Mastering the Morby Method in Finance

Welcome back, guys. We are on video 12. 12. In the series. We're doing an entire Creative Finance Masterclass. The amount of children that Jerry's going to end up having. No. We passed that two videos ago. Oh, two videos ago. Ten children, bro. Same mom, same dad, no twins. So he, video 12, he's going to go for two more, guys, just so you know. But this one's an exciting one, Pace. Thank you again for being here. Pace is breaking down all of these different creative finance strategies. We're going to continue to add to this playlist, this library. We want it to really be an entire suite of all of these different strategies, not just what the strategies are. Pace is great at explaining them, but also real world application and how you can implement these strategies right now today in the marketplace, which is there's a huge demand for this type of strategy for real estate investing. So Pace, thank you again for your time, for all your knowledge and expertise. And we have a unique one this time. This is the Morby method. Yeah, yeah. And the only way you're going to know this is if you're in Pace's world or you're watching this video. This is a unique strategy that Pace has developed. Being in the trenches, on the ground, out in the real world every day, doing deals day in and day out, has found this unique strategy that's working really well that you've coined, the Morby Method. So break this down for us. Help us understand what is the Morby Method. All right. So Morby Method is a strategy. It is an acquisition strategy, not a disposition strategy. It is a strategy in which... I go to a seller and I say, will you sell this to me on seller finance? And the seller says, yes, I will sell it on seller finance, but I either A, want a large down payment or B, I need a large down payment for some other purchase I'm buying. Well, that's a problem, right? Because I'm not going to go raise a ton of capital from private money lenders to put 50% down on a property. And so here, the last time I did it was 30 days ago, I bought a a single family home, $400,000. Seller goes, I need $200,000. I've got personal debt. I've got a business situation. I would seller finance the whole 400,000 to you. But if I did, I couldn't solve these problems. So what do you do when a seller wants too much money down? Well, if a seller wants probably 10 to maybe 20% down, you can either A, bring in a financial partner, right? This is not Morby method, but you could bring in like a Jerry. Right? Like I, Jerry's called me on other deals. I've called Jerry and other deals. Hey, do you want to partner on this deal? And I bring in a financial partner. I bring the deal. He brings the 20% down. Okay. That is one way of getting that deal done. Or I could go to my uncle, which would now be called private money. I could go to my uncle or my cousin or somebody else and go, Hey, will you bring the 20% down? I'll bring the deal. We'll partner on it, or I'll pay you an interest payment. That's one way of doing it. But what happens when a seller says I need 30% down, 40% down. 50% down. I've done as high of a deal as 70% down on a creative deal. Okay. So what we do is we go to non-QM or DSCR loan lenders. Non-QM means non-qualifying mortgage, which means they're not going to look at me as an individual. And I go get 50% of the purchase from a DSCR loan. And then the seller will carry the other 50% in a seller carry note. And a DSCR is a debt. coverage, debt service coverage ratio, which means they're looking at the income to qualify the loan, not you personally. Right. Almost like hard money, hard money looks at the asset. So they're called asset-based lending where they don't care so much about you, your credit, all that. They care about the asset they're underwriting. Yeah. And you'll get a lot of sellers in these, like the $400,000 purchase seller says, I need 200 grand. So I go, no problem. I go to a company. Do you have, do you have a company that you use for DSCR stuff? Yeah. Okay. So I'm doing some in Puerto Rico and I've got a guy out there. Anybody you want to tell anybody about? I don't remember. It's just a guy there. There's a company I use that's called myinvestorloan.com. Okay. Okay. Myinvestorloan.com. I go to them. I go, I need to get 50% on this purchase. They give me a loan. They don't look at me. They look at the deal. And I now have a new loan in first lien position. That loan goes to the seller and the seller gets that 50%. The seller then Creates a second note and deed of trust. Okay. And there's multiple ways I can structure that second lien position, that equity that he has in the deal. Most of the time I structure in a way that that seller receives zero payments for three to seven years while I work on that asset or I do things with it because I just gave the seller 50% down payment. So he's open to the creative terms on the balance owed because he got a big lump sum up front paid for out of the. financing on the loan. There you go. So I didn't have to use any of my own credit. I didn't have to use any of my own cash. Sometimes I'll have to pay for like closing costs and stuff like that for a day or two. But that's also, you know, you can get transactional funding for that. You know, you don't need any cash or credit. But a non-conventional at 50% is easy to get because it's such high collateral for the lender. Right. It's like a no brainer. Right. So I, this is what I do to the lender. So I go to the lender and I say, Hey, I'm going to buy this deal. I'm buying it for $200,000. I want to get a loan for $200,000. They're not going to give me $200,000. So I tell them, I need $400,000. I'm sorry, I'm buying it for $400,000. I need you to give me $200,000. They go, no problem. They underwrite it. They go, hey, we can give you $211,511, whatever the number is. Great. They wire that to title. That money goes through the process. The title company handles it, goes to the seller. The seller now has $211,000. What's cool about it is that I've had the seller kick back a portion of that $211,000 to me because he goes, you told me you only would give me $200,000, but you got a loan for, let's say, $250,000. So he'll kick back the $50,000 back to me and put it in the second lien position and basically build that up bigger, right? I can then use that $50,000. This is the coolest thing about the Morby method. So let's say that I buy it for $400,000, but I need to get $50,000 of renovations. Yeah. I could take that 400,000 purchase price, give it to you as my DSCR lender and go, what will you give me? You say Pace will give you 250. Cool. Seller only told me he wants 200. So the DSCR lender brings 250 to the table. Seller receives 250. The seller has already agreed. He'll kick me back my 50 grand, which now pays for my renovation or let's say my furniture. And you just structure that as a loan seller. a seller second, a second position loan, put it in second, a seller second position. Now, sometimes on top of the remaining equity, either that, or you could either that, or you could just redo the note and bundle it together. Yeah. Now here's what happens. Sometimes you'll have a DSCR lender that will say, I don't want anybody in second lien position behind us. So how do we do a Morby method in that