Just Buy a House Already Using Subject-To Deals

0:00My wife and I live in Northwest Arkansas now. We've been here for about three years. And I've probably been approached a dozen times by people who want to learn how to invest. They're here local. How can can I get started? How can I work with you? I said, "Listen, what do you do for a job?" Some of them are delivery people. Some of them drive part-time for Uber or other things. I said, "You drive around all the time. If you see a rundown house, an empty house, a vacant house, a house that needs any kind of attention, just take the address down and get it to me.

0:34I'll do all the research. I'll make contact with the owners. I'll reach out to them, try to negotiate the deal, and I'll pay you to bring me that lead. Bird dogging. Man, that is the simplest way in the world. And I tell them, not only that, I will show you how I got this deal done. What an education. Yeah, — right. You get paid. Somebody that's done this for a quarter of a century will show you how to get it done. Bird dogging is gosh got to be the easiest way to get into real estate. You don't have to have good credit. You don't have to have any money.

1:07You're out whether you you work in a field that has you driving, a taxi driver, delivery driver, whatever. Or you're just going to the grocery store or going to get a haircut, open your eyes and look around. That's one of the simplest ways in the world to get started. Of all these people that have contacted me, a couple of them have sent me properties over all this time. Most of you meet them for coffee. You lay it out. This is how it'll work. I'll help you get started. Bring me some leads and they just won't even bother to do it.

1:40I don't get it. — Yeah. — But but that's got to be the easiest way. Make contact with an investor in your area and try to work with — Yeah. That's such great advice and and I think people don't realize that it can be that easy, you know, because the one thing people need all all great investors, no matter how big they are, they need deals. And so, if you can be the person to bring them deals, there's so much value in that. And you don't have to have all the money or the knowledge, just just bring the the deal or potential deal. So, — just take down the address.

2:13— Yeah. Yeah. — You don't have to do any leg work other than that. I'll I'll take it from there. It's so simple. — But yeah, that's that's got to be the the number one way for somebody that doesn't want to risk anything, that doesn't have any money, that doesn't have a lot of time. Just do it on your day-to-day route, whatever you're driving. Drive through a different neighborhood today — or something and just look, they're out there. — Great advice. So I I also want to talk through your specific strategy then of of how you take down these deals.

2:44so you buy properties subject to the existing financing or what a lot of people refer to as sub two deals. And a lot of there's been a lot of talk about this recently over the last few years especially with rates shooting up and lots of people sitting on these super low mortgages from you know 3 four years ago. So can you kind of explain to people who maybe have heard that term but they don't really understand the mechanics of it you know how how does this sub two process work? — Sure. Someone that needs to sell a house generally.

3:16And there are a lot of ways you can find them. You can look for these people. I tend to look for people that have problems. Whether they're in foreclosure, they're getting a divorce, they have code violations. I'm looking for someone that's got a problem property and try to figure out a way to solve that problem. My favorite way are is people in foreclosure. We pull the notices of default every week from our county websites and I go out and I knock on their door. And my approach is very simple. When they answer the door, I ask for, you know, whoever owns the house.

3:50I say, "Hey, is Bob here? Hey, I'm Bob." "Okay, Bob, my name's William. I stopped by today because I understand the bank's trying to take your house, and I'm here to see if I can do anything to help." If they're one of the 70% that want to keep their house, I'll go in, sit down with them, get on the phone with their lender, try to help them find a way to keep their house. No charge, no cost. We help them. We spend hours with them sometimes. Try to get them in a loan modification, a forbearance, something, a partial claim, something to help them.

4:21if they want to sell their house, we talk to them. Then they've got a good interest rate loan on it, something that's worthwhile to take over. We'll talk to them about how much equity they want to get out of their house. Many times we'll write them a check for that equity and take over their payments. Subject two is really just taking over someone's payments on existing financing without formally assuming that financing. We just step in and take over the payments. We take ownership of the house, but the loan still stays in the seller's name.

4:53— Got it. Okay. So, there's got to be some motivation for the seller to want to do this as opposed to just selling the property. Which makes sense why, you know, you kind of look for for problem properties. Is there is there a right way to do this and a wrong way to do this? — Well, yeah. I mean, I a lot of wrong things and a lot of wrong things that get taught today. Number one, I don't want to leave my seller in a bad situation. We have to be very transparent what we're doing.

5:24If I buy your property subject to it may well impact your ability to get additional financing for large purchases in the future, cars, an additional house later down the road. So, it's very important that you understand this loan is going to stay in your name. It may impact your ability to make large purchases in the future until I'm able to pay it off down the road. So, that is one thing that's very important. Another thing I see now that's really talked about often out there is assignment of sub two deals.

