Welcome to this video guys. We're going to do something a little bit different. We're going to be talking about how to put together a deal that is involving creative financing and I've got my good friend Pace here with me.
We're going to have a lot of fun because you're going to actually watch us do a subject to deal coming up. For a limited time, you can get a free copy of Jerry Norton's Virtual Flipper Kit. With everything you need to flip houses without seeing them in person. Download it now at virtualflipperkit.com.
If you're new here to this channel, I'm Jerry Norton with FlippingMastery.com, and this channel is all about ways to help you make money wholesaling and flipping real estate so you can live your dream life. Be sure to subscribe and turn on the bell notifications so you don't miss new videos. All right, so Pace, welcome, man. What's up, brother?
This is a lot of fun. You guys, Pace is somebody that I have tremendous respect for. I consider him a close friend. We're actually neighbors.
I think Pace lives about 10 minutes from me. He's joining me here in the home office here at the Norton compound. The Norton library. Look at this library he lives in, guys. It's unbelievable.
This is a lot of fun. And what's really interesting is this deal came together. I'm going to ask you, Pace, to kind of share a little bit about it.
But this deal kind of came together for both Pace and I. We're actually going to partner on this deal. It's a creative financing deal, specifically sub two, but there's some kind of moving parts on this deal. And we're going to attempt to really break this all down for you and show you exactly how we're going to do this deal.
If you guys are interested, make sure you leave a comment and tell us if you'd like to see a series on this deal. Then we'll kind of do next steps and we'll share how this deal progresses, you know, hopefully to the finish line. You guys that are new to real estate, actually, you guys that are. Been in the game for a little while, you know that not all deals make it to the finish line.
There's a lot of times along the way or a lot of things along the way that can break down, right? But we're going to attempt to take this deal we've got right now all the way to the finish line and let you see it behind the scenes or looking over our shoulder so that you can understand this type of deal structure. So again, thanks Pace for being here and maybe share with everybody listening here.
kind of how this deal even came together, why you and I are even talking together about this deal or partnering. It's so fun because as you elevate and as you learn new things in real estate, what happens is people come to know that you can actually close escrow on these types of deals. Jerry Noren has been a guy in town for the last couple of years that when there's a luxury deal or there's a deal in a specific niche, they go, I'm going to call Jerry Noren, right? Yeah.
High-end stuff. So a lot of times people will DM me or they'll text me and go, hey, what do you think about this deal? I think I'm gonna send it to Jerry Noren. It's literally every time they do that. So I'm the guy in town and in a couple of different parts of the country where people have a sticky situation, maybe no equity, or maybe there's a big amount of arrears.
People will reach out to me because they weren't able to make it happen with traditional methods. And so because I've stood out as that guy, I get calls all the time, probably four to five calls a day in multiple states of people saying, I can't solve this problem and I need your help. Yeah, which most people think of real estate as like cash transactions, right? Cash, cash, which cash is awesome. Cash is like the ultimate way to get a deal done.
But because of the nature of cash, you have to get a rock bottom number for that deal to work because of the deployment of money, right? Whether it's your money or an investor's money, there is a high demand for a return on that money. And what Pace is really known for is taking everybody else's throwaway leads and putting them in a place where they can get a return. and monetizing those and not just a little bit but like in a big way and that's using creative financing so we're going to be really focusing this whole video and if we do a series here on how to do a creative financing deal specifically subject to so hearing that it sounds like well what in the world is that jerry you talk about wholesaling you talk about making cash offers you know running the regular formula this is going to be a way to take leads that normally just don't make sense for most wholesalers most flippers most investors really where they just like there's no equity or that doesn't make sense done move on to another deal looking for that like high equity deal or all cash offer and this is really hopefully for you guys a real eye-opener and how to put those together and by the way if you guys want to learn more about creative financing i put together an entire guide and this goes through several different it's a really good guide you i saw you put on your instagram i was like oh my gosh that guide is so good so how can they get it It's pretty cool. So we'll put a link in the description.
You can get that for free. It covers several different techniques subject to seller financing, land contract, lease option, different ways to structure deals. So if you want a really solid overview, we'll give this to you for free and stay to the end because Pace and I have a really cool gift, huge value that we're going to also give you for free, but you got to stay to the end of the video so that you watch this whole video. All right, so okay, Pace, so share with everybody, how did you and I get in front of Mr. Seller, which we met at the kitchen table.