situation? Well, you can do it a couple of different ways. One, you can have the seller. become a silent partner in your LLC and his buyout agreement is the same terms of that second loan position. Or B, you can file what's called a UCC1 against the LLC, which is a lien against the LLC. So then there's no second lien position. They have the security, all of that kind of stuff. So what's cool is that-But that's not super common. I mean, most DSCR loans are non-conventional loans. They don't care. They don't care. If they don't care about your personal credit, they probably don't care about second lien positions. No. Cause they just want to make sure they're in the first, they're the underlying lender. They understand their LTV and they got it. They're happy with the asset. Yeah. Like when you go flip a house, you're going, you're using hard money. Yeah. A lot of times. And then how do you pay for the, how do you pay for the renovation? Whatever the hard money doesn't cover private money. So it's the second lien position. Yeah. So the majority of lender, the majority of flippers I know, and the majority of flipping, I learned like how to structure deals and how to do things actually comes from you. And so years ago, I think when I first met you six or seven years ago, you had just moved from St. George and I was watching your YouTube channel at the time. And I was like, this dude's a freaking genius. And then I walk, I what's funny is I, this is real story. I was walking. I was like, this guy's a freaking genius. And then I finish a video and you're like, and if you think I'm a flipping genius, leave a comment down below. I'm like, oh my gosh, this guy's so he's a flipping genius. But, um, When you're flipping a house, it's the same thing, right? You go get a non-qualifying loan, right? Could be hard money or a DSCR loan. Nobody's pulling your credit. Nobody's looking at you as an individual. They're looking at the asset. So what's cool about this is that you can go get into a deal that you want to buy. So the first time I ever did this was about five years ago and it was a 16 plex. And I go, I only need the 16 plex for like eight months. And then I can sell it. I can... I renovate it and I can sell it to a hedge fund or I can sell it to an end buyer that will end up taking this deal. Because you've added value and now it's worth more and you flip it. Right. But this is also at a time I didn't know how to raise capital. I didn't really know how to raise capital at the significance I can now. So I go to the seller, I go, will you sell or carry this while I renovate it? And he goes, no. And I'm like, how am I going to freaking get this deal done? And I go and buy a book. This is about probably six years ago. And I buy a book that is. How to Raise Capital by Matt Faircloth on BiggerPockets. And I'm reading this and I'm like, wow, raising capital takes like. four months, six months, eight months to build credibility. I don't have that time. So I ended up going to a lender of mine and I said, Hey, what if I asked the seller to seller carry his equity and we could give him 50%. And that's how I got my first 16 plex done. Lender gave me 50% seller carried back the other 50%. And the seller actually gave me a kickback from his 50% that paid for the renovation. I went and sold it. We didn't make a lot. We only made like 125 grand, but. It's a 16-plex. You would think you'd make a lot more money because it's a bigger project. So what's cool about this pace, the Morby method, is you're essentially kind of reversing what happens. So a seller's typically thinking, I'll sell for $400, but I want $200. And most people think instantly, you think, okay, well, that $200 is a down payment. What you're saying is, no, we're going to reverse it. I'm actually going to go get this loan, this non-conventional loan. That's going to come to you in the form of the cash you want as what... what would normally be down. And now it's the cash you're getting up front. And then the balance. Now we're going to create a second position loan to cover that balance. It's really funny how I've learned. So it's using new debt to do creative financing. It's using new debt to you to do creative financing. But the LTV, the loan to value is so low that these non-conventional lenders will, will gladly do those loans. Yeah. So check this out. This is interesting take on the Morby method. So the first time I ever did this, I, it was a little bit different. It was about the first time I did it, knowing what I was doing and me going out and securing the debt was about six years ago. First time I did this was about nine years ago. Here's what I did. It was a sub two deal. And I go to a seller and I go, Hey, will you sell or finance to, or will you sell to me on subject two? Cause I was just learning what subject two was. And the seller goes, well, I don't have it. I don't have any debt. The house has paid off. And I go, okay. I don't know how to do this then. And I go, what if you go get a cash out refi and you then let me take over the loan? And that's what they did. You wanted him to create the debt. So they went and created the debt. They did it. They went to it. I've done that. I've done that now. I've probably done that. I don't know, 30 or 40 times. We go to sellers and here's why that's super advantageous. The seller goes and gets the debt now. Okay. They go do a cash out refinance and what it's their primary residence. So they're going to get a lower interest rate than I ever could. And they've seasoned it. And this is an easier loan to get. Right. They've it's a way easier loan to get. But what I didn't understand is that they weren't going to get a hundred percent of the purchase or a hundred percent. They were going to get like 70% of the cash out refi. So what I had to do is I go, well, crap, what do we, they, here's, what's great. Why is it advantageous? They get the lower rate because they bought, it's their house, right? Owner occupied loan. Then here's why it's advantageous. They get that cash out refinance. It's not income to them. It's a debt. It's a loan. So they don't have this massive taxable situation. The tax that they have to pay is way over time because now I'm starting to make payments on that loan. Hope you guys caught that. That's, there's a difference between a loan. Gangster. Yeah. So gangster. And I didn't understand this until. So I go to them and it was really complicated because nobody was talking about doing any of this stuff. Still, nobody talks about this. I'm the only one that does this weird stuff. And what, but it solves a problem that other things don't solve in the moment. I'm like, how do we move things around? It's like playing chess. So the seller goes, well, I don't know how this is going to impact me tax tax wise. So we go to their CPA. The CPA goes, oh, this is easy. He's going to take over your thing to subject to you. Don't pay any tax on the money you receive. The seller's like, you're going to tell me I'm getting 70% of the, of the. price of my house today, but I don't have to pay any taxes because I got it in the form of a debt. It's not income. Then I'm going to sell to pace on subject two, but what do we do with the other 30% of the equity? And the CPA is like, you create a second loan or second lien