5:57In other words, you agree to sell me your property subject to. We've developed rapport. You trust me. We've completed all the documents and then I decide to assign that deal to somebody else that you've never met that you don't know that maybe another investor that I don't know if they're trustworthy or not, but they're willing to pay me for that deal. So, they pay me, I walk away, and then I leave your trust in their hands. — That doesn't work out well a lot of times.

6:30So, that's another thing that you really want to avoid. But yeah, you've — you've got to treat your seller right, make the payments on time, don't harm their credit, and be very transparent about what you're doing. — Yeah. Yeah, that's a great point. I I've done a few of these in the past, and I learned that lesson about making sure they understand that they can't get financing in the future. I I thought that was sort of intuitive. But you know I did a deal and had a great relationship with the guy and obviously I I paid you know his note then going forward but then you know two years down the road he wanted to buy a new house and called me up and then you know I even though I kind of got him out of a bad situation all of a sudden you know I'm kind of looking like the bad guy because I'm preventing him from buying this house and I was like

7:18well we had an agreement and so ended up I I just refinanced him out at that point it worked out that that I could get, you know, different financing and I didn't have to do that. But, just didn't want to have a conflict with with somebody. But that's a great, you know, if you're kind of tied to these people going forward then. So, you know, you got to have clear communication upfront and everything in writing, I'm sure. And, so that makes a lot of sense. So, but your strategy though isn't to then rent these properties or sell them.

7:49You essentially turn around and well I guess you are selling them with financing in place. Can you kind of explain how that works? — Yeah, we our model and what we do 90% of the time is we buy property subject to I'll give you a good example. We bought one a few weeks ago. Curtis was his name. He called us from our radio ad. That's that's one of our primary ways of marketing. We run radio ads. — And he called us and he said, "Hey," he said, "I've got a house I need to sell." So I said, "Tell me the story. That's always important." His dad had recently died.

8:23He lived in Hot Springs. He lived up here alone. He had bought the house a couple of years prior. He said, "I just want to get closer to family. It just made me realize I live up here. I'm not around family. I'm a few hours away. I just want to spend more time with them. So I want to go. I want to go right now. And I just want to get rid of this house." Turned out he didn't want a thing. He wanted that house gone where he could move right away. He had some equity, but he didn't want to sit on the house possibly for a few months before it sold.

8:55He just wanted finality. He was in a hurry. Not sure I know the whole story, but that's okay. He had a great 3% interest rate loan. He owed 214 on this house. It was worth 300. It was in excellent condition. Didn't need a thing done to it. — He handed me the keys. He made the next month's payment going out the door. He wasn't in financial distress and even his lawn service even cut the grass another couple of times. His lawn maintenance company did that for him.

9:26So so we bought that house. We sold it with seller financing to a couple that were moving here. They were relocating from Texas. So they didn't have enough time on their job here to qualify for a loan. They gave us $50,000 down. — Wow. So, we had zero out of pocket, a $50,000 down payment. Now, we'll collect a little bit of cash flow every month until they refi in a few years. Most people refinance within three to five years. So, when that gets taken care of, then we'll have another 40 plus thousand on the back end.

10:01So, I always say that model gives you the best of all worlds. It gives you the immediate cash of a wholesale deal. It gives you cash flow like a rental without tenants. And then you get another payday on the back end like on a rehab or another wholesale deal. So, we'll make about 90,000 on that house. — Wow. So to clarify where that that payment on the back end comes from, is it because the purchase price is higher than what you've contracted for or what? How does that work? — It is.

10:31Well, remember we took over a $214,000 loan and we sold the house for 300. Got it. — They gave us 50,000 down. So, we put that 50 in our pocket. We owe 214. Our buyers still owe 250. — So, the difference in that spread and the spread grows every month because remember our house has a 3% loan on it, but our buyer's — 250 balance has a 7 and a half% loan. Okay?

11:02— So, they may pay 50 bucks a month to principal and we pay 200. So, they put a little money in the bank for us every month. And that that's still a great deal for them if they don't qualify for traditional financing. Which I'm assuming a lot of your your buyers don't and that's why they're going this route. That's still not that huge of a down payment. The the rate is not that much higher than you get from a a bank. So it's kind of like a a win-win all the way around. That that's yeah, that's that's super interesting.