You and I sat at the kitchen table. We had an hour-long conversation with him, with his wife. So kind of how did that come together? So the way that this happens is that for the last four or five months, this seller has been in foreclosure process.
And any seller that's in the foreclosure process, step one of that foreclosure process is denial. Right? I call it the ostrich effect, head in the sand. I love that.
So that's exactly what this seller had been doing for several months. And primarily, the only people that reach out to motivated sellers are wholesalers and cash buyers. So the wholesalers were not able to solve his problem. They were tying him up in contracts and canceling on him and all this kind of stuff.
And he came down to the probably the last 15 days before. 11th hour. Yeah, 11th hour. He's about to lose his house.
And finally, one of these wholesalers in town says, okay, I've talked to this guy long enough. I'm going to call in the heavy hitters. And so what ultimately happened is I get a call last Wednesday.
So today, here we are five days later. I get a call from a wholesaler. He says, man, I've been working this guy. It's an impossible deal.
It's an impossible deal. And the first person that came to mind, was you, because I know you take the impossible and make it possible. And so I go a couple of days.
I talked to the seller. I tell the seller, Hey, give me a day. I'm flying from Seattle to Phoenix and I'll give you a call back in that timeframe.
I get a call. I get a text from my buddy, Jerry. Jerry says, Hey, I got a lead from, um, from somebody local in town. Here are the details. He didn't give me the seller's name or the address, nothing.
And I replied to his text message with simply the seller's name. I said, And Jerry goes, oh my gosh, how did you know? And this is a really good testament to both, you know, last night on Wholesale Hotline, Jamil was talking about building a reputation by keeping one promise at a time and by taking care of one person at a time.
Jerry's a guy in town that has kept promises and done good business. So ultimately leads and good deals come to his table when other people can't make sense of them. And my bird dog essentially said the exact same thing, said. Here's this lead, I'm exhausted with it, I'm not expecting anything, I can't put it together, here you go, you know, if you can make something work great, here you go. What's so kind of same conversation.
As you've got all these people for four months utilizing traditional methods and Jerry and myself utilizing subject to, we are both going to make, in my opinion, we're both going to make about a hundred thousand dollars each in a 12-month time frame. Right, in a partnership, yeah. In a partnership. Very cool.
So cool. So what we're doing here in this subject to transaction is we're tremendously helping this seller. And we're going to go through how we're helping him and the structure of all that in a second. We're helping the seller. We're stopping the foreclosure last minute.
We're allowing the seller to live back in the property for 12 months. And we are putting our position, we're putting ourselves in a position where we control the real estate and ultimately make a hundred thousand dollars each. And we're going to whiteboard this. We're going to lay it out for you.
I do have to say though, that, you know, I've been using creative financing techniques for a long time. I've very rarely seen somebody be able to break down the creative financing process, especially sub two, in such a way that anybody can understand it. And Pace is the master at understanding creative financing and subject to. So guys, if you really want to learn this well, not just kind of like high level, more than just this deal we're going to share with you, but really the nuts and bolts of how to do sub two. then be sure to go to sub2.com.
It's S-U-B-T-O, sub2.com, and you get more information. I look at lead gen and deals like deep sea fishing. The more lines in the water, the more fish you catch.
And you can catch so much more fish deals if you learn creative financing. It is a must-know strategy. And it's a whole world of opportunity because now it's how can you see an opportunity? that others can't, you can put a deal together.
There's not another person in the world who gives as much value and shares so openly and freely as Pace. So that's my plug for Pace and thank you for all you do in the community, investing community. So let's get into it.
Let's break down now, Pace, if you wouldn't mind. Let's talk about the kind of the high level numbers. Maybe like we'll jump on the whiteboard, but we're going to whiteboard out kind of the seller situation so that you can see.
What's going on, what the numbers are, and then we'll go from there maybe and we'll kind of break down, okay, well now what's the right solution that works for them hopefully and works for us for sure so that we can kind of, so you can kind of visualize this. I think putting it on the whiteboard would help everybody. Yeah, I agree because what happens a lot of times when you're brand new to real estate is you put what I call, you put your brain in the seller's head and you say, why would the seller do something like that? Why would this?
Seller allowed Jerry and Pace to both make $100,000 on this property. How does that all work? So we're going to kind of give you the situation of the solution we're presenting to the homeowner so you can see the value we're giving so that you can also understand why we're getting so much money back.
