Creative Financing Unlocked Subto REI Strategies with Robert Harden

So the ones I'm specifically focused on right now are subject-to purchases, where a subject-to purchase is when you come in and you take over a mortgage. So you're not assuming the mortgage. So the mortgage is actually staying in the seller's name. The only thing that's happening, there's titles transferring. So you own the property just like a traditional purchase, but the debt stays in the seller's name, which is actually It's really scary when you say it like this. It's very scary. And, and there's definitely bad actors in our space that give it a, a bad name and a bad rap because there's, for every one bad deal that goes wrong, everybody, that's what everybody picks up on. But there's a lot of people doing it correctly. And if you're doing it ethically and doing it transparently and having, setting a proper systems in place so that you don't put people in a bad situation. It's an amazing way to purchase real estate.

Welcome to the She's Got Assets Real Estate Investment Podcast. I'm the host, Shona Leppis. Follow along as we unpack and demystify real estate investment strategies through expert interviews and personal experience. From how to find off-market deals to creative financing to long-term and midterm rentals, we aim to educate and inspire others to gain financial freedom and generational wealth through real estate. And as always, please subscribe so you never miss an episode. We really appreciate reviews. It helps others find us. And it just helps us get found. Hey everyone, we're live. This is Shana from She's Got Assets. I think it's working. Fingers crossed. Okay, I'm going to assume we're live. Everyone, so welcome to She's Got Assets, a livestream, actually podcast as well. I'm super excited to be here. I took a little break for the holidays. I have Robert, and I'm going to say your name probably wrong, uh, Harden. Harden. Is that how I say that right?

You got it. Just like James Harden, the basketball player. Yep.

Perfect. Robert is definitely one of the players in Portland, Oregon, the market I'm in. He's very much into creative financing. We, we're always at the same events. Really interesting. So I just think it's going to be a fun topic about creative finance, all the nuance, especially some too, right? So we're going to focus on that. So Robert, welcome. Thank you for taking the time. It's awesome to have you. You're definitely really knowledgeable on this. I'm excited to dive in.

Thank you so much for having me. I really appreciate it. You're such a rock star in our community. Like every event I go to, You're doing all the things and all the people and I don't know, I just love being in the cool kid club whenever I get to name people.

Thank you. I always feel like I'm an outsider. I'm like trying to get in the cool club.

Oh, no way. No way. Like all the stuff you're, you're, the, your projects you're working on and everything. Like every time I hear someone talk about short-term, midterm, your name comes up like continuously. So I love it.

Awesome. I appreciate that. Do you wanna do like the nutshell? You do, you have a couple hats, I know, and then we can dive into the meat of this, but I always like people that, you know yourself better and you can explain what your focus is these days. That'd be awesome.

Yeah. Yeah. I'm really focused on purchasing properties creatively, typically through subject-to purchases. I got my start, my first couple deals were cash deals in the beginning. And after going through the process of how expensive it was to take down properties with cash and then refinance them. And try to do BRRRR strategies, it was very difficult. Like we had a hard time getting stuff to cash flow, especially here in Oregon where the price point's so high and then the rents are just not supporting that, that business model here. People are still doing it, but it's not as common. I have friends in the Midwest, they don't even care about creative. They just want to do BRRRR strategies all day long because they're buying houses for $30 grand, putting $50 into it. And then DSCR loans and they get cash back and they're cash flowing. I really wish that we had that kind of stuff here, but we don't. So I had to pivot in a different direction and I was listening to different podcasts at the time. I was listening to BiggerPockets. Like everybody gets their start in BiggerPockets, a lot of people. And the BRRRR strategy is like the thing in BiggerPockets. And they had this guy on that was talking about all these crazy things he was doing. Creatively buying houses for like very little down and taking over mortgages. Once I went down that rabbit hole and studied under, which is, it's Pace Morby is the guy that I'm talking about. And then joined his community. And then once I learned how to do these type of transactions, that's all I want to do now. You can buy, like one of the properties we purchased in Salem, we got it for a little over $500,000 was the purchase price, but it only cost us $24,000. To buy this house and it was fully furnished. It had over $30,000 worth of furniture that came with it. And it was a brand new house, 2 years old. So for $24,000, we took over the mortgage. We turned it into a short-term rental. It's averaging right about net around $4,000 a month. It's a little bit of a bigger house. So it's covering the mortgage payment. It's taking care of all the things and it's putting us, putting about $800 a month in our pocket. That's the kind of thing that you can do.

I think what I love, the many things, is leverage, and that's the ultimate leverage, right, that we have. Okay. So I wanna step back a little bit. I think we, I love that story and I wanna dive into it again, but I think we throw around creative finance loosely and there's like, it's a big umbrella word. Like when I think creative finance, I'm more focused on owner carry and installment plans. But I think the beautiful thing is What we're talking about is like the creative stuff. So let's just maybe unpack, like when we say creative, you're focused on Seb too, that's great. So when you're, I think when you're talking about this stuff too, um, like I think of it as a toolbox, right? What's the toolbox of options? We don't want to just have one thing. And I just want to reiterate too, I've paid for mentorship. I think coaching, I think we often say, oh, we don't need that. But you know what, you, you really need it. I believe I'm speaking personally. I, I think that's, you can't, you need those tools and that's by doing coaching or, or just spending tons of hours watching YouTube. I don't know.

100%. The coaching, oh my God, you're condensing someone's 10, 15, 20 years worth of experience into a very short period. So the ability to get up to speed is so much faster with coaching, so I've benefited greatly from that. But yes, going back to what you're talking about creative finance, it's a huge umbrella of opportunities. So the ones I'm specifically focused on right now are subject-to purchases, where a subject-to purchase is when you come in and you take over a mortgage. So you're not assuming the mortgage. So the mortgage is actually staying in the seller's name. The only thing that's happening, there's titles transferring. So You own the property just like a traditional purchase, but the debt stays in the seller's name, which is actually, it's really scary when you say it like this. Yeah, it's very scary. And, and there's definitely bad actors in our space that give it a, a bad name and a bad rap because there's, for every one bad deal that goes wrong, everybody, that's what everybody picks up on. But there's a lot of people doing it correctly, and if you're doing it ethically, and doing it transparently and having, setting a proper systems in place so that you don't put people in a bad situation. It's an amazing way to purchase real estate.

You know, I think the reason, I think every industry has the characters, but I think we're dealing with very high, big life decisions, very large numbers. So I think there is, that's even more why we get called out. Right. And I do, this is, there's a lot of ethics that go into any real estate deal. But so I just wanna say that I think there, there's, there are, but I think we need, that's why you need to learn the tools and do things correctly. So I'm, I'm glad that you said that. Okay. So let's go back to, there's different ways. What is the, how are you finding these deals? And then we can unpack like how you do a deal in the right way.

Yes. Yes. So the easiest, okay. So if you wanna find a deal, today, you can actually just get on Zillow for free, get on Zillow, find stuff that's been on market for 90+ days. That's the first step. So if you find some, the reason 90 days is the kind of the marker is there's pain there. Someone put their house up for sale. They've had either offers or no offers and they've done price drops. They've done all these things to try to move the property and they can't move the property. So that's the first indication of a pain point with a seller is that, hey, I can't sell it for what I need to sell it for. And all we do is we look for opportunities like that and we just call them. These are on market. Call them up and ask if they're open to a creative offer. And that's how we— that's one way that we find them. Now, if you're willing to spend some money on different tools, there's different tools available to find these listings too, that are a little bit easier, like PropStream. That's the one that we use. So we'll take PropStream, we'll set up a filter for 90+ days, but there's other filters too, low equity. So that's the other one. So that's typically the ones that sell in this manner because they want to sell their house, but the debt's just too high. So they have to come out of pocket in order to do a traditional sale. So that's where we can come in and where, let's say they have to pay $20,000 or $30,000 out of pocket to sell their house, to pay the agent, pay closing, all the things. We can come in and go, hey, Mr. Seller, we're going to put money in your pocket. We're going to pay the agent. And this is how it'll all work. So if you can explain that to them, you get your foot in the door. But that's how we find the majority of our opportunities.

Okay. So when you're calling a, like, on market, right? I know, are you talking to the agent that's listing it and saying, yeah, are you, is that how you're—

Yes. Yes. And it's a very difficult conversation cuz, well, a lot of agents are getting more educated on this. But there's plenty of agents that, oh my gosh, they're so upset. They think it's a scam. They're like, you're the 10th person to call us. There's a lot of stuff to overcome there with those types. But yeah, it's a conversation with the agent.

Okay. And I, full disclosure, I've been studying sales cuz I'm realizing in real estate we are, it's just, you have to, it's a sales hat. No one really says that, but it really is.