position, you idiot. So he had a competent CPA. He had a competent CPA. So the CPA then creates a second, walks us through this. I go to Eileen Brown. Eileen Brown's like, oh yeah, I could have done this for you. I'm like, okay, great. So There's a lot of different ways to do this. In the Morby method, you, the buyer, the investor, are going out and securing that loan in your name with your credit. If you can convince the seller, which I've been able to do, a lot of my students have been able to do, you can get the seller to secure the debt. And there's a lot of power there. And now the seller is getting a tremendous amount of money up front, which makes them way more willing to take the remaining equity they have and go, I don't care if you don't make payments on that for five years, seven years or 10 years. You could refinance me out, or you could just start making payments at some point in seven years when maybe you can raise your rents to afford to start making me payments. reos auctions high equity properties probate tired landlords and more plus custom filters and stack lists so that you can laser target the most motivated sellers in your area plus they have cash buyers and private lenders nationwide so you can quickly wholesale houses and fund your rehab projects oh and one more thing this is not some seven day free trial that requires a credit card anyone can create a free account with just their email address and start building lists and downloading leads for free right away. Check it out at joinpropwire.com. What I love about the Morby Method so much pace is, you know, it's funny when you go out into the distressed real estate market and you start making low cash offers, even creative finance offers, a lot of times sellers are going to say, no, I don't want to do that. And what's the number one killer for creative is too much money. As soon as a seller wants too much money, you're like, okay, creative is supposed to be like zero, little to no money down is what we all think. So then when they're like, no, I want a hundred thousand, 200,000, I want this big down payment. You're like, well, that just killed my creative deal. Cause I don't want to go. If I'm going to go raise money, then this isn't creative anymore. Right. This keeps it creative. Yeah. Very creative. It just takes it up another notch and allows you to go get secure the down payment with again, no credit. So it takes away like all these throwaway creative deals that most people are missing out on and allows you to still create a creative deal. Yeah, I get it. I probably would say five to 10% of the DMS that I receive on a daily basis are like, Hey, so I got a seller that's good with, you know, a seller finance, but they want 30% down payment. I reply back Morby method, done Morby method, Morby method. And they go, what's Morby method. I'm like, go to Jerry Norton's YouTube channel, watch video 12. That's the Morby method. So we use, again, I use, um, for my commercial stuff, I use Marcus and Millichap really reputable. big, big companies who like all the big companies use Marcus and Millichap. For your financing. For my financing on the Morgan Method. So like 16 plexes, big commercial stuff. Marcus and Millichap, I use a guy named Jamie Litzler. Maybe I'll give that to Jerry. He can give that to you. He's awesome. We can put it in the show notes down below. Jamie's unbelievable. He's an amazing guy. And then I use a company called myinvestorloan.com for the single family stuff. For the DSCR. And I've never used my credit on any of the single family Morby method stuff. Nobody cares about my credit. They don't care about any of that stuff. They'll give me the 50%. I've done as high as 70%. And then the majority of the sellers I structured the equity with, they do no payments on their remaining equity for at least five years, usually up to seven. Usually when you go up higher, like if you're hitting the 70%, interest rates are going to be a little higher. Right. So when you stay down at 50, you keep a great, pretty great. pretty good rate too. Right. And it makes it easy because your, your loan to value is so low. Yeah. So it just, I look at, I kind of look at it as if I'm a native American and a lead comes to me. I look at it like a Buffalo. How can I make sure I use not just the hide, but I can use the bone in its leg to make a knife. I can use its stomach lining to make a bowl. I can tail for a broom. Exactly. Exactly. And so that's how I look at any lead in real estate is, and you're the same way. It's like, how can I construct this and move this around? And as long as the seller is willing, which again, we're not looking, we're not looking for non-motivated sellers, guys. Like that's the thing people need to understand. You talk to agents who have a motivated seller, or you talk to a seller direct, and you're going to get these deals done. The seller, funny enough, on most of the calls will go, yeah, I like this. This is great. But what if we do this? And what if we do this? And then you start getting the seller involved in the whole creative process. And it becomes a really fun collaboration with the seller. Yeah, because now you're finding a win. You're finding a way so everybody wins. I mean, we're doing, I mean, obviously, you still make low cash offers if convenience and speed is important. Yep. Creative finance allows you to now structure all these different flexible ways with sellers. A third thing that we're doing quite a bit is, since we're licensed, is we'll go ahead and list. Like, you want retail? Fine, let us list it for you for 3%. I used to do that for Laura. I don't want to throw, you want to maximize every single lead. I mean, you work so hard to create a lead. Why throw that lead away for any reason? Or like one of the things I love about what you do is like you're such an advocate for agents. So like when you have an agent that throws you a deal in, let's say, Detroit, and then four or five months later, I know you're licensed in Detroit, but just as an example, you go, I don't want to list this. Well, you can refer it to an agent who gave you a deal three months ago. And you keep the reciprocal process going on. And dude, you don't throw anything away. And that's where like, there's this whole story I told for like an hour on my YouTube video about cowboy. Are you a cowboy or are you a native American? And I look at wholesalers that are running around just killing buffaloes, one shot cash offers. And then moving on, you guys basically are killing all the buffalo. Cut out the, what do you call it? The flanks? Yeah. Cut out the, throw the rest away. Sniping. Well, and. There's no better lead-in to creative than when you make a low cash offer, you create a baseline, they say no. And then you come back and you say, if I could pay you more money, would you be open to waiting to get some or all of your money? It's the best lead-in ever to creative because they're like, well, what do you mean get more money? What does that even mean? Well, let's have a conversation now. Right. And so, and now they know, okay, well, to get money in my pocket in a week, I got that. I see where you're going. But. if I am willing to wait, what does that look like? And now you can now open up this entire new world of opportunities. You