And quick teaser, the sit down at the kitchen table with Don and his wife. Pace recorded the entire conversation. I looked. It's an hour-long audio recording, which we can do, audio recording.
Stay to the end. We're going to show you how to get that. It is invaluable because what I love about it is it was like a tag team, you know, Wrestlemania, where Pace would come in and be like, boom, and then I would come in and be like, boom.
And then we brought the wife over because the wife was kind of like, whatever you say, honey. And she's sitting over here and we're like, Paola, you sit down. We're telling you the exact same thing. So that this is crystal clear how this is going to go down, why it's good for you, why it's good for us.
It was so cool because as we left, we had Anna Martinez, one of my project managers. She was there taking photos of the house. Anna, after we left, she sends me a text and she said, I would be so fearful to go up against Jerry and Pace if I was any other investor. So if you guys want to hear how we presented terms, how we overcame objections, how we, in a very crystal-like manner, explained it to the seller.
And explained it again. And again. And again, one more time. Exactly. And there was a funny part where Pace goes, okay, listen, because he's very, the husband's very, Don is very interruptive.
And he, look, he's played this thing all the way to the 11th hour. He knows what's going on. Smart guy, you know, finance background. He gets this.
And Pace is like, I need you to just listen. Give me three minutes. Don't interrupt me. Three minutes. I'm going to walk this all the way through A to Z one more time, but you have to listen and stop talking.
Right. And which was just, which was just awesome. So we'll show you how to get that recording.
Stay to the end. Okay. So we're going to attempt now to break down the entire deal structure in a way to where it's easily digestible, easily understandable.
Hopefully, if not go back and watch this a few times, but let's take our deal here. Our deal right now that we're, that we're doing is, has a million dollar value. Now, apparently that's an appraised value. That's a number the seller gave us.
It's not a number we pulled out of pie in the sky. It's a million dollar home. It's in a live guard community, beautiful area, all high-end homes in there, million dollar home.
Now, the situation is this. There is a first lien holder. He's got a mortgage on the property that's in the first position.
Bank of New York. Bank of New York. Now, that loan is roughly about $450,000. Then he's got a second position lien.
He took out a home equity or a... He took a personal loan. A personal loan against equity.
Right. So it's leaned against the property. The most important thing you've got to understand here is this is first position.
This is second position. This 191 in the second position lean is foreclosing. So he stopped making that payment, did the ostrich effect, which has put his head in the sand, didn't address the issue early on.
Clearly there's equity, right? Look at the equity in this property. 650-ish.
650 in equity, or 650 in debt, a million dollar home. Now, you and I watching right now are probably thinking, well, why didn't he sell the property? Why didn't he protect his equity? Ostrich effect, this is so common when people are in financial distress.
They think somehow this problem's gonna solve itself down the road, right? And I'll just worry about it tomorrow. Meanwhile, that looming foreclosure date gets closer and closer.
Then at the 11th hour, Pace and Jerry are at the kitchen table. He literally has, what, 10 days now, nine? I think eight or nine days to get this thing done. So Pace, I'll have you explain kinda why this is so significant because this foreclosure is happening in nine days. Nine days, which means certain things are gonna happen if he doesn't solve this, right?
So I'm gonna have Pace kinda walk through that right now. But hope you guys understand the numbers here. Million dollar value, $450,000 first lien position with New York Bank. Second position which is the big problem right now, this is what has to get solved.
If this doesn't get solved, there's a foreclosure, he loses the property. Got to get out. Right. So, let's go through the process of where this money came from and why this lien is here in the first place.
At some point, the seller says, look, I'm going to go out and build a business. So, I'm going to go out to one of my buddies and ask them for a personal loan. Well, that friend of his said, I'm happy to give you a personal loan but it needs to be tied and secured against your property in the form of a lien.
Which means now he has protection against the seller failing to pay him on that personal loan. So that personal loan was transitioned into a lien. Now, the seller has not been paying that for years.
And this gentleman, his name is Terry. Terry has been fed up with it. He finally got to a point where he said, you've been messing around with me.
You haven't been... I'm paying the bill, I'm taking the house, I'm gonna get my money back by taking you through foreclosure. So Terry hired a company named Tiffany and Bosco, which is what we call a trustee, and a trustee forces and takes the house through a foreclosure process. You hire them and they do the whole foreclosure.