Let's just—

so in that vein, so what are the typical like objections or fears that you have to explain, or what are the most common things that if you get out, if you lead with that, like, hey, here's the things you're worried about, here's why it's not an issue. I'm just curious.

Yeah.

Yeah.

So the biggest one that everybody has is they don't want to leave the debt in their name. If they understand a little bit of how it goes, agents that are open to it usually go, you're talking about an assumption, right? That's the first thing that comes up. You're talking about assuming the loan. I don't know if the loan docs allow that or not. So that's usually the first thing that comes up and then we just pivot to, no, it's not an assumption. This is basically how it works. This is how we, we're going to transfer title. The debt's going to stay in their name. We have instruments that can protect the seller. So we go over how we're going to protect them, but usually it's only one or two touch points on that because most of the time, once you get that part, into the conversation, if they're open to it, they usually say, hey, we need to talk to our seller and see where, see if they're open to something like this.

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All the time. All the time. You see all these price drops. Usually they'll start out. It's funny. They, instead of comping the property like they're supposed to do and go, okay, this is where we think it should sell. And then basing their sales price on that, they go, hey, I need to get this much to clear out the mortgage. So therefore my fees are gonna be this, closing's gonna be this, and they set their sales price there. Typically that's how they work the math backwards.

Okay.

Yeah, it's really funny the way that they do that. So especially when they start doing price drops, you can tell that there's a lot more stress there. Cuz when we talk to those, they're like, My seller really can't go lower than this. And then if you push a little bit further, they're like, because they're going to have to come out of pocket. Like the mortgage won't allow them to take any less. That's usually what we hear. Now that's one— oh, go ahead.

Oh yeah, go ahead.

I was going to say, that's one way. The second way we find these are expired listings. So expired listings, the agent that tried to sell it, couldn't sell it. Nobody offered him a solution like what we're offering. So now we're hitting those sellers or they had an agent that wasn't open to it. So we circle back around, talk to, and it's sad how often this happens. We usually will call up and go, hey, did your agent talk about this offer? And they're like, we didn't even hear about this. We have no idea. So the agents aren't even bringing it to some of their sellers. And we explain the situation, how it all works, and usually Not usually, but there's a good percentage. Well, the ones we purchase, 100%, yeah, they're open to it, but some people are a little scared or nervous of it too.

So are agents— I'm not an agent, so I'm not, but are they sometimes concerned how they'll be paid if there's— if it's a creative deal? Has that ever come up and how do you address that?

Oh, 100%. They're all— in fact, I say that probably 90% of the time, that's one of the main reasons why they don't want to present it because they think they're going to make less commission. So we actually make that clear. Up front that they're going to get paid. I said, we're going to make sure that our down payment or whatever we give to the seller is going to be enough to cover your fee. And I usually bring that up in the call, say, you know, what are you— what's your listing fee on this one? Are you looking for 2.5%, 3%? What are you looking to make here? And some of the crazy ones will say things like 5%. Yeah. And we're like, that's going to make it really expensive for us to get into the deal. And it doesn't really help your seller. So then we're like, hey, is usually we pay people 2.5% on this. Are you okay with that?

Got it. And I'm curious, cause I, so I'm just curious as far as presenting, hey, there's interest and creative interest, but if it's on an offer, are they not financially obligated to present that? I don't know that line. I'm just curious how that works.

Yeah, they are obligated if they get a written offer. So sometimes what we have to do is take an agent friend of ours and have them actually send the offer. If we really want to push. Usually it's easier to have the conversation and get everybody on the same page to move forward. But if you really want to be more aggressive or assertive, then you need an agent on your team to actually send in written offers. 'Cause they, I found out that it's like a $10,000 fine if they don't present the offer to their seller.

Interesting. Okay. But obviously if it's friendlier, it's better.

Yeah. Yeah. You always want to come in 'cause It's an uphill battle when you have an agent fighting you the whole way, because they're literally, they have the seller's ear. So they're going to talk smack about you the whole time, tell you why you're a scammer or why this, you shouldn't do this. I have one right now in Southeast Portland. It's the same thing. We've actually, I've had really good conversations with the agent and everything was moving towards it. And then the guy just ghosted me. He just totally dropped. I can't get ahold of him. And then somebody else on our team has been texting him and getting the real scoop on it. So I don't know, I guess my approach, he just didn't like me or what I was saying, or, but he's being real friendly with other team members, but he still won't present it to the seller. He won't give them that option.

That's so interesting. I, yeah, it seems like it's, if it's done properly, it's really a win-win. The seller gets paid, the agent gets to walk away, and then they're proposing something that they, there's no other option, right? If it's just sitting like this, The word market, like this dude would rather, it was actually a short sale.

He was taking a seller down a short sale, which is going to affect their credit, black mark on there. And I said that, so I was selling really hard. I was like, this, you don't need to short sell. We can fix their credit. This provides so many benefits, like having a performing mortgage on your credit, huge benefit, just builds your credit.

Okay. I want to unpack that, but I just want to step for one second, step back. I think when we're looking at deals and how we're getting creative, a lot has to do with if there's debt on the property, if there isn't debt, and that's something that's really important, like what kind of debt. If it's debt-free, then we're probably going down an installment, but I think that's just, that's a, it's a big part of the puzzle for, so anyone that wants to get into creative, that really dictates to me, like what kind of solution you can present creatively. I don't know what you think.

100%. Yes.

Okay. But yeah, no. Okay. I love what you said about, so I think this really is a win-win, but I think we have to position it in the right way. And so if you make that call, is the next step Hey, let's have a sit down over Zoom, or how do you, what's the next step in that process of talking to an agent representing a seller?

I love doing Zoom calls because on the phone you just can't communicate everything. Zoom calls are so much better. I've had sellers where they just feel really at peace and good with the situation by just having a group call, a Zoom. Yeah, usually we get on a Zoom, we show them, we walk them through the documents and show them how it all works. How we protect them. So we talk about wraparound mortgages. We talk about servicing. We talk about what if we get abducted by aliens and we're no longer here. Like, that's something people should be concerned. What happens? People die all the time. It's just the way things work. And what's going to happen if something like that happens? You know?

Because I think ethically, if we are saying we are going to buy subject to your existing that is, that's a big responsibility and that sellers should be vetting us too. Are we, I don't know, to me, that's, I would tell someone, yeah, that's great, but make sure you're vetting whoever's buying it because. So how do you present yourself as a qualified buyer? Is it just process or I'm curious if that's ever? Yeah.

In the beginning, before I had any SEP2 properties. So the very first ones I got were foreclosures. So there are people in really bad situations that don't really have any other options other than having a foreclosure on the record. So they would rather opt for someone to come in and save them and fix them, save them from foreclosure. So the first ones I got were that way. That opened the door to better conversations with sellers that weren't distressed, that just wanted— I could— they had the means to let it sit for a year until it sells. They're like, I'd rather not waste $30,000 in mortgage payments to go down this process. I'd rather just sell this way. So those ones. We show them all the properties we purchased. This is how we did it. These are the properties. This, the, it's been performing for this amount of time. These are our reserves. So we talk about reserves, like we, we set aside money for tenants, vacancy, CapEx, all that kind of stuff. So yeah, we have a reserve account. So we show them all that stuff. We also talk about, like in our situation, we have multiple businesses and that's one of the reasons why we're purchasing these is for depreciation. It's a big benefit for it. So when we explain all those reasons why we're buying it, it makes sense to them and they view it as less risky.

That makes a lot of sense. Yeah. Because I think that it's, if anyone, there's a lot of due diligence, I feel like in any transaction and yeah. So if you are positioning this, if you don't have a property, is it better to say this is just, here's my, my whatever experience I have to bring to the table. I'm a homeowner. Like, how do you position yourself if you maybe haven't done a deal like this? Or what would you say? I'm curious.

Oh my gosh. That's the best. So you need to work with experienced people. That's exactly, okay. I have people that bring me stuff all the time because of that.

Okay.

And there's more than, there's plenty of people in our market and any market actually, like they're, I would seek out the people that are doing the deals, work on their, because you can leverage their credibility to get into these. So it's a real That's the hack actually. If you want to get started, I would say start with buying some foreclosure ones. There's plenty of them. There's, that's the easy, those are the easy ones to get into. The harder ones are people that don't have the stress or the pain other than they have a high mortgage balance in their house, doesn't have any equity.

Okay. Okay. Yeah, that makes sense. And I also think, yeah, you, if you don't do this the right way, you could really hurt someone's credit or not do them right. So it is. Being just very ethical and knowing what you're doing. And if you don't ask for help, okay. So how, okay. What's, how I wanna talk about like protect, is there anything else we didn't cover up till I wanna get into like the weeds of protecting how we protect the seller and the buyer and all of that. Is there anything else that you would say for someone that's like curious or talk about this with the seller or, because I think it's sales. I don't know if you think that, but I've had this recent switch of it's actually, there is, and there's a reason why there's sales training and you have to get— people are uncomfortable talking to sellers because they don't know sales.

