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Jeff Coffman talks about buying Real Estate without paying for it today. Subject To. How does he present the Subject To to clients in a way that makes sense to a seller? Jeff goes through the steps to take when pursing a Subject To deal. Listen in for the coolest way to Title a Subject To…and its not the property address.
Our quotable quote from Jeff Coffman “A quick nickel beats a slow dime, but not a slow quarter”
David: Cool. Alright guy’s thanks for joining, welcome back. This is the Discount Property Investor podcast. We are welcome today with a special guest, a friend and a St Louis native Jeff Coffman. And of course your co-host Mr. Mike Slane, myself David Dodge. We want to remind you guys as always check out the freewholesalecourse.com, the free whole sale course is jam packed with tons of information on how to get started wholesaling. As well, if you are St Louis native like Mr. Jeff here; we recommend and suggest checking out the Discountpropertyinvestor.com to find local wholesale deals here in the St Louis market.
So today we have Jeff Coffman with us, he is a special guest. He is — I would consider to be the lease — sorry not lease option, subject to expert.
Jeff: That was last week.
David: That was last week. The subject to expert here in town.
Mike: Talking like a true real estate investor.
Jeff: Today we are wearing this hat right?
David: Exactly. So I met Jeff — I think it was online several months ago. We had gotten together for a couple of different events and had talked subject to. He knew the business so well that when I got the leads that came across the desk; I would either call him for advice or just send him the leads. Because he was that much better at it, had more experience doing it — and had done a couple a dozen of these to date. So that is kind of how I met Jeff and I am thrilled to have him in here today and hopefully the listeners and the viewers can learn something about the subject to investing game.
Mike: Absolutely. So Jeff would you mind giving us a brief description — what is subject to? What does that even mean?
Jeff: For — I don’t know — your audiences — you target a generally newer audience. So for newer folks — subject to financing is when you are going to go out and buy a property that — no matter what amount of equity is in it — you are going to purchase that property but the financing is going to stay where it’s at. The financing from the seller is going to stay in place and you are going to — I hate to say assume, because you are not going to assume the loan; you are going assume the dept, but you are not going to sing for the dept.
Mike: There is a big difference between —
David: To assume the dept; does that mean you are going to take over responsibility?
Jeff: It is a bad way to put it.
David: It is, but it’s true.
Jeff: That’s right.
David: So the loan stays in the name of the seller — but you are not just like — starting this to mail a check. There is a closing process and legal documentation so — let’s walk through a scenario if you don’t mind.
David: So we actually have a scenario just the other day. We had a lady that said, “Listen, I am about to file bankruptcy.” It wasn’t a good enough deal for us to just cash her out what she owed for a wholesale. But I am still considering it, I am still working the deal. But she was to the point where she was so motivated that she said, “Listen, if you can just help me to start making these payments; then we will do whatever we can do.” So — actually [00:03:34.27 – inaudible]. But anyway — it was a subject to deal, so she had a lot of questions, which I was unfortunately unable to answer for her. But I essentially explained it to her, Mike was in the room. I said, “Listen, we are going to take over the payments and –.” You know, our exit would be to get a tenant buyer in there, because there wasn’t much value for us to do anything else to the house, it didn’t need much. We were going to get a tenant buyer in there — hope that tenant buyer was able to cash her out. Two, three, four years, somewhere along those lines, but there was no guarantees. She had a lot of questions for me that I wasn’t able to answer. So —
Jeff: So — there is no equity in the deal obviously.
Dave: Well — there was a little bit. So in this particular deal; she owed $89 — call it $90,000, home was listed for $130,000 ish.
Mike: She had a contract accepted right around 130 is what I thought she said. But there were some issues with the property; it was a first time buyer so they backed out. So again, I think the equity on the property is probably 120. So the property is probably 130, somewhere in that range.
David: Everything was tip top minus the plumbing that was under the ground. So like — it didn’t need paint, it didn’t need a new roof, it didn’t need new windows. It was move in ready. It was quite honestly one of the cleanest houses.
Mike: It’s a two bed, one bath, and full basement.
David: I mean — it was cleaner than my house and I’m a neat freak.
Jeff: Was she ok with the long term situation? Was she ok with — one or two or three year —
David: So we are still talking with her, and negotiating with her. It seems to me like she would be interested; she just needed more information about — how the whole process goes. Because — there actually is a closing that takes place. And there is a way to obviously structure that strategically.