There's legal steps you have to take in order to foreclosure, and subsequently, in case you're wondering, because this was a thought I had, why isn't this also in foreclosure? That's the bigger number. he took advantage of forbearance.
So he deferred his payments for a while and that's how he saved his butt on the first with Bank of New York. Because of what's going on right now, he got forbearance. If you don't know what forbearance is, we've done some videos on it, but it's basically deferring your payments. They'll either tack them on the end or lump sum or whatever it is, but it gives him relief right now to not have to make that first lien payment for a little while. So what happened is Don, the seller, put himself in a situation where he said, I'm the ostrich.
Number one, I don't think any of this is gonna happen. This guy, I have been making payments to him for a couple of years. Why would he now change his mind and foreclose on me now, right? It just so happens that Terry, the person in this situation, got sick and tired of not getting payments on this big lump sum.
So he hired the trustee and is moving forward. So now he has 10 days until he's losing everything. And this is the two options that Dawn has right now.
And I wanted to bring up why there's not an option three, which is listing the property, because somebody that might be watching this video would say, well, why doesn't he list the property? Why doesn't he sell it to a wholesaler? Why doesn't he just fire sell the house right now?
Well, Don's main motivation is that he wants to stay in the property and fix his situation. So he doesn't really want to sell the property. And what he's really wanting, and this is where we're at right now, this is the line we're at right now, is Don has option one, which is, In 10 days or less, the house gets foreclosed on, which means the trustee that Terry hired will come in, take the property from Don and pull Don and his belongings out of the property and say, you're no longer the owner, get out. Okay.
That's where he's at right now. Which means he loses everything, loses his equity. He no longer has a house to stay in.
He's got a foreclosure on his record for however long those stay on your right. You know, like this is zero. And right now he's got one plan B and that's Pace and Jerry.
That is correct. Now, what's interesting about this is, guys, for you that are new investors or even maybe doing a couple of deals here and there, there are so many foreclosures happening on a daily basis nationwide with sellers very similar to this. Not million-dollar properties, sometimes 50,000, 200,000. Thousands of them are happening nationwide. There are opportunities for you to take advantage of what's going on here where a seller tried to list it for too high.
They're in foreclosure. They're about to lose their property. They don't know what to do.
A wholesaler or a real estate agent no longer can help them and they just let the house go. So this applies not just at the million dollar. If you're watching this saying, well, I couldn't take down a million dollar deal.
This is at the hundred thousand. It's at every price point. So don't worry about the numbers. Know that the steps, and this is a very common, this is a very common math.
Right. I'd say the average deal, we're in the middle of a deal right now, somebody up in Northern Arizona. waits till the last minute. They have two days until they're going to lose their house.
They couldn't sell it with a listing. And so they gave us a call. That price point is $180,000. There's houses we bought last year that were sub $100,000.
These are your pre-foreclosure. Right. So like Jerry said, and Jerry has amazing videos on pre-foreclosures and what that's all about. So go look on Jerry's channel for more of that information. But this price point should not scare you.
The whole thing that we're teaching you here are the mechanics behind how you can help a seller. Stop this option one from being a reality and give him option two, which is this. Jerry and Pace step in.
Jerry and Pace buy the house subject to, which means we buy the property and we leave the existing mortgage in place. This one. Correct. So we take this over.
How much money are we going to pay towards this, Jerry? Zero. Zero dollars? Zero. So guys, we're not buying this $450,000 house with cash or with getting a loan.
There's already a loan in place. We are just transferring who owns that loan, who can actually control that deed of the property. And it's on a low interest rate on a 30-year fixed. Why would we take that out?
Yeah. Why would you get a loan to pay off a loan? What we're just going to do is we're going to take over this $450,000, very simple.
And then we are going to come in and pay this one off with cash. Now, a lot of times in other subject to transactions, when we have entry fees that are large. We go out and we raise private capital, which is a whole other thing we can talk about in maybe part two, three, or four. Which we could do with this.
Easy. But you and I are looking more on a return on investment on our money. Correct. But if you're watching this saying, well, I don't have 191, fine. Borrow it from a private investor or wherever.
You can still get the deal done. Right. I have private lenders. That would give me that 191,000 and I'd probably pay them 10 grand for the year.
Yeah. Maybe 20 grand. Me too. I could make a phone call and have that money.
That's the power of relationships because it's a good deal. 100%. So what's going to happen is Jerry and Pace are going to buy this house subject to for $650,000 is our purchase price. Why is it $650,000?