Oh, 100%. It's about making friends. Like this industry is all about making friends and being able to make friends very quickly. So when you're on the phone and that just takes, I think it's just one of those things with practice because everybody, if you go back to your first phone calls, I know when I go back and think about 'em or listen to 'em.

Wonderful.

So cringy and so much stress and like sweating out my shirt after. Okay, I just did an hour of phone calls. That was stressful. I'm gonna go change my shirt and come back. Yeah, there's a tremendous amount of stress involved in that and just getting comfortable. So it's a repetition, like just having conversations about that. I'd say if you want to get started, that's the easiest way is to start calling agents on market. Like they're, they typically answer their phone and they, they want to get a sale. Off-market conversations are a lot more difficult. On-market, as far as, you know, agents, most agents are pretty friendly.

Mm-hmm. That makes sense. Yeah. No, the first, and I, from my, in my like short, like I, I've been like a long time in buy and hold, but this creative stuff I'm newer. The more like, the more natural I am, the less I feel like I, it's not, they're not gonna ask you a scary question. They just wanna know that you're like human and if you don't know the answer, you don't have to have it. You're just, I think if you're being honest, that's the best.

Oh my God. Yes.

Yeah. 'Cause I'll get, like, I send out direct mail and I talk to sellers and I'm like, oh, it's like they're these higher landlords and they're still cleaning their gutters and their kids don't want the business. And I'm just like, it's interesting. Okay. So the easiest, but you're looking at it as a partner with someone. I, I think, I know the Senti community is very supportive. I feel like it's the community piece is I'm just on the outside of it, but from what I see, it seems to be very supportive. And I think that's also being in the right rooms and buying a table at whatever. If this makes sense to you, invest in it because you're gonna get deals quicker. And learning on your own, you're gonna be like 2 years down the road, probably just making calls to wholesalers to play.

100%. You'll be going on YouTube, picking up little nuggets here and there. And if you want the shortcut, you just join a community. Get on a team. That's what we tell everybody that actually comes into Sub2, just get on a team. If you, whatever your avenue is, just get on a team, get that experience. Yeah, 100%.

And I feel like too, and they can't, if you are, I feel like my audience is very like maybe the newer and it can be a firehose. You have to find the strategies that make sense to you and then just figure out who's teaching that and, or partner with someone. But there's a lot of strategies and it is a really big toolbox. So Sub2 may not always be the best. I'm sure, do you ever have leads where like Sub2, it's really a owner installment plan? Do you ever pivot or is that just, I'm really your focus on that?

Oh no, I pivot all the time because the cool thing about it is that there's so many different ways to do creative. Like today I spoke to an agent that had a condo and they had a very specific situation where they own it free and clear. And I'm like, are you open to an installment sale? Because that's the natural thing to look for on there. And she's like, oh, she needs a really Big down payment. Okay. We did quick math on it and we could get her around $200,000 on the down payment. We're going to bring a lender in to do that and then ask her to carry a second position note for the balance. So pitched her on that. She says her mom's probably— because she needed a specific amount, $200,000. The agent actually is representing her mom in the sales. And, but yeah, she needs $200K and we presented a solution that'll work for her. So you just have to understand what kind of— everything kind of fits into several different boxes anyway. So it's going to be installment sale, or it's going to be what we call Morby method, where we bring in a DSCR lender for a first position note. And then we ask them to carry a second behind that. So basically it's a way to get into a deal for no money. It's an easy way to do it.

So you can get a DSCR even if it's not income producing, or how does that— Yeah. Yeah.

So if you have, it has to be income producing. But we have lenders that will actually lend on it even without a tenant in it though. Typically it's 75% LTV. So they're going to market rents and things like that. This one we're going to try to midterm it. So we might have to, it's going to be harder to find that lender on that one if we want to get a higher percentage. So we might need to bring some money to the table or ask for a smaller down payment.

Okay. And then I think that's the beauty of knowing, like you have to get, you need to know how to get into it. And then the exit strategy of, is it a long-term, is it midterm? And this market, like, Book term usually, unless it's multi, good luck.

Yeah. Okay.

Yeah. Yeah. And then, so I, yeah, it's interesting. There's just so many strategies, but I think if anyone's watching this, like partner with someone, figure it out. And it, I think you have, sometimes you just know enough and you get into it. And if you have a good mentor or coach you're working with, someone will walk you through it and then you're like, these things sound really complicated. And then once you do them, you're like, okay, I did it. And yeah, and I think. I always like to keep the lens of how can I best serve the person, right? What's the best fit for them too? Because maybe it is, maybe they're looking to avoid tax implications with a cash sale or whatever, right? Then installment plan's a great option, or we're saving their credit with sub-2s. But I think always keeping that front and center is, to me, is really important. Okay. So, so I really want to talk about like how we protect as the buyer. I know there's a lot of like There's just, there's a lot of things that go into this. And I know Pace recommends like a transaction coordinator, you have an escrow company, but like high level, like how do we protect ourselves? And the due on sale, like I know everyone throws that out as like the big red flag. So what are the things we can do to make sure everyone's protected?

No, the, the due on sale is the boogeyman. That's what everybody— I don't know how many sellers I've talked to that literally like they get, they just can't wait to get you on the call. Cause they're like, just to like Yeah. Oh, what do you think about due on sale? Like, it's like this big secret or a big scary thing. It, the reality is due on sale gets called very, it's like almost never happens. It's like 500 transactions. I think the last statistic we had in our community was like 1 in 500. It was, I've heard 1 in 1,000, but I've also heard 1 in 500. So it's very rare. It does happen though. So it's. It's not one of those things that I'm going to say that won't happen. I haven't had it happen to me yet, but I'm prepared when it does. So ways to fix it. There's a bunch of different ways. The easiest way is just to deed the property back and set up a lease with an option to buy. So set up a lease option. That's the basic easiest one. Typically we call the bank first. Like my friends that have gone through this, they'll just call the bank and explain When they get the paperwork, they reach back out and just explain what they did and say, hey, we're making the payments. Are you good with the situation? Sometimes they just go away. They don't want to deal with it. Banks don't like to foreclose on properties, you know, typically. So then we're going to do lease option. You can also put it in a trust. That's another way to do it too, after you deed it back to the seller. But those, they still look closely at those. So that's not like a bulletproof one. I have friends. And due on sale called in the lease documents as well, or I'm sorry, with the trust documents. Sometimes the bank will ask for, this is where you can get in big trouble. Somebody in Florida did this. They actually put it in a trust. The bank reached out to them and said, we want to see the trust documents. And they actually sent them falsified trust documents saying that it was the previous seller. That's a big, that's mortgage fraud. They got in big trouble on that. So it's better to be transparent, open. Don't try any funny business like that. If you're going to put it in a trust, um, one of the tricks to do that is to actually have the trust named as the, the seller. Like it's the Shona Trust or the Robert Hardin Trust. If I'm the previous seller or previous owner, because it kind of does make the bank think that it was done properly.

So a trust versus like an LLC, is that I'm sure there's nuance to that. Is there just more better fit for that?

Yeah. Trusts are more expensive. That's why I stay away from them. The whole process is more expensive. There's different tax implications as well. Like you have to consider that trusts are taxed at the highest tax rate. So as money, if you have money flowing through that, now, if you're only making $100 a month on a rental, it's not going to kill you to pay a higher tax rate. Starbucks for once a month, avoid it. But LLC is the, that's what I do. I put everything in an LLC.

And you can do that yourself. You just go Secretary of State. It's pretty, it's, yeah. Okay. Yeah. Okay. So yeah, I love that you're just saying, just call the bank, right? That's just like, it could be as simple as that and they can't profit from foreclosures. Right. So they really, they can't. They're not going to, there's, it's not in their best interest to, you know, have a non-performing note, right? I would think it's just, that's their business.

Yeah. What do you imagine? You're the lender and you're like, oh, this guy's per— like, imagine this. You're having discussions, the note's performing, everything's getting paid, and then we're going to go spend money to take the property back to, for what? Like, if you really think about it, it's such a silly thing. Now it's different if You're not performing, that makes total sense. Like it's not performing, but in a performing note, I think that they look at those differently.