know, it's interesting. Who knows if you guys are still watching, make a comment down below. We go long on these videos. So hopefully you guys are enjoying this. I started doing research on other companies. Pace, even if they're not, I am. I think you are. Yeah, me too. So we're good. So I started doing research on these companies like Walmart. How does Walmart run their money and their processes? A company sells something to Walmart. and does not get paid when they sell it to Walmart. They get paid when Walmart sells that product. So they usually have like a net 90 or a net 180. So, which means let's say that I'm a milk producer. I produce milk. I have a milk farm. Well, I'm not going to go direct to seller. That's not my, that's not my business, right? I'm a milk wholesaler. That's what I am. If I'm, if I'm milking cows, I'm going out and finding the deals and I'm going to go sell those deals, wholesale them. to in 500 gallon drums at a time, right? Or whatever. Yeah. And then Walmart takes those, puts them on their shelf and Walmart doesn't pay the milk producer until Walmart sells the milk. That's creative finance guys. This is how carrying, carrying the note, carrying the paper, or you could look at it as a novation, right? The Walmart goes, I will buy that milk from you, but I don't want to pay you until I get paid. Novation is essentially an innovation. Yeah. You look at DuPont, okay. DuPont, which owned most of it. General Motors for like 50, 60 years. Every single car you've ever seen get painted any other color besides black, DuPont created the chemical on every car in the world. DuPont was saved and thrived because of seller finance. Saved and thrived by seller finance. Because they created terms. What happened is some of the key principles of the company died and the company was kind of tumbling down. So some of the family members in the DuPont family go, Dude, we can't let the, our elders sell this business off to our competitor, which was what it was going on. They were like, we don't know what we're doing. The people that were running the business before were doing a great job. They died. We were the board members, but we don't know what to do. We should just sell this business to our nearest competitor. So their nearest competitor goes, we'll pay $12 million cash. There's four DuPont family members way. They're not on the board. They're just young whippersnappers and they're in the, um, gunpowder division. And they go to the board and they go, what if we could pay the 12 million, but give you guys future stock options with no money down and keep this in the family? This is the DuPont company, guys. We gave all the gunpowder to World War I for heaven's sakes, and you're trying to sell the company. So no cash now, stock later. No cash now, but we'll give you stock later. Well, guess what? Here's what happens. They say yes. They end up selling the... DuPont ends up selling to the DuPont guys that are just on the manufacturing line. They become the new owners of the company, no money down, seller finance to be paid later through stock options. And what happens is these four whippersnappers four months later go and buy the competitor that was going to buy them on seller finance. And DuPont became the wealthiest family on the freaking face of this planet. Seller Finance saved that family, made them thrive. They took over the competitor that was going to take them over. I look at this same-So by buying the competitor on Seller Finance, they also owned the deal with DuPont. They brought it right back in. They brought it all right back in. And then they blew up. I mean, DuPont created nylon. Like DuPont create most of the fabric and carpet and all that kind of stuff. DuPont invented all that. They're the biggest chemical manufacturer in the whole entire world. They've invented more patents than- any other company in the history. Their trust probably make more money every year than. So the DuPont family was saved and thrived because of creative finance. And when you start getting into all these big companies, even like the way, even the way Tesla was capitalized, you go, oh, man, they did it through seller finance. They did this with it. Most of the big players in the world are doing creative finance in business. It's not just in housing. It's in business in general. I think this would be great for our next video to do LLCs because LLCs are in the, in the commercial business world are how a lot of deals get done. Right. When a business sells to another business, they don't create a new, they buy the existing entity, the existing structure. Or they merge together depending on the exit strategy. Like what we're talking about in the Morby method is that let's say that I buy the deal. My DSCR lender says, no, I don't want that second lien position. I create an LLC. And I bring the seller in. As a partner, essentially. Yeah. There's so many cool little mergers and acquisitions you can do in this stuff. Because think about it. If LLCs can buy and sell and add members, partners, essentially. And if those LLCs own real estate, you're just doing real estate deals through the entities. This just makes me want to go out and do deals, guys. Does this not make you want to do deals? Yeah. Let's do the LLCs. Let's add LLCs to the mix. Awesome. Guys, if you... aren't already excited about creative finance. If you're feeling a bit overwhelmed about creative finance, it can seem a little overwhelming. Hopefully this masterclass helps normalize it. I think one of the, one of the strongest talents you have pace is the ability to take what most people overcomplicate, or at least explain in a way that's really hard to understand. And you really simplify the strategy so that everyday people can start to implement. Because I'm stupid. I have to explain, I have to talk to people like, like I'm talking to myself. Yeah. I'm done. So if you can explain it to a five-year-old, then... So that's what's amazing, Pace, and I really appreciate the way that you do that. And everybody that knows you can attest to that, that you're able to help teach these concepts in a way that nobody else has really done. You've pioneered that in a way. And so guys, if you want to really learn creative finance in an effective way, implement these strategies, be effective, start making money right now today, then go to paceandjerry.com. Uh, when you go there, what you'll do is you'll sign up for a strategy session. You'll talk to Pace's team and you'll, you'll learn more about his mentorship program and, and their community and just all the amazing things that they're doing. So we'll put that link on the screen here probably in below, but it's free. Get on there. Talk about what your goals are, what your strategies are, what you're hoping to accomplish. And, uh, Pace's team will see if there's a fit, if that's something that they can do to help you with. But again, appreciate you Pace. Love all this stuff we're doing together. And let's. Be ready for that next video. It's going to come out, you know, next in line, but we'll do video 13, 13. Do you skip video 13? Just like a hotel would skip floor 13 and you go straight to 14. Like, is it an unlucky video? I'm not sure. Nah. Okay. I don't think so. Thank you guys. We'll see you on the next video.

