Sandwich Leasing—Everything You Need To Know About Being The Middleman

Hey, it's Mark Podolski, the land geek with your favorite niche real estate website, www.thelandgeek.com. and today's guest I'm gonna put on my anchorman voice is a big deal. But before we talk to our guest, I would be remiss if I didn't properly introduce my co host. You know him, you love him. Six Sigma Scott Todd from scotttodd.net landmodo.com and most importantly, if not automating your craigslist and your Facebook postings, posting domination.com thelandgeek Scott Todd are you ready for this?

Mark I cannot wait for this one.

I'm really excited for today's guest. Before we talk to our guests though, just want to remind everybody, today's podcast is sponsored by GeekPay IO, the only set it and forget it system to manage all your notes, private lending, private notes, whatever it is, it's amazing and your first note is free to play with it. Geek Pay IO Today's guest is smart because he's a real estate coach@smartrealestatecoach.com Chris Prefontaine if you don't know Kris, he is Amazon's best selling author of real estate on your terms. Create continuous cash flow now without using your cash or credit. He's Also founder of smartrealestatecoach.com and smartrealestatecoach podcast.com Kris has been in real estate for 25 plus years. His experience includes the construction of over 100 plus single family and duplex homes. He has owned a realty executives franchise. He's done like million dollar deals. He's done condo conversions. I don't know Tris, you're a big deal. What's, what's going on?

Chris Prefontaine hey, thanks for having me Mark. It's a pleasure to be on. And that was quite an intro.

Well, thank you, thank you. So Kris, let's, let's just rewind the tape. And how did you even get into real estate in the first place?

You know, obviously I'm dating myself here but this I go back to man, early 90s. Started building some single family homes, what I called spot building, you know, just infill lots, onesie twosies. Ended up buying a realty executives franchise in mid-90s. Sold that in 2000ish to coal banker back then and then started really playing on my own. I coached realtors at that time around the country, not investors then and started doing those condo conversions you alluded to. And really that morphed into doing our own deals and then people asking us to show them how to do their own deals. That's the, that's the 10,000 foot view.

Okay, so what are you doing today? Like, what's your focus today? Of all the different types of real estate you've done, what are you doing?

Yeah, you mentioned the book. I mean the real estate. On your terms. We buy. We have a small family company in Newport, Rhode Island. We buy anywhere from three to six homes per month ourselves. And then we have partners around the country, students around the country that also do the exact same thing in their area with our help, most of them as literally partners on the deal with them. So on your terms means what? Buying all those homes without using your cash, without applying for a loan, and also without signing your name personally. Learn that the hard way. So that's what we teach and that's what we practice every single day in the trenches, still on our own.

Well, I would like to do that. Chris Prefontaine. Scott would like to do that. Right, Scott?

Yeah, I mean, how do I do it?

How do we do it? Do you mind spilling out the secrets right now?

Well, the secrets, easy. Then it's the how to.

Right, right, right.

So look, we buy them all, guys on lease, purchase or owner financing. And neither of those having a loan go in their name. Neither one of those putting up a deposit. I say no deposit. Maybe you know, there'll be a hundred dollar deposit. We've tied up literally millions of dollars with the real estate for maybe a few grand, you know, a couple thousand dollars over the last four or five years. So they're all done on terms. Thus, thus the name, on your terms.

Okay, it's just for the listeners. What is a lease purchase?

Okay, so let's pretend you have a home. Let's not address if you have any debt on it, but let's just pretend you have a home. And instead of buying that from you right now with a bank loan like most people do conventionally, and instead of buying it even on owner financing, I structure a lease purchase with you, which is nothing more than a monthly lease payment with me taking over for you, Mark, all the repairs, all the maintenance, taxes, just like I owned it. Only it's a, it's a payment going to every single month and I take care of all the expenses. And then at some point agreed upon in the future or before then it's cashed out, meaning somebody is getting financing. In our case, it's an end buyer, It's a rent to own buyer. But that's what a lease purchase is. It's, it's an end purchase at some date in the future with a lease as the vehicle to get you there.