Mike: What we say — as Dave said it, we are not the experts. So I guess we didn’t really position it that well because we are not as familiar with it. So I mean — how would you talk to a seller in this situation? What would you — how would you present that?
David: So just to give you all the figures; showed at 90, house was probably worth between 120 and 125. There was essentially about $10,000 worth of plumbing that needed to be done. Again, this wasn’t like you drive up and — oh this needs plumbing. It was all hidden, it was all underground.
Mike: She had the bed; there was tape from the contractors where they marked.
David: She was full disclosure with us. She said, “Hey, there is a plumbing issues.”
Mike: She felt her alternative was foreclosure or bankruptcy.
Jeff: So she could no longer afford the house.
David: She was listed currently but she was cancelling the listing.
Jeff: So obviously that is how you are — going to plead your case to your client. Is her ultimate motivation, from what you are explaining she sounds like the perfect candidate for it.
Mike: Right, they have to be motivated right?
Jeff: I mean — she’s prime. I guess the way that I would handle that is — I don’t ever — point number, I never mention subject to a client.
David: Really? Very interesting.
Jeff: I never do.
Mike: Good to know.
Jeff: It is — I have done it before — twice, and it has killed me both times. I know —
David: So instead of that, how do you —
Mike: So yeah, talk to us —
Jeff: It is kind of putting me on the spot, but generally I will put it in a way that makes them feel more comfortable. It is sort of like asking them what they owe on their mortgage? That’s not a comfortable question for a lot of people. But kind of the way I put it is — this is probably — not a lot of room in this field, we are probably going to have to pass on it. But, I do have some solutions if you want to hear about it.
David: Right, so if that’s their response, ok?
Jeff: They say yes, I said well — one option that is open to us is we can do a short sale. I go through all the other options before I get —
David: Smart, make your option the best.
Jeff: Right, what is the ultimate goal? The last one you hear is the best option. So I will just say, go through the short sale, go through the foreclosure — put a couple of dollars in it, sell it on the market, put it on the market. Then I will just say — we have a program where we can come in. If it’s a different [00:08:30.23- inaudible] long term, which I love long term deals so. If it is a short term deal, what I will say is — not a lot, we will get somebody in here to get this mortgage whittled down a little bit. Get a tenant in here to pay some of this off. It will require the loan to stay in place. We will get on title, we will immediately start taking over payments — and we generally won’t drag it out any longer than 24 months, and that’s how we handle it.
David: So that’s the pitch?
Jeff: Yeah I guess. It depends on the situation because — I will actually close on a probate deal tomorrow. Totally different situation where this was just an inherited property, get beneficiary deeds involved and — I didn’t have to do any of that, I didn’t have to do any of that. It was just basically just, “We don’t wanna pay for this. What can you do? Here’s a thousand dollars.”
David: Was it skinny or did they just not-
Jeff: No, It was a pretty good deal.
David: Oh, awesome,
Jeff: Pretty good deal
Mike: Those are exciting.
David: Those are exciting. Absolutely.
Jeff: I was gonna end up, I was gonna lease that one out, not to get off topic, but I ended up getting a cash offer for, so I took that instead. But now I guess, I guess really it just all just depends on the situation but if you want to get into the process of you know, how this actually goes down once you have someone that needs this explained to them, you know, so what I would do next is tell them, you know they would start asking about it and I would say, “This is a normal sale. There’s nothing abnormal about this sale. The only thing that’s different is that, is that, this mortgage is gonna stay in place. We’re gonna pay it. We are on the hook for it. You have no, we’re on title, you have no other association to this, property. Other than that, that lien and we close on it at a closing company, just like a normal closing,
David: It’s a great way to describe it.
Jeff: It’s at a beautiful table like this one and we close on it.
David: Awesome, so if they say, I love the way that you worded it ‘cause you kind of killed a lot of the objections before they even had them, which is super smart to do that, so whenever they say,”Okay, that sounds great, however, what do you mean it stays in my name. Am I responsible for it?” So I would imagine sometimes maybe not every time, but those questions may arise.
Mike: Almost every time they arise.
Jeff: An objection would be, it’s just to be very transparent with them. Yes, It’s gonna stay in your name. Yes, it’s on your credit. And then I just go into my track record, which is, you know, I’ve closed nine of these deals last year, I’m on my fourth one this year.