Welcome back, guys. We are on video 12. 12. In the series. We're doing an entire Creative Finance Masterclass.

The amount of children that Jerry's going to end up having. No. We passed that two videos ago.

Oh, two videos ago. Ten children, bro. Same mom, same dad, no twins. So he, video 12, he's going to go for two more, guys, just so you know.

But this one's an exciting one, Pace. Thank you again for being here. Pace is breaking down all of these different creative finance strategies. We're going to continue to add to this playlist, this library.

We want it to really be an entire suite of all of these different strategies, not just what the strategies are. Pace is great at explaining them, but also real world application and how you can implement these strategies right now today in the marketplace, which is there's a huge demand for this type of strategy for real estate investing. So Pace, thank you again for your time, for all your knowledge and expertise. And we have a unique one this time. This is the Morby method.

Yeah, yeah. And the only way you're going to know this is if you're in Pace's world or you're watching this video. This is a unique strategy that Pace has developed.

Being in the trenches, on the ground, out in the real world every day, doing deals day in and day out, has found this unique strategy that's working really well that you've coined, the Morby Method. So break this down for us. Help us understand what is the Morby Method. All right. So Morby Method is a strategy.

It is an acquisition strategy, not a disposition strategy. It is a strategy in which... I go to a seller and I say, will you sell this to me on seller finance?

And the seller says, yes, I will sell it on seller finance, but I either A, want a large down payment or B, I need a large down payment for some other purchase I'm buying. Well, that's a problem, right? Because I'm not going to go raise a ton of capital from private money lenders to put 50% down on a property.

And so here, the last time I did it was 30 days ago, I bought a a single family home, $400,000. Seller goes, I need $200,000. I've got personal debt.

I've got a business situation. I would seller finance the whole 400,000 to you. But if I did, I couldn't solve these problems. So what do you do when a seller wants too much money down? Well, if a seller wants probably 10 to maybe 20% down, you can either A, bring in a financial partner, right?

This is not Morby method, but you could bring in like a Jerry. Right? Like I, Jerry's called me on other deals.

I've called Jerry and other deals. Hey, do you want to partner on this deal? And I bring in a financial partner. I bring the deal.

He brings the 20% down. Okay. That is one way of getting that deal done.

Or I could go to my uncle, which would now be called private money. I could go to my uncle or my cousin or somebody else and go, Hey, will you bring the 20% down? I'll bring the deal.

We'll partner on it, or I'll pay you an interest payment. That's one way of doing it. But what happens when a seller says I need 30% down, 40% down.

50% down. I've done as high of a deal as 70% down on a creative deal. Okay.

So what we do is we go to non-QM or DSCR loan lenders. Non-QM means non-qualifying mortgage, which means they're not going to look at me as an individual. And I go get 50% of the purchase from a DSCR loan. And then the seller will carry the other 50% in a seller carry note.

And a DSCR is a debt. coverage, debt service coverage ratio, which means they're looking at the income to qualify the loan, not you personally. Right. Almost like hard money, hard money looks at the asset. So they're called asset-based lending where they don't care so much about you, your credit, all that.

They care about the asset they're underwriting. Yeah. And you'll get a lot of sellers in these, like the $400,000 purchase seller says, I need 200 grand. So I go, no problem. I go to a company.

Do you have, do you have a company that you use for DSCR stuff? Yeah. Okay.

So I'm doing some in Puerto Rico and I've got a guy out there. Anybody you want to tell anybody about? I don't remember.

It's just a guy there. There's a company I use that's called myinvestorloan.com. Okay.

Okay. Myinvestorloan.com. I go to them. I go, I need to get 50% on this purchase. They give me a loan.

They don't look at me. They look at the deal. And I now have a new loan in first lien position.

That loan goes to the seller and the seller gets that 50%. The seller then Creates a second note and deed of trust. Okay. And there's multiple ways I can structure that second lien position, that equity that he has in the deal.

Most of the time I structure in a way that that seller receives zero payments for three to seven years while I work on that asset or I do things with it because I just gave the seller 50% down payment. So he's open to the creative terms on the balance owed because he got a big lump sum up front paid for out of the. financing on the loan.

There you go. So I didn't have to use any of my own credit. I didn't have to use any of my own cash.

Sometimes I'll have to pay for like closing costs and stuff like that for a day or two. But that's also, you know, you can get transactional funding for that. You know, you don't need any cash or credit. But a non-conventional at 50% is easy to get because it's such high collateral for the lender.

Right. It's like a no brainer. Right.

So I, this is what I do to the lender. So I go to the lender and I say, Hey, I'm going to buy this deal. I'm buying it for $200,000.

I want to get a loan for $200,000. They're not going to give me $200,000. So I tell them, I need $400,000. I'm sorry, I'm buying it for $400,000.

I need you to give me $200,000. They go, no problem. They underwrite it. They go, hey, we can give you $211,511, whatever the number is. Great.

They wire that to title. That money goes through the process. The title company handles it, goes to the seller. The seller now has $211,000.

What's cool about it is that I've had the seller kick back a portion of that $211,000 to me because he goes, you told me you only would give me $200,000, but you got a loan for, let's say, $250,000. So he'll kick back the $50,000 back to me and put it in the second lien position and basically build that up bigger, right? I can then use that $50,000. This is the coolest thing about the Morby method.

So let's say that I buy it for $400,000, but I need to get $50,000 of renovations. Yeah. I could take that 400,000 purchase price, give it to you as my DSCR lender and go, what will you give me? You say Pace will give you 250. Cool.

Seller only told me he wants 200. So the DSCR lender brings 250 to the table. Seller receives 250. The seller has already agreed. He'll kick me back my 50 grand, which now pays for my renovation or let's say my furniture. And you just structure that as a loan seller. a seller second, a second position loan, put it in second, a seller second position.

Now, sometimes on top of the remaining equity, either that, or you could either that, or you could just redo the note and bundle it together. Yeah. Now here's what happens.

Sometimes you'll have a DSCR lender that will say, I don't want anybody in second lien position behind us. So how do we do a Morby method in that situation? Well, you can do it a couple of different ways. One, you can have the seller. become a silent partner in your LLC and his buyout agreement is the same terms of that second loan position.