And you're buying it with a lease purchase, correct? Or you're selling it on a lease purchase.

Yes and yes. So we buy them on. In that example we would buy your home on a lease purchase and then we would turn around and sell it on a rent to own. Same thing, lease purchase. But buyers know that the term rent to own and so we put a buyer in that home that has been pre qualified to be mortgage ready at some date we can live with within our terms and a game plan to get them to that mortgage ready date. And then that's the person that's eventually cashing that home out, cashing that seller out. So we're in the middle. You call that a sandwich lease? The way I just described that. I've got the seller, I've got me in the middle and I've got my end buyer, my rent to own buyer.

Okay, so a sandwich lease I thought would trigger some issues with a bank that does it not do that anymore.

As far as the seller side.

Yeah.

No. Unless there's a restriction. There are some loans, as you're probably aware that our own are occupied only. Not all loans, but some government loans, some va, some are short lived. But no, that doesn't trigger anything. A subject to sale. You sell me your home with the loan in place, that can trigger a due on sale clause.

Okay, yeah, do on sale clause. That's what I thought. Okay.

Yeah, not on the.

I kind of love what this strategy.

What do you think you know, Chris? So I remember like you know, back, I don't know, like 17 years ago, around 17 years ago, back when Mark was like looking at raw land and I was like messing around with mobile homes and stuff like that. I remember like looking at a strategy very similar to this, right. And at the time you could go and I don't know, the concept was you would go and you'd give someone, you'd find a house kind of a blue collar market, hey, I'll give you $3,000, I'll lease option your house for three years and I'll pay you X amount and then you find somebody that will either give you 3,000 to $5,000 down, so you're making money on the down payment, if you will and then you're finding somebody that will make money on the spread, you know, maybe 100 or $200 a month. And the one thing And I'll admit it was a self limiting belief but like I just had a hard time believing that somebody would do that and like give me control of their house that well, why wouldn't they go do it themselves? Now I say that and I know from where I am 17 years later that it was a self limiting belief. But I know someone in this audience is going to be like that makes no sense. Why would anybody do that? Why do people do it?

Yeah, biggest question we get, very good question. Because they go, well why wouldn't they just sell it outright? Forget to get dualies purchase themselves. Right. Why don't they just sell it? Okay, so a number of different reasons in no particular order as I think of them. One is sometimes they're on the market for a long time, for a short time, whatever with a realtor or on their own and for functional reasons it's not selling or they're overpriced because they fail in their head. They have to get X amount or they frankly there's a loan that's too high and the market still hasn't come back for them so they can't sell. All of these reasons, all these scenarios I'm giving you, we can structure these purchase that gets them to the end zone. It's just a matter of how long it's going to be for a term. As far as them doing on their own in the lease purchase world, you know there's been so many people that try that as homeowners and come back to me and say oh yeah, that didn't work. And so my first question is, well you got a non refundable down payment that was sizable, right? Well no. Okay, well you got them pre qualified so you know they're going to have a mortgage end date, right? You didn't just have a renter in there with an option to buy? Well no. So they just misperceive how this is properly done. The proper way to do it is going back to your example. We put a buyer in there that they have three to five grand. No, it's not enough, that's a renter. We put a buyer in there that is going to put 3 to 10% down of the purchase price. So now they are truly a buyer. And, and then there are three paydays. You alluded to two of them. One payday deposit up front, non refundable, two payday spread every month. We average around $380 right now and 60 some odd properties. And then the back end, the cash out period is the third payday and that has also got built into it, the principal pay down throughout the course of the term of the lease purchase. Because that benefits us, the investor, not the homeowner.

Chris, this is a really interesting strategy which would beg the question, well, why doesn't everyone do this? Why would people just go the traditional route of trying to get hard money or private money or FHA loan or why won't we all just focus on these types of lease purchases?