Well, because you add these two numbers together with some closing costs. Your closing costs are going to be about $9,000 with some fees. We're going to get an attorney involved and stuff like that.
And then my transaction coordinator, we pay her some money as well. So this is going to total $650,000 on the purchase price. We will not be paying that off. We'll keep it in place.
What we're going to do for Jerry is... Or Jerry, you and I are now going to be the owners of the property. And what we're going to turn around and do is give the seller a 12-month option to buy the property back from us. So, he gets to live in the property for 12 months. He gets to solve the problem that he's currently dealing with.
him and his wife don't have to be completely uplifted from their property and change everything in their lives and move furniture and all that kind of stuff. We are bringing tremendous value to this guy's life. So what we're doing is for that 12-month option, at the end of the 12 months, he has an option to buy it from us at $865,000.
And explain what an option means. An option means Jerry and I are the bank. And we own that property and we're letting him live in that property as long as he continues to pay the first mortgage, which is $450,000.
So that continues to get paid, which gives you and I the benefit of the pay down, which is amazing. Because now he's been in this property for a long time. Most of that $2,800 payment, that $2,800 payment is his payment on the $450,000 with principal interest taxes insurance.
Right. So it doesn't cost us anything to service that now because he's paying that in the form of his rent. But the majority of that payment now is principal because if you guys understand how a 30-year loan works, the more time that goes on, the more principal gets paid off.
In the beginning, it's mostly interest. As you get further along, it's more principal. So we get the benefit of the pay down. We figured probably about $18,000, maybe $20,000 in this year.
If he makes that payment for 12 months straight, this is actually going to now be $430,000 on the principal. 100%. The benefits to this deal are significant.
Yeah, there's 10 of them. Yeah, there's 10 really big benefits. And I think maybe doing a video of here's all the benefits of us doing this deal, I think would be huge.
Plus having us go through his mortgage statement and showing people what a 30 year AM looks like when you're halfway through in terms of principal and interest would be super impactful. Yeah, but keep watching because we're real, we're realist, right? And we're investors. And so we're going to also, we're not going to sugarcoat this. We're going to also talk about the possible downside.
Yes. Because there's always a downside. Things could go wrong here. Right.
But can you live with that? We'll talk about that in a minute. So let's go through this one last time.
And if you guys have any questions about that, throw that in the comments. Anytime I do a video with Jerry, I personally go in the comments and help answer those questions. I love the questions. It gives us a good idea of what we need to hit on more, what we need to focus on when we do part two, three, and four, depending on how this transaction goes. So Jerry and I are going to buy the property by buying the subject to.
This will stay in place. We pay this off cash. We pay closing costs. We're all in at $650 on the purchase price. We're going to give Don, the seller, the ability to stay in the property for 12 more months and the option to either sell the house on the market for the million dollars or to refinance us out and go get a loan.
In that process, he would have to buy the house for $865. $865. Let's say that he sells the property what what he believes to be a million 500 or 50,000, he goes and lists the property.
He sells it off. He pays off the 865 plus some closing costs, plus some, let's say, um, $75,000 in costs to real estate agents and fees and all that kind of stuff. Don's going to walk away with, with over a hundred thousand dollars in his pocket.
So we're taking him from an option one that is zero benefit to him. He gets thrown out of the property. and putting him in a position that in a year from now, he can either sell the house on the open market, get a hundred thousand dollars plus in his pocket and live in the house for another year to figure out what his next chapter of his life is, the next adventure where here's him and his wife are going to go with a hundred plus thousand dollars in his pocket depending on how that shakes out.
Or he refinances. Right. Pays us off this because that's his payoff, right?
Remember that's the option. And stays in the home, doesn't have to move, and he's got still equity because if it's worth that, he's got his, you know, he's still protected that equity. Right.
So here's the benefit, best case scenario, and we can jump into more best case scenario, but in this world, what's going to happen is if he pays our 865 off, we owe 650, right? So let's look at that. We're going to get a couple of benefits here.
We're going to get the 650 that we owe. So that's going to be taken out. That leaves Jerry and I with $215,000, but... The mortgage paid down $20,000. Add that on.
So we add that $20,000 onto this deal. We're going to end up making about $235,000 in a 12-month time frame. This would probably be the easiest amount of money for us to make.