Or B, you can file what's called a UCC1 against the LLC, which is a lien against the LLC. So then there's no second lien position. They have the security, all of that kind of stuff. So what's cool is that-But that's not super common. I mean, most DSCR loans are non-conventional loans.

They don't care. They don't care. If they don't care about your personal credit, they probably don't care about second lien positions. No. Cause they just want to make sure they're in the first, they're the underlying lender.

They understand their LTV and they got it. They're happy with the asset. Yeah.

Like when you go flip a house, you're going, you're using hard money. Yeah. A lot of times.

And then how do you pay for the, how do you pay for the renovation? Whatever the hard money doesn't cover private money. So it's the second lien position. Yeah. So the majority of lender, the majority of flippers I know, and the majority of flipping, I learned like how to structure deals and how to do things actually comes from you.

And so years ago, I think when I first met you six or seven years ago, you had just moved from St. George and I was watching your YouTube channel at the time. And I was like, this dude's a freaking genius. And then I walk, I what's funny is I, this is real story. I was walking.

I was like, this guy's a freaking genius. And then I finish a video and you're like, and if you think I'm a flipping genius, leave a comment down below. I'm like, oh my gosh, this guy's so he's a flipping genius. But, um, When you're flipping a house, it's the same thing, right? You go get a non-qualifying loan, right?

Could be hard money or a DSCR loan. Nobody's pulling your credit. Nobody's looking at you as an individual. They're looking at the asset.

So what's cool about this is that you can go get into a deal that you want to buy. So the first time I ever did this was about five years ago and it was a 16 plex. And I go, I only need the 16 plex for like eight months.

And then I can sell it. I can... I renovate it and I can sell it to a hedge fund or I can sell it to an end buyer that will end up taking this deal. Because you've added value and now it's worth more and you flip it. Right.

But this is also at a time I didn't know how to raise capital. I didn't really know how to raise capital at the significance I can now. So I go to the seller, I go, will you sell or carry this while I renovate it? And he goes, no. And I'm like, how am I going to freaking get this deal done?

And I go and buy a book. This is about probably six years ago. And I buy a book that is. How to Raise Capital by Matt Faircloth on BiggerPockets.

And I'm reading this and I'm like, wow, raising capital takes like. four months, six months, eight months to build credibility. I don't have that time. So I ended up going to a lender of mine and I said, Hey, what if I asked the seller to seller carry his equity and we could give him 50%.

And that's how I got my first 16 plex done. Lender gave me 50% seller carried back the other 50%. And the seller actually gave me a kickback from his 50% that paid for the renovation.

I went and sold it. We didn't make a lot. We only made like 125 grand, but. It's a 16-plex. You would think you'd make a lot more money because it's a bigger project.

So what's cool about this pace, the Morby method, is you're essentially kind of reversing what happens. So a seller's typically thinking, I'll sell for $400, but I want $200. And most people think instantly, you think, okay, well, that $200 is a down payment. What you're saying is, no, we're going to reverse it.

I'm actually going to go get this loan, this non-conventional loan. That's going to come to you in the form of the cash you want as what... what would normally be down.

And now it's the cash you're getting up front. And then the balance. Now we're going to create a second position loan to cover that balance. It's really funny how I've learned. So it's using new debt to do creative financing.

It's using new debt to you to do creative financing. But the LTV, the loan to value is so low that these non-conventional lenders will, will gladly do those loans. Yeah. So check this out.

This is interesting take on the Morby method. So the first time I ever did this, I, it was a little bit different. It was about the first time I did it, knowing what I was doing and me going out and securing the debt was about six years ago.

First time I did this was about nine years ago. Here's what I did. It was a sub two deal.

And I go to a seller and I go, Hey, will you sell or finance to, or will you sell to me on subject two? Cause I was just learning what subject two was. And the seller goes, well, I don't have it. I don't have any debt.

The house has paid off. And I go, okay. I don't know how to do this then.

And I go, what if you go get a cash out refi and you then let me take over the loan? And that's what they did. You wanted him to create the debt.

So they went and created the debt. They did it. They went to it.

I've done that. I've done that now. I've probably done that.

I don't know, 30 or 40 times. We go to sellers and here's why that's super advantageous. The seller goes and gets the debt now.

Okay. They go do a cash out refinance and what it's their primary residence. So they're going to get a lower interest rate than I ever could.

And they've seasoned it. And this is an easier loan to get. Right. They've it's a way easier loan to get. But what I didn't understand is that they weren't going to get a hundred percent of the purchase or a hundred percent.

They were going to get like 70% of the cash out refi. So what I had to do is I go, well, crap, what do we, they, here's, what's great. Why is it advantageous?

They get the lower rate because they bought, it's their house, right? Owner occupied loan. Then here's why it's advantageous.

They get that cash out refinance. It's not income to them. It's a debt. It's a loan. So they don't have this massive taxable situation.

The tax that they have to pay is way over time because now I'm starting to make payments on that loan. Hope you guys caught that. That's, there's a difference between a loan. Gangster. Yeah.

So gangster. And I didn't understand this until. So I go to them and it was really complicated because nobody was talking about doing any of this stuff. Still, nobody talks about this. I'm the only one that does this weird stuff.

And what, but it solves a problem that other things don't solve in the moment. I'm like, how do we move things around? It's like playing chess.

So the seller goes, well, I don't know how this is going to impact me tax tax wise. So we go to their CPA. The CPA goes, oh, this is easy.

He's going to take over your thing to subject to you. Don't pay any tax on the money you receive. The seller's like, you're going to tell me I'm getting 70% of the, of the. price of my house today, but I don't have to pay any taxes because I got it in the form of a debt. It's not income.

Then I'm going to sell to pace on subject two, but what do we do with the other 30% of the equity? And the CPA is like, you create a second loan or second lien position, you idiot. So he had a competent CPA.

