Their dreams have turned into nightmares and that's not a good place to be for a lot of people out there. So I encourage you get creative. Options are great thing to do. Options are available in the known industry. We'd had to do the option with the buyer on this one. You're not going to go out most of the time and make an option with bank of America, Chase or any of those guys. But as you start seeing smaller companies, smaller funds that aren't so huge, probably do an episode here in the next couple talking about how you might be able to use a non exclusive option agreement to help you secure note, portfolio or note while you market it and move it across the board, either wholesale and selling to somebody else and sandwiching yourself between for a nice fee. So anyway, this is our Zylker partcom here on this one, guys. Like I said, we took $100 options and turned it into $40,000 in roughly about three weeks. On the profit side, yeah, it was, the fee was higher. But when you start looking at how we pay people and paid off the realtors and investors, stuff like that, hey, 40k is not a bad way to, you know, not a bad three weeks there for you guys. So, guys and gals, go out, take some action, keep an eye out on your market, start looking at your defaults or look at your foreclosures and stuff, because you can start seeing the market starting to crease. And that's an important thing, that you guys can step in, make something happen and really turn what could be a bad situation into a good solution and helping people with their problems. Because that's where you make the most of money in real estate, anything as being a problem solver. So go out, take some action, everybody, and we'll see you all at the top. Bye.