We wouldn't have to lift a finger. We wouldn't have to renovate the property or worry about it. Don sells the house or refinances us out. We make $235,000 in 12 months. No extra time into it.
Yeah. Done. easiest and I think kind of a worst case scenario for us in terms of return on our money. Yeah.
Definitely. Maybe what we should do is erase this and do a best case scenario and a worst case scenario. Okay.
So let's now map out here for you the best cases because there's multiple ways that this could play out. We'll whiteboard that and then Pace is going to cover what could possibly be the downside. If the worst thing happened, what would that look like so that we can decide?
Can we live with that? And this is the conversation Pace had, Pace and I had. What's the best case? What's the worst case? Let's go from there.
So first, let's take best case. Pace mentioned a minute ago that the easiest solution would be that he pays us off the 865. Now, there is some additional equity in there that we could capture, but what's nice about a payoff at the end of 12 months, whether he sells it or refinances it, however it happens, we don't care where the money comes from. He could...
Win the lottery for all we care. You can borrow money from another person. I don't care. We don't care. As long as we get our 865, what's great is we're out of the deal in 12 months.
We recapture, we get our principal of 200 back, and we net 235. Now remember, 235 is the spread between 650 plus another 20,000 in pay down. We would walk away from that deal with roughly 235. Pace and I split that. We're thrilled. We doubled our money. Right.
That's pretty cool, right? Doubled our money. No renovation. no listing it for sale, no waiting past 12 months. That's the benefit of the payoff, right?
Pretty good upside for the payoff. In additional, let's say that he doesn't do the payoff. What could the upside be?
There's a downside Paisel cover, but what could the upside be if he doesn't exercise his option at the end of 12 months and we have to take the property back? What could that look like? Well, we could sell the property and net.
over 235, right? Remember, it's a million dollar value. And in a year from now, the way this market's going, it could be worth a lot more.
So we could either renovate it, we could not renovate it, put it up for sale, sell it for 975 as is, and walk out of there with anything over 235 would kind of beat this deal. But we would be in the deal longer. There might be a renovation. So that's the downside.
We could be, we're longer into the deal because if he doesn't pay it off in 12 months, now we got to take it. Maybe it takes us another three, four, six months to get out of it by doing something, either listing it, renovating it, whatever, or another possible upside if he doesn't pay it off is we keep it as a long-term rental. Now this one is very attractive to Pace and I. I'm mostly a flipper, but man, there's nothing better than cashflow because Think about it. We would have, we would be basically keeping this property with a $2,800 a month monthly payment on that first, where this thing could rent for 4,000.
I think it's 4,400 to 4,800 bucks. Okay, so this thing's now cash flowing, let's just call it. 1,500 bucks. Yeah, more than that probably, but this thing's cash flowing pretty dang good.
We continue benefiting from that pay down. Every year we're paying that thing down more. our equity's improving.
This could be a nice long-term cashflow property. There's a lot of depreciation benefits both you and I make with the income we earn. Yeah, the challenge is when you're doing a big flip like you're doing and you're making whatever you're making. Pay capital gains out the nose. Right, so when you come down and you're getting a K-1 from all your LLCs and...
that's a whole nother conversation. But essentially what holding this property does is it helps wipe out your income from other businesses so that you can hold and keep that capital in your pocket. Right.
And think about it. If, if this, if certain assets allow you to not pay, let's say a hundred thousand in taxes, that's the same as making a hundred thousand dollars. Right. My CPA told me months ago, he said the fastest way to make more money is to not pay.
Pay less in taxes. Exactly. Yeah. Okay, so those are our possible upsides of best case scenario.
Real quick, in a no payoff situation, real quick, what would be a reason why there would be a no payoff situation? It's very likely actually that there could be a no payoff situation. If he doesn't really get on top of selling that property way ahead of the 12 month deadline, he'll run out of time just like he did before. Or if he can't get new financing to take us out. Which could also be a likely scenario.
So we have to pace. Chris and I have our eyes wide open. There is a likelihood, there's probably more of a likelihood that this one happens than this one happens.
I agree. Wouldn't you agree? I agree. So we're looking at this not saying, oh, here's the mistake I see a lot of people make with creative financing.
They create this situation that on paper looks so phenomenal, but it's so unrealistic, and they have their head in the sand about the reality of what the seller is actually going to do. Remember, he did not solve his problem before. This is, in a way, could be kicking the can down the road, where if he's not on top of it again, we'll be right back in this situation where we're having the same conversation, which is, Don, you got to get out. You didn't solve your problem.