So I feel what's funny when I, so this is a little tangent. When I first moved to Portland, it was 2005, I'm dating myself. Houses were like under $200,000 and I saw my equity going up. I didn't think to Google, I just was too scared to pull it out. So I had a family member buying a property, a duplex. It was Anyway, and I've been paying the payments forever and we were so scared that the thing— knocking and it— they've never— I just pay the payments. It's like a sub-2, was like way back in the day, but like that was— and they've never, we've never missed a payment. Like why would they come knocking on that note? Because it's paid for. It's like clockwork. Yeah. Okay. So that's— and what is there? I've heard of like power of attorney. What do we do proactively as a buyer? And I don't know how much of this you can share if there's some secrets.

Yeah, I can share.

But like, I just, I think we have to be really intentional about like paperwork. That's a big part of this, I would think.

Yeah. Yeah. We get power of attorney. So power of attorney, super, super important. Gives you the power to talk to the bank on the behalf of the seller. So that one's super, super important. Other documents we get are insurance assignment of proceeds. So What happens if there's a fire, right? There's a fire, some kind of a loss. You want to have a document that allows you to receive the money so you can go rebuild the property and do all the things. If you don't have those documents in place, like insurance, assignment of insurance, oh my gosh. I've heard of people, them sending a check to the previous owner. So you have a burned property, previous owner gets a check and they're like, holy smokes, we got $100,000.

We got free money.

This is the greatest thing we ever did was to sell our house this way. But then you're in a bad spot because you got a house that's burned up and you need to, it's a nightmare. So as long as you have your insurance done properly, so some people I talked to that are misinformed will have two insurance policies. They'll keep the original one in place and then they'll put a new one on it. I tell those people like, no, that's not how we do it. We go get a new insurance policy that lists The previous seller is additional insured. So we want them as additional insured. Our LLC is primary insured, but you also have to have those endorsements on the insurance. If you do not have those endorsements, that's how most people get due on sale called.

I was going to ask you, I've heard that's a trigger. So how do you do that without triggering the bank being notified?

Yeah. So actually switching the insurance doesn't trigger it. It's if you don't list them as additionally insured. So they're not on there. So what the bank does is they go, we got, okay, Rob Harden owned this house. How come Rob Harden's not listed on the insurance? And it's like, whoa, this is a big, this is a big flag.

That's all it is, is just listing them. And that's like, that's what I do with the owner carry. They're listed. That's it. That's it.

It's that it's so simple when you say it, it's so simple, but them not putting on that is, it's so funny because that can trigger the whole thing. And then somebody. Somebody down in the insurance department takes it up to this other, they take it to the other desk and then this guy looks at it and goes, oh my God, we have a problem here. And they go pull up title. Oh, title transferred. Do on sale.

Because when insurance essentially transfers, like I get, I require renter's insurance. It's a dumb example, but I'll get notified of, hey, that didn't rent, whatever it is. So I get, I usually just file, but so the mortgage company will get notified and if they're late, it'll get applied it. Okay. So it's that simple.

Okay.

There's no like special insurance. It's that simple. Sure. I thought there was some like top secret.

No, it's not even top secret. It's so basic on it. It's crazy.

Because when I'm doing a seller installment plan, I, that's part of my like, hey, and you'll be additionally insured, right? Like I want you to be protected. So I always say that. You mentioned another document. It was something about insurance and I forgot the name of it already.

Yeah, it's assignment of insurance proceeds. So you want to make sure you have that in place in case there's some kind of a problem. One mistake I've made in some of my purchases, because they were foreclosures and I didn't have direct contact with the seller. There was a wholesaler in between that I purchased it from. So I didn't, I don't know them and I don't have their contact info. So one of the mistakes I made is not getting their insurance information as far as their agent, like getting the agent. So I would recommend everybody, if you're gonna do these transactions, get the agent's, their agent's info, because I have one right now where I'm paying twice insurance twice on it a year. So their pol— I can't cancel their policy. Reach out to insurance and they're like, who are you? And I'm like, the guy that I'm helping out the seller.

Yeah.

You need to know, they're asking me all this information and I'm like, I don't have that information. And they're like, oh, I sound like a scammer. So they're like, you're this dude trying to scam and cancel somebody's insurance. How do they get their insurance canceled so I don't have to pay two policies? They gave me a mechanism to solve it. They're like, this is what's funny. They're like, we want you here. We, you have to submit it via fax. I go, you guys won't give me an email address? I can't just email you this? And they're like, no, you need a fax. I'm like, okay. So I have to, I have to fax them documents. And call them. And I've been, this is my fault. Hopefully nobody knows this. Actually, it's live now, but I haven't had time to follow up with them because I think it's just a couple phone calls away going through the channels to try to get this canceled out so I can save $1,800 a year on a rental.

Right. Yeah. It's one of those like little things. And then yeah, the faxing too was just like, did it go through? Oh my gosh. Do you have to have my phone on? I know.

Did it go through? Did they get it? I know.

It's so stupid.

So stupid.

Oh my gosh. Okay. So that's, sorry, my, my— Oh, you're good.

You're good. That's one of the big ones. Insurance is such a big thing on there and getting the right policy with the right coverage. We have an insurance carrier that's very well versed in sub2 that does them right. That's the other part too, is, is, is getting somebody that can actually do it. Yeah.

Yeah. That makes sense. And that form, is that something that's like that you, that's just something you can ask someone for? Is that something that's in the community that, uh, assignment of insurance?

You can actually, yeah, it's in our community. It's also, so if you're doing a transaction, I recommend using a transaction coordinator, somebody that's gone through the program. Pace has a whole program for it. They're all trained to do creative type deals. So if you hire a TC, they're going to have all those documents for you. So they're going to make sure they collect all those. I would say the one thing that they're not doing that I wish they would do is get the insurance agent's information from the seller. Because that would've solved my whole problem. I just call the agent, explain it. They would reach out to the seller and say, did you do this? And they'd say, yeah, I did do this. Great, cancel it. And that would've solved all my problems.

It's those little details though, right? And what the headache is, like, would've just been like a simple, yeah, it's whatever at this company. That's so interesting. Okay. Really good tips. Okay. Let's talk about like servicing, right? Because I feel like that's another important piece of this puzzle and being buttoned up.

Yes. Servicing is so key.

Okay.

So servicing is a pain. It is an expense, an extra expense, because the easiest way to do it is get into the portal. We'll get portal access. We do that on all our deals anyway. Because sometimes this is what hap— I just had this happen actually last month. I had a seller reach out and go, hey, you didn't make the payment on the house last month. Like, what are you talking about? They're like, we got a notification from the bank that The payment, normally it comes on the 5th and it was like the 10th. So I call up servicing. I'm like, what's going on here? They're like, oh, we mailed the check. We mailed the check. I'm like, because they pulled out of my account.

Right.

And I go, okay, I can't put the seller. So this is what I did. I'm like, I can't put the seller in a bad spot now. I'm going to go into the portal and make a payment today. I want you to stop payment on that check and then refund it to me. And that's exactly what we did. So they refunded the check, made a payment in the portal. I sent the seller proof that I did it through the portal and they explained all the things, the servicing just messed up. And I said, please ask servicing, please send them an email and let them know that you messed up. Like, I don't want them to think that, you know, things are going south. So, and they did, they reached out. So it is important to have a good servicing company because you want your payment to go to the servicing, servicing to make the payment to the mortgage, and then to send a statement to everybody so that everybody knows that everything's being paid.

100%. Yeah. And I was again, within the creative umbrella with an installment plan, I'm saying we're using a servicer, you're getting paid, they're doing the tax stuff. It's like clockwork, right? I'm not writing them a check. It's so I think that's, and it really, you don't want to ever be like, hey, I'll send the seller money and they're going to make the payment. That's not—

Oh, never do it that way. I could see. Yeah. Yeah. I could see massive problems happening there.

Yeah. I don't know if anyone, that's what you might think you would do, but, and servicing companies, like, and there's not that many of them, but they're I use, I think like Escrow out of Montana. There's Fidelity out of Montana. I don't know who you use, but there's a couple of them out there. Maybe there's more than I know of, but they're, that's their job. They just move money around.

Yeah. Yeah. I'm using Guardian Contract Services. They're, they used to be Lake Oswego. I think they're Tiger now, or maybe I have that backwards, but Guardian's one that's a really good one. Evergreen Loan Servicing, I think they're out of Eugene, is another good one.

Okay.

I know there's a couple others, I think Future or something like that. There's a company out of Roseburg. I let the, I don't know why I did it, but I let the seller pick their servicing. It was on an installment sale.

Okay. That, yeah. Like they all do the same. I go with my own title cause I know they'll do a good job, but service, yeah. Okay. Yeah. So servicing, and that's something, God, my, I'm so sorry, my friend's daughter is like screaming. Extremely persistent. I'm on do not disturb. I don't know why it's ringing. They do FaceTime and she's in California. It's reality.