11:33So, if I guess the question that might come up for people is what if that buyer stops paying the mortgage, you know, that they owe you? — Well, that's a possibility and that's happened to me in the past. But a smart investor doesn't go below that 50,000 on new toys and everything. They put a chunk of that aside for what happens if if my buyers quit paying, I'm still obligated to pay on Curtis's mortgage. And I'll continue to do that with my reserves which I save from their down payment — until I can get them out of the house.

12:08— Got it. Okay. Yeah, makes total sense. So, so for people you work with then to teach this strategy, is there a a target that you recommend in terms of the amount of these deals like a you know a target to get to to where most people could maybe get to replacing their their W2 income or sort of a a a first milestone that you see as like typical for people? — You bet.

12:38What the model we teach, we call it the 12 house blueprint because it's just one house a month. One house a month is something you can do if you have a job, — you just in your part-time, anybody can buy one house a month. And I know that sounds easy for us, — but it's just the truth. Yeah. — A little bit of marketing, a few conversations every month, you can find a deal. One house a month with a 12 house blueprint will have you making over $100,000 a year between down payments, cash flow, and back-end refinances by the end of your first year.

13:15Since the median income for a family right now is below 70,000, that replaces your job income. But the really exciting part of it is if you see the full model after three years, you're making over a half million dollars a year. Wow. — And unless you really want to live a super extravagant lifestyle, you can live pretty good on a half million dollars a year. — Yeah. — So, yeah. And that's one house a month. That's all you ever have to buy is one house a month. — Pretty sweet. — Yeah.

13:46And I love the fact that it doesn't require like because you're basically turn around and selling the houses. — You're not accumulating this portfolio that you have to manage then going forward. So, you know, with rentals, it's like, well, yeah, if I do one a month, I can get to 40 or 50 rentals in, you know, the next four years or five years, whatever it is. But I think what people underestimate then is the amount of time and and effort that that that beast that they're building is starting to take.

14:18When I did long-term rentals, that was the case for sure. Like all of a sudden, I you know, it was taking up so much time. My spreadsheet didn't show me that. It was just showing per property I was making x amount of cash flow. So, luckily with short-term rentals, we've systematized stuff to where we're not really involved in the day-to-day, but but yeah, I think that's that's really cool about this this strategy of of reselling it on the back end with the owner financing. — Well, you know, the argument for rentals is, well, William, what you do doesn't build wealth.

14:50Well, if if I'm bringing in half million dollars a year and I'm debtree, I can bank a lot of money and do a lot of other things. Rentals are great if you can survive until you've paid them off or and those things. What I like about this is and and you know this from past experience, and I do too. If you own a rental, insurance goes up, taxes go up, maybe rents don't really go up, your cash flow goes down. Mhm. — If I sell a house with seller financing and no matter what the numbers are, let's say the principal and interest payment they pay me is 1,500 a month and my principal and interest portion is a,000.

15:31I've got $500 a month in net cash flow. That is net. — Taxes go up, insurance goes up, their taxes and insurance go up. Mine don't. It it I mean it doesn't affect me. So my cash flow stays the same. And if the air conditioner goes out in a rental property, guess who the tenants on the phone with? Air conditioner unit goes out in one of my 12 house blueprint houses. They're on the phone with the air conditioner guy getting not me.

16:03So, so it doesn't impact me. — So, there's a big difference between rental cash flow and and when you create a note, that's what we are. We're in the note business. We create notes all day long. We own paper, not property. — Yeah. Yeah. Yeah. And the amount of capacity that that gives you back in your life to not have to deal with all the the other stuff is huge. So I can see the the advantages to this. What what I'm curious what metrics you're looking at to determine this is a great dealer.

16:35What what's like the sweet spot of like if you were to describe to somebody like if target this type of property, is there a price point, a certain spread that you're looking for? What does that look like? — You bet. I'm looking for a house in great condition. If I have to do more than maybe a coat of paint, clean the carpets, I'm probably not interested. So, I'm looking for a house in really good condition that needs very little. I'm not I don't want to have to look for a contractor or any of that stuff. I'm looking for a house in the median price range for the location that you're operating plus or minus 10%.

17:12If you go for the low-end stuff, it's just not going to move the same. Same thing with the high-end stuff. You got a much pickier, much smaller buyer pool. Stay in the median prices. Your largest pool of potential buyers. I want a minimum three bedroomedroom, two bath home. If you get a two-bedroom, couple moves in, maybe they've got one kid, that's okay. They have that second kid, they're looking to get out. I want people that'll stay. I like cash flow. — Yeah. — All right. If they want to refinance in a few years, that's okay.

17:44But I don't want to move in anytime soon. — so I'm looking for three beds, two baths, nice condition, median price range. That's really what we're looking for. That is the sweet spot.