I think part of what Scott alluded to earlier with the limiting belief, because students are doing them and I and going back to his comment, if they're having challenges, it's usually in their head. It's usually in their squash juice between their ears because nothing in the market that limits them. You know, one thing is, might sound crazy, Mark, but one thing is just the ability to not, not worry about talking to people. I mean some people, believe it or not, don't. They're not comfortable talking to people. Right. So one of the limit limits they put on themselves is not learning how to do that properly, not having the conference to do that because you don't like talking to people yet. This is probably not the right path for you.

Right? Right, absolutely. That's, you know, that's where you go into land investing. So Chris, I mean, what sucks about your business?

Okay, so this is interesting because in my book, unlike you know, this from being in the education world, a lot of people won't talk about stuff that can go wrong. I get a whole chapter in the call what can go wrong. I wanted to know what can go wrong. Right. So what can go wrong? Well, life events happen. Out of 50 or 60 deals a year, we'll have inevitably 1 2. I don't think we've had 13 in any calendar year where something happened. You know, they, I had a couple that were disabled. We had someone that got nasty job accident, got pinned between a car and a wall. You know, things that their life events, they're not predictable events. And so what happens? Well, they usually either call us and work out terms that they can live with now because things change or quite frankly they call upset and hand us the keys. That that happened this year. Hopefully that's the last one this year and I gotta leave. It just doesn't work for us anymore. So that does happen one to three times a year. And the way I structure my deals with the seller, it's not their problem. I have to refill that home and I gotta still get it cashed out. So that's, you know, that's A headache. But when you, when you build up, you know, in our case we're always carrying 60 or 65 of these. So to have two or three headaches, it's okay. And when you're brand new, I tell my students that I'm partnering with don't do the deal where you're committing to a payment. Just don't do it. Make everything contingent upon your buyer. And that's how I started doing it.

Scott Todd, Not a lot of holes to poke.

There are not a lot of holes to poke. Especially when you're not like deploying a lot of capital.

Right.

Like that's, that's the thing now. Ok, two questions. One, how do I find these deals? And then two, am I doing anything like repairs to the house to like get them ready to sell or anything?

Okay, great, great. Two great questions. So let's do the fine deals first. I do get a lot of emails on that question. I get a lot of emails saying my challenge is and it's usually something to do with lead flow and I don't care if they're wholesaling or whatever they're doing. So in our world we get all of our leads. And I'll give you some exceptions from the expired listing market, those are more immediate. And then the for sale by owner market. Now before people panic that are listening, we have virtual assistants that call those so that you're not calling people that don't want to talk to you. Right. That's miserable. So that's finding deals, expiry's and FSBOs always. We do mailings and other things that are less predictable and costly. I don't suggest people do them when they're new. We still get 95% of our leads from those two sources finding deals and I'm sorry Scott, what was the second one? It was a good one.

It was. Am I putting any capital into these houses?

No. So we do $10 deposits on lease purchase. If I use my IRA, it might be 500, just to lack of a better word, legitimize that. But no, we don't put money down on the deposit and then on the repairs. We make a inspection contingency. If our walkthrough is not, you know, it's not new construction or something we can see by the eye and it's an older home and we really like the numbers. We will do a home inspection. It's not all of them. And then we will go back if there are items to fix and we will have the seller do that or we won't go forward. You know, just like any other property. If you're going to buy a house tomorrow for your family, you make that decision. I want to deal with this or I'm going to have the seller do it.

All right, Kris, walk us through a case study. Last, last deal you did, how did it work? What was the, you know, what was the whole deal and structure.