You're getting double dialed. Somebody, if they didn't dial 3 times, you did that.

That's what you need to do with sellers. You just keep calling them.

Oh yes. I've been there many times where I'm like, I know they're there. I'm just gonna keep calling.

I totally lost my train of thought now. Okay. So servicing. So when I've done it, I don't know, it's set up through escrow. I don't know how you do it, but usually it's done through escrow and it's all you pay the setup fee, which is nominal, and then it's just set it and forget it.

But yeah, no, it's really, we do it all through escrow at the beginning. Or when it, the transaction closes, all the documents are set up and then they usually send it over to servicing to get your account set up and to get it funded and moving and everything. But the other thing you have to keep track of too, the one thing I don't like about servicing on a sub-2 mortgage is that when you have to be paying attention to it at the end of the year, when taxes reset and payments go up, because the servicer, they, they go off of what their paperwork says. So you need to, so I'm going through right now and making sure that I update them on all the new payments so that I'm not short $20, $30, $50, whatever.

Because if you are, that's not a full payment. Like it's gotta be a full payment.

Yeah. You're like, you're short. Which is just silly, but the portal is ultimately the best. I have a bunch of portal mortgages too, so I like those.

So the portal is like B of A or something. What if that gets sold then? It's a different portal, right?

How does that work? Oh, so annoying. So like most of these companies have is Mr. Cooper. We have a bunch with Mr. Cooper, several with Lakeview, and then there's a VA one too. There's all these different portals, but I have all the different logins set up. So I usually set up an email with the address and I have my own domain. So just a forwarder to my regular email. So I can keep track of, because we have multiple ones with multiple servicers. So when you see it come in, you're like, okay, I know which one this is. But yeah, so that's, I do prefer portal because they just rip the money out ACH. But some of the portals are really stupid where they won't allow LLCs. Like it has to be a personal account.

I don't really know. Yeah.

Set up to where business, my business account transfers into a personal account and then the money's ripped out. So I don't know, you have to be really creative with how you're paying for your stuff too.

And, but if that, you're taking it subject to and that note gets sold to a different servicer, you're, you just have to just notify the servicer, right? It's just like a couple steps, right? Because that happens, I feel like more often than not. I'm like, how do I know that happened?

Yeah. As soon as they sell your mortgage and you get the paperwork, you gotta get it into the servicer and have them update addresses and all that fun stuff.

So there's a lot. Yeah. This is, there's a lot of details, right? And you, if you're not like, again, so hire someone that knows how to do this. Don't just wing it because any of these things that could be really major, it could turn into something big if you're not experienced.

Oh yes.

So that's what we talked about. How to protecting the buyer. You're the buyer, all that stuff. Is there anything else in the protection side of things like that you do like proactively?

Yeah, for, it's pretty much the paperwork. So just having it like our contract. So in Sub2, we have a contract that we're allowed. It's one of those, we sign an NDA when you come in, you're not allowed to share the contract outside. So the contract is so good because it put it literally on there. It talks about due on sale. It talks about the mortgage not being transferred. It gets really redundant because they say the same And the reason why it's set up this way to say the same things in different forms over and over again is because they've gone through lawsuits in the past where people go to take them to court and go, I didn't know that the mortgage was staying in my name. They will have those excuses, but now you have a contract that literally, it would be embarrassing. Oh, you know, like a judge is going to look at it and go, how do you not know? And we make everybody initial. There's all these disclosures. So. Literally, it's really annoying. I'll be honest, when I'm going through the contract with the seller, I tell them that it's really annoying and really redundant. And as we go through it, like they fully feel that and see. So that's one way that we protect ourselves is having a really good contract with the seller. But everybody knows we're going to— but it's really important to protect the seller, especially when it comes to wraparound mortgages. Like the very first few I did, I didn't even know the difference of We call it a naked sub2. So basically it's transferring title, mortgage still remains in seller's name, but there's no instrument for them to use to take the property back in case you default. In order to bridge that gap, what we do is we create a new mortgage that goes around the existing one in favor of the seller, so that in the case that we're not here, we don't perform, they could take it back the same way that the bank could take it back. So they have an instrument to pay you back, which is—

Which I think is powerful and that's the right thing to do, right? Because otherwise they don't have any recourse, right? You stop paying and they're just, their credit is tanked and they're just, what do they do? Okay. So they basically can foreclose on you because of the wraparound and that's what a title company would do. Like we don't even know how to do that. That's what— yeah. And do you explain that to sellers or is that down the road or how do you position that? Because it's not complicated, it's just a little bit nuanced. Effectively. How are you saying that?

It's super complicated, but yes, no, it, it's so important to, usually we only bridge that one if we have a seller that's reluctant and is really nervous about the mortgage staying. So then we explain that part of it. We still do it anyway. I'm of the mind of not explaining things that, like not creating new problems. So if they're cool with the situation, I'm still gonna protect them. I'm gonna do everything right, but I'm not gonna go and spend 8 hours explaining how everything works. I would rather just have them have questions, explain how we overcome that. So if they're worried about it, we're gonna explain this is how we're gonna protect you.

Okay. Okay. So that's how they're protected. Is there anything else we do for the seller aside from like that and like the servicing company? Do you do anything else to make sure? I think it's very, it sounds like you're very transparent and there's no like hidden, like we're doing that people know what they're doing or actually you're helping them. You're solving a problem for them.

They know exactly what's going on. If they don't, I don't know, it'd be really tough. Yeah, they, it's, they're, we're extremely transparent on that end of it, so they know what they're getting into. I think it, it is a nervous thing. It is one of those things that's a little bit scary, but if you kind of pivot, pitch, pitch it that way, and honestly, let's say something did happen, the economy crashed and Couldn't get tenants or COVID 2.0 happened, something like that. The key is just being transparent with your sellers. Hey, we're going through a problem right here. Do you want the property back? It might take a few months for us to get up to speed. There's all these different ways or conversations you could have with them because it'd be very simple to deed it back. Of course, we wouldn't want to do that because we spent money on the down payment, improved the property. We put a lot into it. I would not want to give it back. I'd want to sell it, figure it out, refinance it, whatever.

Yeah. I think that there's always so many creative ways to handle something and sometimes you don't know till you're in it. We can't think of any poss— there's so many. I think the analysis paralysis, especially for new, there's always gonna be it. You'll figure it out if you're motivated and you have a good community, there's a solution. You may not know what it is, right? Okay.

Like for example, there was a guy in our community that he grew way too fast. He purchased 150 sub-2 homes, like in several months. And his business model was to wrap them all. So he just grew insanely quick and he collapsed. And the community actually came together after that. They kicked him out because he broke all the rules, but they came, they came together and they actually disposed all the properties. They actually got, they took them all back over, got them caught up, got them all sold off. So. Pretty crazy. So just, just for example of what can happen if something does go wrong, that's how the fix, there's always a fix to it.

Yeah, no, I, I think that's true. I did want to talk about, I know we were talking at an event, it was like if somebody, like, I think most sellers are not really in a position to be buying again, but say, hey, they want to buy in 6 months. I know that there's, we want to make sure that they have their open, because it is debt on their debt-to-income. So how do we— is, yeah, I would love to hear more, but someone's like, I'm gonna really want to buy soon. They may not, but how do you make sure they have that ability without being impacted by the current debt?

Yes. We always ask that. What, when are you planning to buy again? So if it's over 12 months, so if it's 12 months or greater, servicing will solve all that. So what's going to happen is they're going to get a statement every month showing that it's been paid, showing that it's been paid. There's two types of income that are on, that mortgage, residential mortgage loan officers look at. So they look at note income and they look at lease, like rent income. So those are the two big things. So note income takes roughly 12 months for it to roll off their DTI. So that's why 12 months is the big frame. They're going to buy something in under 12 months. We're going to set up a lease option. So we're not going to execute the sub2. Until the option— until they're past getting their other mortgage. That's when we usually do our execution of those. Because lease income can help them qualify for the mortgage. We can give them a down payment. So an example would be, I have one in Salem right now where they're going to buy something actually in 4 months. So we set up a lease purchase in 7 months. We would give them a 3-month buffer just in case they ran into problems and need a little bit more time. And we give them the down payment in the beginning so that they can actually use that seasoned money to— it's seasoned at that point because it's not coming from a foreign source. So they can use that money right away on their new purchase. The lease agreement allows them to wipe out their DTI immediately, and then they can qualify for the new mortgage. When that mortgage closes, we're going to exercise our option and then take it over sub-to at that point.

So I love that. Are you making payments on that lease option upfront or is it just the down— the option fee that you're— they're collecting?

Yeah, they're collecting the option fee and then we're gonna make 'em a monthly payment too.

