20: Creative Financing - Deed of Trust Investing and Seller Carry Backs

Welcome to the Purpose Driven Real Estate podcast. This is where passion meets purpose in an ever changing real estate market. I'm your host, Steve Valentine, former real estate agent turned real estate entrepreneur, speaker and guide to all things real estate. And this is my co host, Paige Tons, former D1 college athlete turned real estate adultrepreneur. Whether you work in the industry or you are a consumer of real estate, with each episode we intend to raise the bar in our industry and show you the purpose behind every piece of real estate in your life. What's up, everybody? Hey, everybody. Hey, it's Steve Valentine and we're here on Purpose Driven Real Estate. And I just had a quick tip for those of you that want to own real estate without actually owning it. So there's this thing called deed of trust investing, and I just wanted to go through a quick piece on it, let you know how it works. It's very interesting when you become a lender in the real estate business and you actually own the note, which is secured by a deed of trust, and the note is the actual document that's going to give you terms such as interest rates, terms, payoffs, those types of things. And that note is actually secured with a deed of trust against the property in a first or second mortgage position. So there's a lot of different ways you can do that. And if you're sitting on some cash and maybe you're not necessarily wanting to be in the stock market and unsure of what you want to do, there's a deed of trust private money lending piece that we offer at the Valentine Group that we'd love to talk to you about and just kind of explain what the situation is. The interest rates vary depending on the loan and the length and those types of things that are happening. We've built a lot of wealth for a lot of investors over the years by having a combined impact in the community here in Phoenix. You know, if you're out of state, that's okay, too. We'll help you put your money to work here in Phoenix. The cool thing is, is that we've had some investors that would prefer to have a straight rate of return without the risk of flipping homes, which we've seen some investors risk some money and lose some money from that. And then we've also had some investors that have owned rental properties and they may not be getting the cap rates that they desire by owning the rental properties. And what I mean by cap rates, it's actually the cash invested divided by the price of the investment, minus your expenses and what that does is it gives you your rate of return or your annual rate of return. And right now, cash on cash. When you're paying cash for a rental property based on vacancy repairs, taxes and insurance, those types of things we're seeing in that $200,000 price range, you're seeing between a 5 and 6% cap rate, depending on what you buy. So you're not getting as great of a return to where in private money lending, you're typically a couple of points over what traditional rates are can be secured both short term and long term. We do both and we use it for some of our repurposed program. We also use it for second mortgage deeds of trust, just different things that are secured by individual single family homes to where your money is safe and secure by an asset. Now, for those of you that might have been fortunate enough I was not, that may have bought a home or 10 or 20 or 100 homes back in the heyday of the market, that 2008, 2010 timeframe, you may have paid 50, $60,000 for that home. And it may look that the rate of return on it, obviously you've had good income for the last 10 years, but now the house price might have peaked. So what do you do? You sell that home, you take a tax consequence on it and then what do you do with the money at the end of the day? Well, we have a lot of sellers that we're working with. I've actually bought several in the last year where the seller of that home, rather than getting the tenant out doing fix up, doing repairs, we work through a price and that is the equivalent of the sales price of the house, turning that into the investment which is a seller carry, very similar to a deed of trust. You're playing the bank and selling that house on paper. So you're secured in a property that you used to own and now myself or an investor owns it, and you're now getting a straight 7 to 8% return on the entire value of the house rather than the value that you paid for it, which in some cases, you know, knowing people that paid fifty and sixty thousand dollars and based on rents being up, you might be still seeing that upwards trend of 14 or 15% on that initial 60 grand. But if you actually take that purchase price and double it, you're actually getting a higher rate of return by selling it on seller financing and you no longer have the vacancy, the tenant problems, the repairs, all those pieces that people tend to not enjoy when it comes down to being a landlord. So if you're ever interested in the wealth building piece in Valentine Group, this is a great way to think about investing cash or potentially selling your investment home and doing it on a seller carry. Would love to talk to you about it. I've got some show notes in here and I look forward to speaking to you. This is Wealth Group building tip. I don't know what number, but it's a good one. Thank you for listening today. If you loved this episode, please share it with somebody you think would also love it or be inspired by it. Without you guys, we can't create more purpose. Please leave us a review and a truthful comment or thought. And until next time, this is Purpose Driven Real Estate.