Let me look at my board and give you one from just, I'll just pick one out of a hat. But I'll do a single family because there's some fantastic owner financing deals. I'm sticking with this lease purchase for you. Let's do. Okay, so a gentleman calls and he's got two properties side by side. He's leaving to South Carolina, which by the way, leaving to South Carolina and New England and leaving to Florida are the two biggest things. Were crazy busy in the fall because of that. So this guy says, look, I'll do terms. I'm out of here. I don't want to know about it. I don't want to rent anyone. I know you guys reputation. I want these done. One's debt free. We structure owner financing. We won't go there on this call. Second one has debt on it. So I don't. We're not going to take it subject to and trigger any problems for the guy. So we say to him, we'll structure a lease purchase. Rough numbers. House was worth around call it a buck 80, 180,000 mortgage payment somewhere around 1100. I can get on the rent to own market somewhere around 1500. We did exactly that on a small 180 house. We got a $9000 non refundable down payment. That's your payday number one I alluded to. We then got that monthly spread of, I think it came to foreign change almost $500 and then the back end. Interesting. So that loan, the existing loan that's on there for a house that's worth 180 existing loan was, I don't know at the time, maybe 160 or so. That loan in three years as you guys can imagine is no longer 160ish. Right. Because they principal pay down. So I get all that principal pay down and then we mark the house up to 299. So you've got the mark up the principal pay down. So the usually that Payday 3 I call it, that back end is pretty hefty payday. We can take a house like that, that small little 180 at the time value house and pull out of it, you know, three or four hundred dollars a month, nine grand up front, and then a nice back end payday and.

Then your IRR on this deal.

Say again?

Your internal rate of return.

Oh, gosh. Well, it's infinite. I didn't put, I put $10 down, you know, so there's no, I have no money in that home. They take it as is, they handle our repairs, et cetera. All I care is what I care. Our model. This is important. Our model. Unlike some investors, we do want our buyer to cash out the deal. We do send them to a pre qual for us. We do accept them only if we know they can be mortgage ready inside of our terms that we structured with our seller, which of course we give ourselves a buffer.

I love it. I love the model. Scott. Scott. Do we have shiny object syndrome? Are we right now?

Like, I'm, I'm like, I'm like trying like, like to stay focused here, like, But Chris, like, even if they don't, I know you want the big payday at the back end, but even if they don't qualify, who cares? Like you, you have the cash flow in there. You know, you've got a nice upfront deposit mark.

Yeah. We have a family right now calling us and saying they might go to Florida and will we let them out of the lease? Well, they've already put down, I don't know, 12 grand or something like that and they're asking us, will we let them out of the lease so they can move to Florida if the opportunity arises for a better job? And of course I said sure, because then we'll do what kind of what you just alluded to. We'll refill it with an another rent owner buyer and start from ground zero again.

Okay.

Okay, listen, if they move to Florida, you got to tell me where they're moving because I live in Florida and I'm going to go do this right now. I'm going to be their connection down here.

You want the rental farm? Yeah.

You tell them to call Scott.

Will do.

You know, speaking of, are there better markets than others and can you do, can this scale? I mean, can you do this nationally?

Yeah, good question. So we so go back to what I kind of said lightly at the beginning. So we do our own here. I have now removed myself from my kids run it 100%. And so that tells you that you can train in someone and scale it and move yourself, you know, onward with managing it. But then we also have these partners around the country of 21 or so now 22, maybe different states that are doing this now. Are some easier or more plentiful than others? Yeah, I mean off the top of my head, Pennsylvania right now is not a market that took off yet. You know, it's not a hot market. Whereas California is a hot market in a lot of pockets. Even in the hot markets, Mark, there are properties that Realtors are always seeing expire. Right. Everybody knows that for whatever reason there's expired listings in every market. So in the hotter markets they focus more on the expired listings or targeted niched mailings so they can find the deals. Are they going to go through more leads maybe than the in California than they are in Pennsylvania to get to one deal? Sure, but there's always deals to be had. Just a matter of knowing your numbers.

And what percentage of the deals are lease purchase versus FSBO or for sale by owner.

Okay, so our deals right now are probably 50, 50 Expired for sale by owner. As far as the source, if I had to give you a rough number and as far as the different types of the way we buy, the two or three different, I call them buckets, we do about 25 or 30% on our financing and the rest lease purchase.