Okay.

And we're gonna make it through servicing. So this is where it gets— 'cause this is where you could get screwed. You pay them directly and they don't pay the mortgage and then you end up with 6 months of arrears on a sub-2 purchase after you already gave 'em a down payment. So you set up servicing to where Money goes to the mortgage, anything left over goes to them. However you negotiate it, structure it.

Oh, so with the lease option, you're using a servicing company to pay— that's going towards their mortgage, it's offsetting it. And that's okay. That's— I love me. It's combining the two strategies, right? But it's just the first. So someone that hasn't heard of a lease option, it's a very, really powerful— do you want to just explain it quickly? Pretty amazing what you can do.

Lease options are ridiculous. So yeah, you can get payments along the way and then you have an option to purchase it for whatever. So it's like a, It's like a memorandum or a land contract. It's very similar to those ones to where you can put anything in there. Like I, the purchase price is this, of course everybody has to agree to it, but yeah, you have the power to set it up to where you're going to execute it. This is the price. If I execute it, if I don't execute it, this is what can happen. If you do, this is what will happen. So you can protect yourself in case they do something to damage the property or damage the deal or whatever.

But you're controlling a property with essentially a lease and you're giving a fee, which, and you have a right to exercise that option, which if you don't, they get it, but it's, you're really putting not nothing down, essentially like a month's rent or something. And you can, you're clouding the title, right? Isn't that? Yeah. Pretty crazy. Yeah.

You can get into stuff for, especially, you know, where it gets really powerful is like in Washington state. So Washington State with the excise tax, like you gotta factor that in. Oh, I'm gonna pay another $5,000 on this house for trans— just transferring the title. Why don't we set up a lease purchase to where when I do transfer it, especially if you're trying to, like maybe you're gonna wrap it to another buyer or sell it to another buyer, why go through two excise fees? There's no reason to do that. So that's where it gets really powerful. And Oregon, we don't have that, so it's more of a timing tool that we use, or we also call it a dating contract. Like why? Maybe you don't want to transfer title. Maybe you don't want that commitment. Let's just prove to you that we're going to make our payments on time and perform. So that's another tool you can use. I'm really like, we have some sellers, I am so worried about due on sale and you not taking care of it. Oh, why don't we set up a dating contract? And like, what does that mean?

Okay.

Basically, we're going to date each other, see if we like each other, and before we get married. So let's set it up this way to where we're going to, if we make all of our payments on time, like we're promising over the next 12 months, 6 months to whatever you set up, then you'll give me the ability to option it as a sub-to-purchase. And they see that you're performing. So this is another tool for newbies. If you're getting into it and you're having a hard time overcoming that with a seller, you could always pivot back to a lease purchase. And say, hey, you know what? I know you're afraid of transferring title right now. Let's just do a lease purchase and then we'll eventually transfer title if I perform.

I've never heard it framed quite that way, but it makes a lot of sense, right? You're really proving yourself with very little risk to the seller. Really, there's just like a window you have and if you miss that or they, yeah, that's interesting.

Very cool.

Is there anything else? Like that we didn't cover as far as protection goes or setup stuff. Like we covered a lot of detail, I think. And I think it's important that you know what you're doing on this stuff. Cause like you, you, if you don't make that payment, that seller, their credit will go down the hill. Right. It's all, it's serious stuff. I think you're committing to make these payments. Right. I think you don't take that lightly. Right.

No, do not take that lightly. You need to have reserves. Reserves are the other component of it. So everybody, when they're underwriting, they're like, oh, I can get into this and I'm cash flowing $100 a month. $200 a month or whatever it is. What happens if your tenant stops paying? Because in Oregon, that's a real thing. It's a long thing. I have a duplex right now in Salem where I have a tenant that they moved in and stopped paying like the next month. Yes, you can evict them and yes, you can do all these things, but by the time it takes 3 to 4 months after you go through the courts, they racked up a $10,000 bill with you. You still got to make that mortgage payment. So. You do need reserves. You need to plan for the what-ifs. What if the tenant stops paying? What if those— that's a real issue. So you need to make sure that you set aside reserves for each property. Now, as your portfolio grows, you probably don't need as much reserves, but you still need reserves because the odds of having everybody not pay at once is not going to happen. Typically, even in COVID, most people still got paid during that period. There was not a lot of defaults. From tenants?

I didn't have any. I was, and here's the thing, I attribute it to having solid properties, screening well. That's what, and I don't know, but that's my, always been my philosophy is you need to have good properties. And that's the other thing. It's, I wouldn't like, I don't know if you think this too, but you might get, I just had a text early from a friend. He's like, I got this great property. It's like, you only need $15K with the location sucks. I'm like, I don't care if it's zero down. I don't want a bad location. Right? That's you have to look at who the, who your guests or tenants are going to be. If no one wants to live there, I don't care if it's a great deal, like how are you going to make it cashflow, right?

Oh my God. Yeah. I have one in Southeast right now that it's in a bad part of Southeast and it was such a good deal to get into, but now I'm going through that same thing where I used the wrong property management on it and now they moved in and they stopped paying after one month. So we're going through the things. And it is very location dependent. It's in a place where most people don't wanna live. Location is so important, even if the deal is, it looks so good on paper.

That's the thing. It's sometimes we get the shiny object, but it's, I always filter when I wanna live there, like worst, worst case, like we had to move or because it also, you're gonna get higher tenants that wanna live there and they wanna make it a home and they're gonna take care of it. And so that's really important. And I just, you have to think about that. And I, because you are agreeing to be financially responsible for this asset, I think, and that's, that's not a small thing.

Definitely. I have several that's taken 4 to 6 months and it's just seeing those, that money go out every month is, whoa, I don't like it.

It is a long game though. And I feel like that is, we're going to look back and be like, remember when the mortgage stays here and the rents go up, but It's not without risk, right? Any of this stuff, it's really creative, but there's no guarantee you're gonna get a renter, you're gonna have the good ones. I, that's just, I think that's a lot to think, be smart about when you're analyzing a deal and knowing if, would it make a good midterm? Would it be a good long-term, short-term, whatever it is, right? Because there's so many ways, but if it doesn't cash flow, that's just like a wait, right? Yeah. Anything else on the kind of protection or, I don't know, you're in this, right? I haven't, I'm honestly not a subject expert. I just love creative financing and I love talking about it. Is there anything that you tell someone or like that you think is, uh, people don't talk about enough?

No, those are the big ones, man. If you got to make sure that you're being very transparent, get everything, like we covered it. So yeah, pretty much all those things we talked about, that's, those are the big things. Other than reserves, just make sure you have reserves. That's, you can weather all the storms with reserves. So keep that in mind.

So I'm curious, when you're looking at a property, like when I'm looking at it, I'm going through, would this be a long-term, midterm, short-term? How, what is your process for, okay, here's like what the note payment is. Like, what is your, like, do you have a number of like, I want this much cash flow, or how do you know what a deal is, a buy box for you, I guess I should Shane: Yeah.

So in Oregon, what I've discovered with most people I have too is Oregon and Washington, we're both in this, it's the same boat. It's not the Midwest where you're getting a rent, a mortgage payment of $1,000 and it rents for $2,000 a month. We don't live in that area unless you're doing multifamily, you can get better spreads. But so it's really tough around here, especially getting stuff that cash flows. So we are looking at it more as an appreciation play. A long-term, where, where else can you get debt at under 5%? That's, we're looking at this more of from a private money lending aspect. Like where can we acquire debt at a very low rate so that it does either break even, because we're looking completely long-term. In 9 to 14 years, it's going to double in value typically, historically, I should say. Yeah, it's appreciation. So our buy box, as long as it breaks even, that's the typical thing. Can we get it to break even? Can we get into it for less than 10%? It's usually the gold standard. So if you can get in for less than 10% and then is it in the area you want to buy? That's really important as well. But we also look at ones that don't cash flow. So we'll buy a deal that's negative cash flow, if it hits other criteria, is there plenty of equity in it? Are we getting a really good interest rate on the second position notes? Because some of these ones are hybrids where the seller has $100,000 worth of equity. There's equity there. They have a mortgage in front of it. They just don't want to sell it for the price they want, but they want something for their equity. So we'll set up a second note. So we have a bunch of second notes that are 0% interest. So like when you look at those kinds of situations, like you're getting, where else can you get money at 0%? It's insane with inflation alone, eating up 3 to 5 to 8% a year, depending on what metrics you're looking at. That 0% note is gold. It's, so we look at things that through that mirror. Now the negative cash flow stuff, we're trying to find lease option tenants to buy those. So that's my main focus for this next year. I'm actually going to be looking for more properties, especially in our area, because no, there's so many of these ones that are negative cash flow that don't work as a traditional renter, but a lease option tenant is the perfect tenant, rent-to-own type tenants. So that's what I'm looking to do in 2025.