David: That’s awesome
Jeff: So, and I will get into the payments, sooner than later, but, I say that I am responsible for these payments, and I just kinda pound that in. Make sure that that’s known that, I don’t miss payments, worse comes to worse, if they ask what the worst case scenario is, I deed the property back to you. That’s the absolute worst thing that can happen, otherwise, our company’s on the hook for it.
David: And you got a great track record, which is super helpful too.
Jeff: Which I do want to — today I want to come clean on one thing
David: Let’s hear it, let’s hear it.
Jeff: I have missed one payment and for all the listeners out there, never, ever, ever, miss a payment.
David: Just a single one?
Jeff: It is the single payment. It was, it’s still rearing its ugly head. And what it was, was I had a, it’s a property, actually I still have the property and I thought I had it sold and it was coming into that grace period on when that payment was due so I was just like, we will just get this sold so we won’t have to make this payment. Got away from me, and I ended up missing that payment, and to this day, I have bad relations with that seller.
David: But you still have the property in your name.
Jeff: I do, it’s deeded in my name.
David: So worst case scenario, like you said, you could always deed it back to them but I’m sure you put the fire out.
Jeff: I did. I make the payment on the 15th every month now. The previous month — the month before, I don’t mess around with it anymore.
David: That’s good.
Mike: Well let’s talk real quickly about seller relations, because my understand; again no experience with it, but you do have a bit of a longer relationship with the seller at this point, right? Because the mortgage is in their name, so they’re getting the mortgage statements and I mean you’ve got to get those from the sellers, is that for correct? I mean how does that work?
Jeff: The way that I work it, the way that I will do it is, once I have it under contract, we agreed on a closing day. I have two options, I can either close it myself or I can close it with a title company.
David: What do you prefer?
Jeff: I prefer to close it myself, just because I can go out and do a title search if I know that the title’s clean, like I will not hire a title company and for a 150 bucks I get a full title search. Don’t get a preliminary or anything like that. Pay for the full title search. Get it back, have them sit down and read it to you, how they would, just as if you were gonna close. Once I’m comfortable with knowing that there are no outstanding liens on it other than the mortgage, I feel comfortable having them just quickly return that property to me and that’s what I usually do.
David: And you may or may not give them anything. You may give them nothing, you may give them a thousand, or, usually it’s a small amount of money.
Jeff: Try to make it a win-win. I think the very first deal that I ever did, I literally just, I was in it for $10,000, so, which we can get into that in a little while.
David: That’s what you put into, that’s what you put down?
Jeff: that’s what I — I actually brought her mortgage current,
David: Oh wow!
Jeff: And in exchange for that, I got the house. And she walked away with nothing on that one, other than —
David: Talk about a real win-win, hopefully, you made money on the deal, I’d imagine you did —
Jeff: That was my very first deal.
David: But you saved her from foreclosure.
Mike: Well he’s talking about it like it wasn’t his best deal either, to me it sounds like a win:win. It sounded like; he’s feeling too generous on that one.
Jeff: I really had no idea and this is where I kinda fell into subject to, I really didn’t have it planned out. and, I decided you know, I’m just gonna, ring her current — which, a lot of you know, I’m a little smarter than that now. I don’t think I would use my own cash to do that. I did do it then. So it put me at a little bit of a risk, I was in for 10,000. I walked away at the closing table with a $41,000 check, so minus the 10 that I would then —
David: That’s a huge deal man, 30k profit.
Jeff: Yeah that was my first one.
David: Let’s find some more of those, hell yeah.
Jeff: So yeah, that’s how the first one went down. As far as closings go, there are a handful of title companies in this city and I’m sure there are across the country, like in Ohio, you have to use a closing attorney, but, plenty of title companies on this stuff. So you can close it, you can get a warranty deed issued or you know, you can issue one to your buyer you know, anybody and they will just exclude that mortgage out of that title policy- out of that insurance policy.
David: Out of that policy.
David: Ok. So I have so many questions. Are you guys ready for the fire round?
Jeff: Go for it.
David: So I have done one subject to deal, I probably had made every mistake that you can make, but I wanted to do one and I wanted to kinda learn the process, I really didn’t learn the process very well but I did do one of the deals; and the way I did it was, we did close on it with a local company. The mortgage stayed in the seller’s name, but I didn’t have any access to the mortgage because I was fully intending on paying it off in about 8 months to a year, which I did. This is a very small, small, small deal, but for the first five, six, seven months that I owned it, I literally had her most recent statement that I was photocopying.