Alright, so Kris, I have to ask, even though I know the answer because I have abundance mentality, but let's say that I didn't, let's say I had scarcity mentality. If you're doing so great Kris, why teach this stuff? Why be the smartrealestatecoach.com why write a book?

I just, I just told someone last month on a, on a podcast. I think it was on the shoulders of titans. He said the same thing and here's my answer. It's interesting because he actually made me think about it and you're giving me the second time, laughed and said what the heck would I do? My son in law, my son and my daughter took over the buying and selling. I, they literally run it. So I have like 5%, you know, responsibility and time invested in that. And so to go out and help partners go from, I mean literally an engineer, a nurse, people that never touched real estate, they didn't, didn't have their finger in it to see them do deals. And oh by the way, we partner with them, that's fun and that keeps us doing deals, not having to run all over the country to do so because they're doing them, we're coaching them and partnering with them. It's just, it's fun to see the progression from a student standpoint, educator standpoint and we can still buy and sell and not be intricately involved.

I love it. Scott. Todd, are we going to adopt Chris Prefontaine?

Oh, man. I. I'm like. I'm like, in shiny object land over here, Mark. I can't even concentrate anymore.

All right, if you're all right, Chris, your mentorship has been great. This podcast. Scott and I are both sort of drooling, even though I still like our model better. Scott. But I like this one as well.

You know what I like about, like, okay, so let.

Let's.

Let's just, like, punch a little bit, right? Like Mark said, let's just jab. What I like about. What I like about Chris's model is I like the big payouts later in time.

Right?

Yeah, I love that. I love the creativity of it. I love. He's not putting any of his money out.

Right.

He's here destroying all these single family home guys.

Here's what I don't like, and this is kind of maybe just me. I'm kind of spoiled in the fact that I don't have. If I'm gonna buy something, I don't have to go out and look at it, right? Like, I mean, the thought of, like, okay, I gotta get my car. Yeah, See, like, I gotta go get my car and I gotta go look at the house and I don't know, walk through it and I don't know. Like, that takes time, right?

Like, yeah, but couldn't you just outsource that? Couldn't you do, like a local Craigslist gig? Or we go look and they take pictures.

We go look.

I could send. We go look out there. Yeah, that's a good idea.

Yeah.

You guys are right. They actually do that now. Like, the service needs to have some work, but they have a service that does that and they do a whole property report. We have a student that. His name is Brian. He actually does just that. He has zero, zero desire to go out. He told me, look, I got tattoos all of my body, I got rings, all of my face, and I want to go meet people. So he does it from his computer. Does he maybe let go of some deals that I might get that I can go see him face to face? Sure. But he doesn't care. He does enough of them. I think he does like 30 deals a year. Quite profitable. You know, our average three paydays is 65 to 85. So if you turn these things out, they're quite profitable. So you care less if he does more than that.

Yeah. I love the strategy. Well, Chris, we're going to put you on the spot and ask you for your tip of the week. A website, a resource, a book, something actionable where the art of passive income listeners can go right now, improve their businesses, improve their lives. What have you got?

Well, for my tip, I'd say this. I'm going to be general. But you can get off this call and act on it. And that is reach high with a mentor. So reach. I always say, thank you, but reach high and then find a mentor. I get that. It might not be me. Matt gets, it might not be him. And there are people out there that have been where you want to be. No, don't just talk to them. Don't just study their stuff. Like immerse yourself in their stuff. And don't let the shiny object. You guys brought that up. Don't let the shiny object get in your way. So that'd be my tip. Retry and get a mentor and just blinders on from a book standpoint. I literally just got done and you and I may have chatted about it when you were on my show, the PT Bonham. There's a customer born every minute. But it's Joe Vitale's recount of P.T. bonham story. It's quite amazing because if I don't care what business you're in, forget real estate for a second. Joe's not in real estate. And you, you know, we had a several hour brainstorm just on this book because it talks about what P.T. barnum was so great at. Marketing. Really, just marketing and promotion.