And it's really an opportunity for someone to get into a home, build their credit, be on that ownership path. Like, so I, again, I think we talked about this. I think that's more common in the East coast, but it's a really cool strategy and it's just, it's because it's hard. Where do you come up with that down payment? And if you have a new job or you don't have a W-2, it's like underwriting is pretty brutal even for owner-occupied. So I think that's super cool. Okay. Yeah. And so I, this is such a fun topic. I feel like we covered a lot. Is there anything else? So I think the takeaways are, right? Know what you're doing, you're a partner with someone or invest in education. Oh, I guess going back to underwriting, I feel like I know, like when I I have some private notes, I feel very, I feel more responsible sometimes than I do the bank. I know it's the same thing as debt, but I, I know where they live. They're like friends now. And if I don't ever want to miss that note payment, but the bank, I feel like it's more kind of this like institution versus, or the person you're making the note payments on. So I, it feels way more personal to me.

Oh yeah, completely. Especially when you're just making a payment to Mr. Cooper every month. Like it's, Who's Mr. Cooper? I don't know. He's just some dude that we're paying a monthly payment to.

Yeah. It just, even though it's the same obligation, it's just, I feel a lot more, I don't know, it's a funny thing when I know where someone lives and they like trusted me to sell me their property on Install and Play, and I'm like very grateful and I take it like really seriously.

Um, so yeah, we need more investors like you. So that's what we need, especially in our industry needs more people that take responsibility for it because the one person that doesn't ruins it for everybody else.

It does. Yeah. And I think we just, there's so much of this is thrown around like zero down and all this stuff. Yeah, it's true. But here's the thing. I bought a duplex off market, zero down, but the amount of education I spent to get that was my, and I put rehab, but that was like, if I hadn't invested in education, I never would've had the, I don't know how you build that mindset, but you have to To me, that's a big piece of this is that even believing it's possible to find these deals and then, and then knowing how to deal structure and to ask those questions. So it's, there really is, you have to put some kind of time or money into this, I feel like, to get the deals that you're talking about with very little down.

Yeah. Mindset is crucial for having conversations with sellers, having the confidence to put your numbers together. Having explaining that to a seller, why you can only give them so much on a deal. Yeah, no, it, it is completely 100%.

Yeah. And even asking the questions that seem like you have to remember we are not the sellers. Even asking the questions that feel uncomfortable, like why would someone do that? We don't know why, we don't know their motivations. So even being that, like, I'm gonna ask a really uncomfortable what-if question and yeah. So what I love about Credim, I think, is we're just helping so many different people, right? Especially some too, it's the agents getting paid. The seller can walk away from a huge amount of stress. We're helping. There's just so many ways we're helping, right? Versus if it's just other ways, we're like helping the bank make money, right? In a traditional, if you're buying an investment, 20%, like there's no relationship.

That's so true. And no, back to underwriting, advice I would have for anybody that's doing underwriting is to understand that you need to put in for CapEx. You need vacancy accounted for, you need repairs, you need all the basic stuff. 'Cause everybody, I see a lot of deals come through and they don't underwrite for that. They don't put in for those kind of contingencies. And it's not something that's gonna eat away at you right up front, but once you start building your portfolio and start having some water heaters fail, new, need new furnaces. Need a new roof. All those little things, they, they do add up. So if you're not setting aside money that's coming in, or if you're underwriting it too tight, I, that's the one thing I do see with a lot of deals that come my way is that the underwriting's so tight where they don't account for CapEx, vacancy, repairs, or even property management fees. Like I've seen some stuff they don't even put in for property management. Yes, you can self-manage, but you need to, that, that costs money. It costs your time, or you can pay someone to do that. So you still need to. Charge for it in your underwriting.

No, for sure. And that's one of the lines I like, I'll put it in and I'll noodle on it because I'm doing it myself. But like, what if something happened or I couldn't do it? It should, that I feel like the property should support itself. And part of that is it needs to be managed. If it's asking me again, it's our time that we're, if we're underwriting where it's so tight, then it's just, I need, it's a long game. That, what's the point, right? Honestly, like the debt needs to The income needs to support the debt in my mind, and that's really important. But I just thought of something I was like to ask. There's like this huge debate investing in your own backyard versus out of state. Like I obviously have my preference. I'm curious what your answer is to the benefits of in your own backyard versus like out of state in some pretty cheap places.

Oh my gosh. I am so tempted. I keep telling my wife, I'm like, oh my God, these, this dude in Indiana right now, he's buying them. Putting $50,000 into it. And I'm like, I just, I could just go clean up if I moved to Indiana. Do you wanna move to Indiana? And she's like, absolutely. I love the idea of investing other places. I'm just too scared to do it. I love being in my, okay, so as a contractor, I am a contractor and I've been a contractor for, since I was in high school. Like I, I was, I opened my own, I started my own company like before I even graduated. So as a contractor, I've been on so many projects and seen all the things that can go wrong. I have friends that tell me like, oh yeah, I bought this deal in Louisiana and I got somebody over there, a contractor. And it just scares me so much because I know what can go wrong, even with stuff that's in my own backyard, let alone all the way across the country. Yeah, I am nervous about doing that, even though I just, I purchased one 6 months ago in Louisiana of all places. Because we were gonna wrap it and it's a failed wrap. So now we're pivoting to get a renter in there. So we're gonna be keeping this one for the foreseeable future. But that was all long distance and it really wasn't that bad. Our partners on it lined up contractors, got all the things done. It all, it's worked out so far, but I, I still don't like the idea of doing that.

Yeah. To me there's, I, I know the market, I know the nuance of what street, like you can go over it. To me, I just wanna see it and I don't know, maybe it's like a mindset thing, but I just can't get over that. Yeah. And also our appreciation, our cash flow. Yes. It's not great for landlording, but I just, to me, all those things outweigh the, I might get a super deal, but there's no appreciation. So to me it's a long game and you're not even going to get that.

You can't. Yeah. I know. Even those houses in Indiana, they've been, they've been stagnant in appreciation forever. The only advantage is just the rent. Rents rate, rents have gone up, values have not. So it's a weird, weird thing that's going on. But yeah, I know I'm tempted all the time to do stuff over there, but I don't know. I like being able to see things that are here, even though I don't go to, once a property stabilized, like we, I have this, many of them, I never, I haven't been there in years. They just, the property management does their thing. They give me updates. They let me know when I need to do something. That's more than what they can handle. So, yeah, it is pretty simple. I would prefer to own assets in other states. There's definitely states that are easier with landlord laws, or even if you're doing wrap mortgages, like way more friendly than Oregon. But I like Oregon. I like where we're investing. I like the properties we own here.

Yeah. Yeah. I think you have to just figure out it and also your risk tolerance. For me, I feel like I'm very I do calculated, but that to me, that's beyond my risk tolerance personally, for all the reasons you said. I like real estate because I can affect it. I can fix something. I can have, I can do something to improve. I can make it a midterm if it's not cash only. I could have that influence on it. And to me, like when it's, I'm not going to fly in to see a turnover. I, that's, I'm not going to hop on a plane and go to Ohio But I think whatever you do, just dive in and do it, do it what feels right and people kill it with that. But you don't just do it because it's trendy, I guess is what I would say.

Oh yeah. Oh, definitely.

Yeah. I know we're going a couple, I just caught a couple quick questions and we'll do a wrap up. Kimberly's asking servicing company. I, if you want to answer that, it's not an escrow company if you want to explain that.

Yeah. Yeah. So the question's. What is a servicing company?

Yeah.

Yeah. So servicing company is a, it's like an escrow. It is like an escrow company. So it's like a neutral third party that will receive funds from one party and distribute them to another party. The advantages of having a servicing company versus just, okay, imagine that Shona's got a house and I bought her house and Shona's like, hey, you didn't make the payment this month. And I'm like, I made the payment. See right here, it went out of my account. There's not, it's a he said, she said weird situation, but with a servicing company, they're neutral. So you send them money, they, there's no reason for them to lie about it or to misrepresent. So it's a great way to have a neutral third party handle funds in a transaction that needs transparency.

Yeah. And like the neutral thing I think is key, right? And you're not trusting someone to remember to write a check or like they forgot. It's just, that's their job. So I think it's really important. Yeah. Okay. I don't see any other questions. Are there any other questions? Feel free to chime in. Okay. If there's anything else that we didn't, I know we covered a lot, otherwise I'll just start wrapping up here, but this has been a fun conversation.

Oh, we covered, we've covered quite a bit. So I'm excited to see, are you going to be buying any sub-2 deals in our area?