Right. Which is what I love about the recording that we did in the house. Yeah.
Jerry and I were at the kitchen table with Don, his wife, Paola. Had a great conversation. Tag teaming him, yeah. Tag teaming him and making sure he understood, hey, you need to sell this property. You can't just wait till the 11th hour.
Again, in fact, Don, we are not extending that 12 month. He asked us multiple times. Yeah, I asked this over and over.
Can I get 15 months? Can I get 18 months? And our answer was absolutely not. We don't want to be involved in this thing more than 12 months. We have other things to put our money in.
So Don, the answer is no. No, no, no. 12 months is the end. Yeah, that's right. What possibly could happen where this would not be as upside as we think it is?
Love it. So guys, what's cool about the way that Jerry and I structured this deal is we put ourselves in the driver's seat by buying the property subject to, some people would have just funded the deal. I've seen other people just fund the $200,000 and they just are hoping to get paid back.
We control the entire asset. It is our property. We own and control that house and we're giving him an option. to buy it back from us. So we're in a no lose situation.
Because of the equity. Right, because of the equity. So if you look right here, how bad, so our analysis of like worst case is, well, what's the worst profit we'll make? Right.
There isn't a situation here where we're going, well, we could not get our 200,000 back. Right. If that were a conversation, you and I wouldn't be here.
Right, and if there is a meteor that hits planet Earth, we got a lot bigger things to worry about than Don's house, okay? So let's jump into, if the seller, And now in this situation, the tenant, if he misses his payment, we have to evict him, which costs us money. It costs us time, costs us money, and maybe even a little bit of a legal shuffle. We end up fire selling that house. And we pick up payments.
Right. Payments, evictions, legal fees along the way, and some headache and stress. Right.
In that situation, we probably, it would cost us some money. We'd have to make the payment on that house while that's going on. We would be able to force a fire sell the house for no less and make at least our 235 back.
Or the worst case would be when all that happens, we don't make quite 235. Right, we might make 200. Maybe that's the worst case scenario. Yeah, 200 or whatever it might be. So it could turn out to where we don't make the 235 if you paid it off. But we're talking now about, well, okay, like you said, well, we made 200 now instead of the 235 at the payoff.
Or even 150. Or 150. Worst case scenario, you make 75 grand, I make 75 grand, we made a 75% return. on our money in one year. But even the upside to that would be we get our money back even sooner because now we're not waiting 12 months.
So there's an upside there as well. Love it. Right, okay.
So then let's say the market declines in 12 months and we are forced to fire sell it. right? Even if he doesn't miss the payment, maybe at the end of the 12 month timeframe, Don tries to sell it, but the house has declined and Don tries to refinance it, but his lender won't give him a loan.
We would end up having to take that property back and again, fire sell it and make less than the 235 we planned originally. So we don't make as much profit as the total upside. So that's a down.
But we get our investment back and we make a really, really good return. And then along the way, we gave the seller a whole year to live in that property and try and fix their situation. So...
Let's say that there's no payoff, he destroys the property because he's upset, and that property right now is in really good condition. Like he's taking good care of it. It's carpet, not even paint.
Yeah. It's like you carpet it, you rent it out, worst case scenario. He wouldn't even let us walk on his carpet.
Right. He was like, he kept telling me, take your shoes. I'm like, Don, I'm just looking in the room. I'm not actually going to walk in there because I don't want to take my shoes off.
But let's say he took care of it. Let's say he pours concrete down the plumbing. He puts a dead turkey in the vents, whatever the worst case scenario is. Takes the furnace with him when he goes, the AC units. What is the worst case scenario for us?
We might have some renovation here, right? We might have to go into the property and renovate it. But the good thing is the upside is we can have the long, well, you have the long-term tax appreciation, but the best thing is if he destroys the property, we evict him and we go long-term play and we're back over here.
Yeah. Well, let me tell a quick story. I had a, this was very early on pace when I first started in real estate and I was doing this fix and flip deal. And I sat down with a money investor and I said, Hey, here's my deal. Here's what I need for the purchase.
Here's what I need for the repairs. And I walked them through the deal. I had my comps. I had my total rehab numbers. I thought I had like everything.
And he says to me, and this This is a really smart guy. And I knew him really well. He put his arm around me, way older than me.