I mean, what was your big takeaway from that book? I mean, because marketing is kind of endless and you know, today is the best time ever to market because it's the only time like PT Barnum doesn't know what his customers are thinking. But now we know. I mean, we can do keyword research. We know exactly the phrases that they're typing in a Google search. We know what they're thinking.

Yeah. His stuff in a nutshell without getting into the detail would be just do what everyone else is not doing. Just outrageous. Do what everyone else is not doing. Go against the grain. Go swim against. Swim the opposite direction.

You know, Chris, I've got a great book for you to read. It's the Blue Blue Ocean Strategy. You've read that?

I believe I did. And I wasn't there an update on that one?

I think there was, yeah.

Redo or something. Yeah, I believe I did. It might have been a couple years ago.

Yeah, you'd love that book. It's kind of similar. It's kind of similar. Okay, that's a great tip, Scott. Todd, what's your tip of the week Mark?

I've got a, I really have kind of a pretty cool one. It's, it's called, it's a, it's a service called Fresh Chat.

It's like a.

Let me see how I can explain this. This is like, you know, a Slack if you will. It's a way of chatting but with your customers and it goes, it's like multip, multi platform. So it's not like platform, you know, like one single platform. It can go across messenger and Slack and websites and everything. And if you're looking for a way that you can like work to convert your leads into like sales, well then you need to look@freshworks.com freshworks.com it's a live chat software that kind of gets everywhere it needs to go, multiple channels. You can easily convert it over to like a bot. You can, you know, jump in, humans can jump in when the bot needs needs assistance. It's really, really cool and it might be worth your, worth your time just to explore a little bit.

Yeah, I'm going to check that out. What was that, Chris?

I said I appreciate that share.

Yeah, there you go. Chris could use it too. Yeah, absolutely. My tip of the week is learn more about Chris and his amazing, his amazing model. Wait a second, what's this video course? Profiting with land. Chris.

That'S land 101. That's not even on the same playing field as your stuff. You'd look at that and say, oh yeah, I Learned that about 18 years ago. It's some lingo. It's really getting them to understand what land is.

Okay, very cool. Alright, so learn more about kris@smartrealestatecoach.com smartrealestatecoach.com he's got video lessons, he's got a membership group, he's got resources, business tools, credit repair, mentor products for sale by owner websites. He's got an events calendar and it's great. And then you know, it's for sure. Check out the podcast as well. Smart Real estate podcast, correct?

Smartrealestatecoach podcast, yeah.

Smartrealestatecoachpodcast.com well Chris, Prefontaine, this has been really enlightening. Are we good? Is there any final words of advice? Is there a question we should have asked you that we didn't ask you? I mean I thought we were pretty tough on you, Chris.

No. You guys are fun to chat with and I, and I Enjoy the two person interview. I just want to. I don't care what people are coming from real estate. You know, they have no real estate background. They never met you or I from, from a hole in the wall. I go back to sticking with a mentor that can get you from A to Z. And put the blinders on. Don't look left, right or backwards and just go far. You can do it for sure.

I love it. I love it. Scott. Todd, are we good?

We're good, Mark.

All right, well, I want to thank all the listeners. Just remind everybody, today's podcast is sponsored by GeekPay.IO. set up your first note for free. Even you, Chris Prefontaine could use Geek Pay that IO. You could just automate collecting your rents via ach. Your, your renters can go on, they can view their balance, they can make a prepayment. No longer. You have to call, make a collection call. If their ACH fails, charges a credit card on file as a backup. So check out Geek Pay IO. And I also remind the listeners the only way, the only way we're gonna get the quality guests like a Chris Prefontaine from smartrealestatecoach.com is if you do three tiny, teeny tiny favors. You got to subscribe, you got a rate, and you got to review the podcast. Send us a screenshot of the review to support thelangeek.com we're going to send you for free the $97 passive income launch kit. So please do that. It really helps and let freedom ring. Thanks, guys.

Thank you. Thanks for having me on.