He had a competent CPA. So the CPA then creates a second, walks us through this. I go to Eileen Brown. Eileen Brown's like, oh yeah, I could have done this for you. I'm like, okay, great.

So There's a lot of different ways to do this. In the Morby method, you, the buyer, the investor, are going out and securing that loan in your name with your credit. If you can convince the seller, which I've been able to do, a lot of my students have been able to do, you can get the seller to secure the debt. And there's a lot of power there. And now the seller is getting a tremendous amount of money up front, which makes them way more willing to take the remaining equity they have and go, I don't care if you don't make payments on that for five years, seven years or 10 years.

You could refinance me out, or you could just start making payments at some point in seven years when maybe you can raise your rents to afford to start making me payments. reos auctions high equity properties probate tired landlords and more plus custom filters and stack lists so that you can laser target the most motivated sellers in your area plus they have cash buyers and private lenders nationwide so you can quickly wholesale houses and fund your rehab projects oh and one more thing this is not some seven day free trial that requires a credit card anyone can create a free account with just their email address and start building lists and downloading leads for free right away. Check it out at joinpropwire.com. What I love about the Morby Method so much pace is, you know, it's funny when you go out into the distressed real estate market and you start making low cash offers, even creative finance offers, a lot of times sellers are going to say, no, I don't want to do that.

And what's the number one killer for creative is too much money. As soon as a seller wants too much money, you're like, okay, creative is supposed to be like zero, little to no money down is what we all think. So then when they're like, no, I want a hundred thousand, 200,000, I want this big down payment. You're like, well, that just killed my creative deal. Cause I don't want to go.

If I'm going to go raise money, then this isn't creative anymore. Right. This keeps it creative. Yeah.

Very creative. It just takes it up another notch and allows you to go get secure the down payment with again, no credit. So it takes away like all these throwaway creative deals that most people are missing out on and allows you to still create a creative deal.

Yeah, I get it. I probably would say five to 10% of the DMS that I receive on a daily basis are like, Hey, so I got a seller that's good with, you know, a seller finance, but they want 30% down payment. I reply back Morby method, done Morby method, Morby method.

And they go, what's Morby method. I'm like, go to Jerry Norton's YouTube channel, watch video 12. That's the Morby method. So we use, again, I use, um, for my commercial stuff, I use Marcus and Millichap really reputable. big, big companies who like all the big companies use Marcus and Millichap. For your financing.

For my financing on the Morgan Method. So like 16 plexes, big commercial stuff. Marcus and Millichap, I use a guy named Jamie Litzler.

Maybe I'll give that to Jerry. He can give that to you. He's awesome.

We can put it in the show notes down below. Jamie's unbelievable. He's an amazing guy.

And then I use a company called myinvestorloan.com for the single family stuff. For the DSCR. And I've never used my credit on any of the single family Morby method stuff. Nobody cares about my credit. They don't care about any of that stuff.

They'll give me the 50%. I've done as high as 70%. And then the majority of the sellers I structured the equity with, they do no payments on their remaining equity for at least five years, usually up to seven.

Usually when you go up higher, like if you're hitting the 70%, interest rates are going to be a little higher. Right. So when you stay down at 50, you keep a great, pretty great.

pretty good rate too. Right. And it makes it easy because your, your loan to value is so low. Yeah. So it just, I look at, I kind of look at it as if I'm a native American and a lead comes to me.

I look at it like a Buffalo. How can I make sure I use not just the hide, but I can use the bone in its leg to make a knife. I can use its stomach lining to make a bowl. I can tail for a broom. Exactly.

Exactly. And so that's how I look at any lead in real estate is, and you're the same way. It's like, how can I construct this and move this around?

And as long as the seller is willing, which again, we're not looking, we're not looking for non-motivated sellers, guys. Like that's the thing people need to understand. You talk to agents who have a motivated seller, or you talk to a seller direct, and you're going to get these deals done. The seller, funny enough, on most of the calls will go, yeah, I like this.

This is great. But what if we do this? And what if we do this? And then you start getting the seller involved in the whole creative process.

And it becomes a really fun collaboration with the seller. Yeah, because now you're finding a win. You're finding a way so everybody wins. I mean, we're doing, I mean, obviously, you still make low cash offers if convenience and speed is important.

Yep. Creative finance allows you to now structure all these different flexible ways with sellers. A third thing that we're doing quite a bit is, since we're licensed, is we'll go ahead and list. Like, you want retail? Fine, let us list it for you for 3%.

I used to do that for Laura. I don't want to throw, you want to maximize every single lead. I mean, you work so hard to create a lead.

Why throw that lead away for any reason? Or like one of the things I love about what you do is like you're such an advocate for agents. So like when you have an agent that throws you a deal in, let's say, Detroit, and then four or five months later, I know you're licensed in Detroit, but just as an example, you go, I don't want to list this. Well, you can refer it to an agent who gave you a deal three months ago.

And you keep the reciprocal process going on. And dude, you don't throw anything away. And that's where like, there's this whole story I told for like an hour on my YouTube video about cowboy.

Are you a cowboy or are you a native American? And I look at wholesalers that are running around just killing buffaloes, one shot cash offers. And then moving on, you guys basically are killing all the buffalo.

Cut out the, what do you call it? The flanks? Yeah. Cut out the, throw the rest away. Sniping.

Well, and. There's no better lead-in to creative than when you make a low cash offer, you create a baseline, they say no. And then you come back and you say, if I could pay you more money, would you be open to waiting to get some or all of your money? It's the best lead-in ever to creative because they're like, well, what do you mean get more money? What does that even mean?

Well, let's have a conversation now. Right. And so, and now they know, okay, well, to get money in my pocket in a week, I got that. I see where you're going.

But. if I am willing to wait, what does that look like? And now you can now open up this entire new world of opportunities. You know, it's interesting. Who knows if you guys are still watching, make a comment down below.