I was like 27, 28 at the time. He put his arm around me and he said, what's the downside? What's the possible downside? And here's what I said. I said, you know what?
There is no downside. This deal is amazing. And he put his arm around me and he said, Jerry, there is always a downside. And when you can see and understand the downside, and when you can tell your investors, what the possible downside is, your money investors, and then they can live with that. Now you'll gain their respect.
They'll want to give you their money because now they've got the full picture. Always look at the full picture. I can't tell you how many times people say to me, well, the value's here and here's my comps.
And they cherry pick the comps. They don't have their eyes open. On paper, they're making the deal work and all they're doing is setting themselves up to fail. Take the emotion out. Be real about what could happen.
And the good that could happen, but the bad that could happen. And Pace and I are both looking at this going, no matter what happens... we're getting our money back.
And at the end of the day, if we get in a deal and at least we get our money back, that's, I can live with that. Right. I can live with that. Yeah. So now we're moving forward.
Okay. So I hope this makes sense. I hope you grasp all these numbers. I think Pace, we did a pretty good job showing how this deal works. Again, if some of this is like foreign to you or it's not all clicking, go back through, watch it.
Make sure you go to sub2.com. You can learn a whole lot more about this strategy. Get my creative financing hacks. Oh.
And because you stayed this long, we have a really special treat for you. Let's tell you about that right now. And that is Pace recorded the entire conversation.
It's an hour long conversation with the seller and his wife at the kitchen table. We're going to give that to you for free. I'll put the link. It'll be included with my creative financing hack.
So when you go to that link, it'll be in there. It's the audio. I'm telling you guys.
It's so cool. Listen to it because you'll see again how we put all of this together and how to position that with a seller. It's one thing for you and I to sit here and understand these numbers.
It's another thing to help the seller understand, but worst case, best case, what he really is getting into, how we're helping him. We had to really help him understand. Why this is a win-win. It's a win for you, it's a win for us.
We are not predatory, we are not taking advantage of you. We are helping you. Pace told him, you know, right now we're the savior, but in 12 months we're the devil, right?
And that's because if he doesn't do things, which we're giving him all the opportunity to do it, then he will lose that property again. Right. Right. And he will walk away with nothing. Now he'll have gotten 12 months of reprieve, but he needs to understand that.
And you need to be able to convey that in an effective way with sellers. What I like about your channel the most is that you spend a lot of time actually calling people on the phone. It is a lot of work to do that.
Yeah. It is a tremendous amount of work to do that. And this time we got an entire conversation from us walking to the property.
You can hear us sitting down at the table. You can hear us leaving the property and saying goodbye. So start to finish.
We recorded the entire conversation. It's game changing when you can actually hear what people are saying. I wish it was video, but he would not have.
No, he was not happy about that. He was not happy about any video. So anyway, get that.
It's in the links in the description. Get that creative financing that'll come with that. Huge value for you guys.
So Pace, now here we are. We met with him yesterday. Clock's ticking. There's only a small amount of time to even get this deal done. It's go time now.
What are the next steps? So we need to open escrow today. So what we need to do is Jerry and myself are going to get Rochelle Jarvis, who's my transaction coordinator, highly trained in handling these types of transactions and the paperwork associated with them.
We're going to get her on the phone, describe the deal, have her put all the paperwork together. And then Jerry and myself are going to call the seller once he receives that email. and present the offer to him and see if he has any questions. That's right. Now, this video has gone long, guys, so we're going to stop this video now.
We're going to do that as part two, I think, would be a good idea. So stay tuned for part two. Like Pace just said, we're going to get on the phone with his girl.
We're going to get Escrow open, all of that, explain to her. You're going to hear again, what's going to be great is you're going to hear Pace explain to his people here's all the things that have to happen. The contract's going to go over to Don. We're going to pick up the phone call Don, make sure he's clear on it.
That's got to be the next step for this deal to move forward. Where else are you going to learn this stuff step by step, guys? This is unbelievable.
Nowhere. Yep. All right. If you haven't yet, make sure you subscribe to the channel, and we'll see you guys on the next video.
Let me do it again. You want your scripting thing? I know. How many times have I said this and you think I wouldn't need it? When was the last time I told you I appreciated you?
You're so great at that. You tell me that all the time. I appreciate you.
You deserve it. Every time I'm on the phone with you, I'm like, did I tell her how amazing she is today?