Oh, my interest is piqued. I think I'm like, I was, I'm, I love like installment plans, because it's just like this very, it's a blank canvas. And, but no, I'm, I feel like it's a toolbox, right? And you, the, when you have the right tools for the right thing, it's certainly, there's an appeal to it, right? And I think we forget when we're buying property, the debt and the property, they're not necessarily the same. And we can separate those. And sometimes we're buying a property just for the debt, right? Which is a crazy concept.

I know it's very weird when you think about it. Oh, so some things to look out for. That we didn't touch on. When you're purchasing, go with the big servicers. Like when I mentioned Mr. Cooper, Lakeview, all the massive servicers are very safe bets because when those mortgages are originated and the servicer is set in place, they literally throw them in a bin. So that's not something they're looking at. The— you run a higher risk of due-on-sale or issues with like local banks. So community-type banks, if you see a mortgage that's with Qua, or I saw one the other day with Emploi that was, I didn't know they were even doing that, but Qua or KeyBank or something like that. Somebody that's a local bank that issued a mortgage. Those ones are more sitting on their desk. They're taking their closer eyes on that. So you do run a higher risk on those ones. So do, do keep that in mind. That's, I think that's one pitfall. Another pitfall are, this is, I can't believe I didn't bring this up earlier. Now I think about it. When someone, a seller has a loan modification. So anytime they have, uh, a lot of times in a foreclosure situation, the arrears are piling up. They go to the bank and qualify for a loan mod. So the bank comes in, piles up all those arrears into a 0% interest, tack it on at the end kind of situation. But they sign documents saying that they're going to live in the property for usually it's 12 months or something. And you can get in trouble if you're coaching them to get a loan mod. So for your benefit, like if you're coaching them to go through the process and lie to the bank and say that they're going to stay in the property for 12 months, you can get in trouble in those situations as well. So my advice on those ones, like it's not a problem for people to get a loan mod and to go through that whole thing, but you don't want to coach them. And if you do purchase their property, set it up as a lease option. It puts them in a good situation. So they're not technically violating their terms. They're still selling to you at a later date, but it just protects everybody. So be very careful of loan mods or government assistance. We see a lot of state assistance where they'll do the same things. They'll put, like I had one in Salem, the lady had, she got like $112,000 from the state of Oregon in a grant or loan mod on there. It was like 0% interest for a very long time. Be sure to read those documents and see that you're not putting them in a higher risk situation.

That makes sense. And that, those are set up to help homeowners and keep them in their homes and we don't want to take advantage of that. So yeah, that's a really good point. Okay. Yeah. Thank you. Just be ethical, right? Just like the other— Okay. Thank you. That's great. Okay. So a couple wrap-up questions and I think I sent you these ahead of time. Top business or life advice to live life on your own terms.

Oh my God. Take action. So I don't know how many people I talk to and they're like, I think I'm going to do this. I don't think I'm going to do that. And I'm going in this direction. Just take something that you're interested in, narrow that down to, if you have 15 things that are so interesting, find the one that really resonates the most. Even if it's only, if you have 15 things and this one's a 9 and the rest are 8s, do the 9 thing, but do it for 90 days. Just commit to it for 90 days. If after 90 days it doesn't work out, do something else, but at least commit to 90 days. And take action every single day.

Yeah, I, because to see trend, often there's like this iceberg, right? And we don't see the result, the fruits of that, and it's building and it's like we stop right before there's that. Yeah, I love that. That, and then the action thing every, that's, but the 90 days, that's like commit to it and that very good advice. Okay. What is your most valued personal or business asset? Stefan?

Oh my gosh. I would say persistence. This is, I think it's really valuable, but it's also a detriment is I don't like quitting, so I will stay at something way too long. There's things that I should have quit on a while ago and I stay with it, but it really works out for you when it's really beneficial. If you stay at something and just be persistent, you know, it comes into that 90-day thing. If you have a ability to stay at something for long enough, you will have a breakthrough. So that's where I think one of my more strong suits comes into is that I like taking action. So when I see something I wanna do, I go full force at it. I almost get tunnel vision on it and I just stay at it and it, it helps out. It works. It's worked out for me.

No, I think that's true. I think you, you do. And not to see the results. I love that. This kind of leads into the, what's your superpower? Maybe that's what it is, or maybe it's something. And how do you use that in your business?

Oh my gosh. I, yeah, I very persistent and push forward nonstop.

I have that same trait. It can be a double-edged sword, right? Sometimes I just be like, but I'll, oh yeah, bang through stuff.

If I set my mind to it, people think you're annoying cuz at my office, like, oh, when, you know, something's, and something, when I see something that needs to be corrected, I'm so dogmatic and they're like, why are you micromanaging? I'm like, I hate micromanaging. Micromanaging. I absolutely hate it, but you're not doing your job. So we need to work on this until either you start doing your job or you need to move on and I need to find somebody else that will do your job.

Yeah, no, that's, that you have to, that's otherwise things don't happen. Okay. I always like to ask like a book or a podcast or a community that you'd recommend and why.

Oh yeah. Sub2Community by far has pushed me. I wouldn't have had the growth. We picked up, I have currently have 28 doors. We wouldn't have had that growth if it wasn't for the community. And every time I see Pace, I always thank him for that because he really paved the way for, he was community member number one. So he's paved the way for everybody. Yeah, the community has everything in it that you would ever need for real estate. We have all the different channels and avenues. It's a little bit overwhelming cuz when you get in, there's so many shiny objects. And everybody flounders. A lot of people do when they first get started. But yeah, that really has propelled my growth the most.

Okay. Yeah. And I think you have to find what resonates, right? That's really important of someone's style, like, and there's so much content out there to consume before you make that decision, but it's, it's really important. And if someone is, I don't know, local in the Portland, Oregon area, like wants to just reach out to you. I know you're like really helpful when you, how, what's the best way to get in touch if they wanna reach out?

Yeah, Facebook. You can find me on Facebook or Instagram at @therobhardin. So you can find me there on Instagram. I try to, I'm trying to post more. I just get so busy doing the business that, yeah, that's good. But yeah, definitely hit me up on there and if you have something you wanna talk about, more information or whatever, I would love to help.

Awesome. Yeah, I know. I know we see you at all the events too. It's because, so we're like the regulars as well.

I know, I know. I always see you. I, yeah, there's a certain group of us that we're at all the ones. Like I'll be in, I'll be in Salem tomorrow night at the Salem Real Estate Meetup.

I've heard that's really good. I've never made the trek, but I know it's on that part.

Oh my gosh. You don't need to cut. Yes. They're the guys down there, the crew down there. There's so many good investors. I slept on that one for, I don't know, it was like a year. I just, I was like, Salem, like, how could it be any good? Come on, it's Salem. I hate to say it that way, but it's not Portland. I know, sound like a snob. But then I went down to the Salem meetup and there's guys doing these crazy deals. Like Trevor Howard, he's doing like Morby methods, doing really complex stuff. And you had Gabe down there, Dane McKinney. There's a really good group of investors down there. You can learn a lot from them. Yeah, the Salem one I always go to. I always go to Investor Labs. I've been frequent. I'll be there this week. Are you gonna be at Investor Lab?

Yeah, I feel like, yeah, it's, that's the place to be. Like, that's where the real cool kids go.

Yeah, that's why you're there. Yeah.

See? Uh, yeah. Well, I think for anyone, like, I'm like a super introvert, but I, and everyone also feels somewhat awkward and there's all, everyone's very supportive and relatable and you can, wherever you're at in the journey, I feel like this community, I don't know other communities, but it's there's no ego. Everyone's willing to help and it's just a talk shop or wherever you're at. So if anyone's like, I don't know anyone, like I didn't either. I just started showing up.

So exactly. Just show up. Someone will see you standing there and come talk to you. So I, I do, I look at, try to look around the room and find people I don't know yet. So definitely show up.

Totally. That's what it's about. Robert, this was really fun. Thank you so much for sharing all your knowledge and hope you, I think we inspired some people. And just, yeah, it's just a fun game. You gotta get in it though. You have to be in the game to, to learn it.

Thank you so much for having me. I've been wanting, I know we've been talking for a while now, so I've been wanting to come on here and hang out with you. So I always like seeing you and, and we have the best conversations 'cause we're both so into creative finance.

We know that. Yeah, no, and I feel like you never stop learning, right? There's always, I always learn something. I'm like, I, I think I've learned every possible strategy, and then I hear, I'm like, okay, I guess I'll just never stop learning, right? Awesome. Thanks again. I'll tag you everywhere and yeah, it's awesome. I'll see you at, I'll see you on Thursday at South.

Awesome. See you there.

Awesome. All right, thanks.

Thank you.