We go long on these videos. So hopefully you guys are enjoying this. I started doing research on other companies. Pace, even if they're not, I am.

I think you are. Yeah, me too. So we're good. So I started doing research on these companies like Walmart.

How does Walmart run their money and their processes? A company sells something to Walmart. and does not get paid when they sell it to Walmart.

They get paid when Walmart sells that product. So they usually have like a net 90 or a net 180. So, which means let's say that I'm a milk producer. I produce milk.

I have a milk farm. Well, I'm not going to go direct to seller. That's not my, that's not my business, right? I'm a milk wholesaler. That's what I am.

If I'm, if I'm milking cows, I'm going out and finding the deals and I'm going to go sell those deals, wholesale them. to in 500 gallon drums at a time, right? Or whatever.

Yeah. And then Walmart takes those, puts them on their shelf and Walmart doesn't pay the milk producer until Walmart sells the milk. That's creative finance guys.

This is how carrying, carrying the note, carrying the paper, or you could look at it as a novation, right? The Walmart goes, I will buy that milk from you, but I don't want to pay you until I get paid. Novation is essentially an innovation.

Yeah. You look at DuPont, okay. DuPont, which owned most of it. General Motors for like 50, 60 years.

Every single car you've ever seen get painted any other color besides black, DuPont created the chemical on every car in the world. DuPont was saved and thrived because of seller finance. Saved and thrived by seller finance. Because they created terms. What happened is some of the key principles of the company died and the company was kind of tumbling down.

So some of the family members in the DuPont family go, Dude, we can't let the, our elders sell this business off to our competitor, which was what it was going on. They were like, we don't know what we're doing. The people that were running the business before were doing a great job. They died. We were the board members, but we don't know what to do.

We should just sell this business to our nearest competitor. So their nearest competitor goes, we'll pay $12 million cash. There's four DuPont family members way.

They're not on the board. They're just young whippersnappers and they're in the, um, gunpowder division. And they go to the board and they go, what if we could pay the 12 million, but give you guys future stock options with no money down and keep this in the family?

This is the DuPont company, guys. We gave all the gunpowder to World War I for heaven's sakes, and you're trying to sell the company. So no cash now, stock later. No cash now, but we'll give you stock later.

Well, guess what? Here's what happens. They say yes. They end up selling the...

DuPont ends up selling to the DuPont guys that are just on the manufacturing line. They become the new owners of the company, no money down, seller finance to be paid later through stock options. And what happens is these four whippersnappers four months later go and buy the competitor that was going to buy them on seller finance.

And DuPont became the wealthiest family on the freaking face of this planet. Seller Finance saved that family, made them thrive. They took over the competitor that was going to take them over.

I look at this same-So by buying the competitor on Seller Finance, they also owned the deal with DuPont. They brought it right back in. They brought it all right back in.

And then they blew up. I mean, DuPont created nylon. Like DuPont create most of the fabric and carpet and all that kind of stuff. DuPont invented all that. They're the biggest chemical manufacturer in the whole entire world.

They've invented more patents than- any other company in the history. Their trust probably make more money every year than. So the DuPont family was saved and thrived because of creative finance.

And when you start getting into all these big companies, even like the way, even the way Tesla was capitalized, you go, oh, man, they did it through seller finance. They did this with it. Most of the big players in the world are doing creative finance in business. It's not just in housing.

It's in business in general. I think this would be great for our next video to do LLCs because LLCs are in the, in the commercial business world are how a lot of deals get done. Right. When a business sells to another business, they don't create a new, they buy the existing entity, the existing structure.

Or they merge together depending on the exit strategy. Like what we're talking about in the Morby method is that let's say that I buy the deal. My DSCR lender says, no, I don't want that second lien position. I create an LLC. And I bring the seller in.

As a partner, essentially. Yeah. There's so many cool little mergers and acquisitions you can do in this stuff. Because think about it. If LLCs can buy and sell and add members, partners, essentially.

And if those LLCs own real estate, you're just doing real estate deals through the entities. This just makes me want to go out and do deals, guys. Does this not make you want to do deals?

Yeah. Let's do the LLCs. Let's add LLCs to the mix. Awesome.

Guys, if you... aren't already excited about creative finance. If you're feeling a bit overwhelmed about creative finance, it can seem a little overwhelming.

Hopefully this masterclass helps normalize it. I think one of the, one of the strongest talents you have pace is the ability to take what most people overcomplicate, or at least explain in a way that's really hard to understand. And you really simplify the strategy so that everyday people can start to implement. Because I'm stupid.

I have to explain, I have to talk to people like, like I'm talking to myself. Yeah. I'm done. So if you can explain it to a five-year-old, then...

So that's what's amazing, Pace, and I really appreciate the way that you do that. And everybody that knows you can attest to that, that you're able to help teach these concepts in a way that nobody else has really done. You've pioneered that in a way. And so guys, if you want to really learn creative finance in an effective way, implement these strategies, be effective, start making money right now today, then go to paceandjerry.com.

Uh, when you go there, what you'll do is you'll sign up for a strategy session. You'll talk to Pace's team and you'll, you'll learn more about his mentorship program and, and their community and just all the amazing things that they're doing. So we'll put that link on the screen here probably in below, but it's free. Get on there. Talk about what your goals are, what your strategies are, what you're hoping to accomplish.

And, uh, Pace's team will see if there's a fit, if that's something that they can do to help you with. But again, appreciate you Pace. Love all this stuff we're doing together. And let's.

Be ready for that next video. It's going to come out, you know, next in line, but we'll do video 13, 13. Do you skip video 13? Just like a hotel would skip floor 13 and you go straight to 14. Like, is it an unlucky video? I'm not sure.

Nah. Okay. I don't think so. Thank you guys. We'll see you on the next video.

Transcript for:Mastering the Morby Method in Finance

Transcript for:
Mastering the Morby Method in Finance