Jeff: You were just making a payment.
David: And just making a payment on behalf of her for the most part, now we did go to the title company prior, and it had moved over from her name to my company’s name, and I guess I got lucky cause they didn’t call the loan due, nothing had happened but I would imagine that there are strategies to where, A, they can’t go pull a second mortgage or a third mortgage or whatever you would call it a line of credit on their home. There was probably a way to prevent it from doing that, and B, have some sort of —
Jeff: There was probably, you are saying that–
David: No I’m saying there probably is, I didn’t know about it–
Jeff: But if you are on title then you —
David: I couldn’t do it. Ok, so that would be a way to prevent it. But I didn’t have access to the mortgage though, so I would imagine that there are strategies in which, or things that you can do, to where you kinda have, more transparency on their loan, because essentially, property becomes yours, you know via a deed, but there’s a lien check, how do you know about the loan stuff?
Jeff: My process is, there are, well first off I’ll have them sign a release, what do they call it? The mortgage information, like the release of information.
David: So that way you can contact Chase or Bank of America or whoever and say that I need more information on this loan, they look up and they’ll see your name.
Jeff: I do that immediately, that’s the first thing; I don’t even get it under contract. I wanna know before I get in the deal —
David: If they’re late, if they’re current, what their numbers are.
Jeff: That’s what I do, I fax it to them, they fax me back a payoff, that way I know.
David: Got it.
Jeff: Once I do have it under contract, I call it my honeymoon period where you know, they are signing everything, just going crazy.
David: Hopefully they are happy about it.
Jeff: They are. Generally yeah, I mean I tell them about this way before I actually do it, but, what I’ll do is I have them sign a limited power of attorney and I will file it with that mortgage company and that is for the life of the loan.
David: Life of the loan, so limited power of attorney meaning it is limited to just that —
Jeff: — to that mortgage. It is limited to just the mortgage and you can call them anytime as – that power of attorney has – the seller’s social security number, has all the information you are going to need, they are going to ask you when you call in to give this information. And I’ve not had a problem with that.
The other thing is that I require them to give me any online — if they bank online with a mortgage company, I have a little form that can give me all the information on that. This would have solved your problem. I log in there, I change the mailing address for the statements, I change any contact, I also send the mortgage company a no contact form, so they are no longer calling me — the seller. But I will change all of that origin information to my company.
David: To your company?
Jeff: Right, right. Any correspondence that happens now happens with me. They are still free to call them if they choose. Hopefully it’s not – limited —
[00:21:43 – cross talking]
David: That may be one of the ways to handle an objection: “Hey listen, if you want to log in your own –to the bank statements or online banking anytime to see if the payments are being made, feel free”.
Jeff: Sure. I just make it a requirement. I just flat out don’t give any option. If — I mean, you want me to make that payment.
David: Right, you need the deeds to make that payment — right, that’s really good information. So by having the deed transfer from their name to yours, they can no longer have a second mortgage on that property?
Jeff: You cannot. However, you can. This property is now an asset to you.
Jeff: When people talk about lease options – lease options are great. I use them, I will continue to use them, the reason that I like subject to is because you can actually go pull money out of their property as an asset. If you choose.
Jeff: It’s a little more difficult just because they are dealing with the first that’s [00:22:52 cross talking]… but you can do it. It’s an asset, you can list it to your — list it as an asset on anything that you need to.
David: So — what would be — this is kind of a little different type of question, but what would it be the pros and the cons of choosing one closing method over another? So you said that you can do that to soft close where you can literally meet them at Starbucks and have them sign it over the quick claim, or mocks the other documents versus going to the title company. So what would be, you know, the advantages of one or the other?
Jeff: Two words: transfer tax.
David: Transfer tax.
Jeff: Quick claim, all you do – all you are doing with a quick claim is – and you can have an attorney draw it up. I draw up all my own. Different policies have different ways they want them. I’ve had them kick back a hundred times.
David: [00:23:31.18 – inaudible]
Jeff: Well, if you are smart, you’ll go on and you’ll look at the prerequisites first. I would just send the same quick claim all the time to all these different —
Jeff: And they just… you know, they would kick it back and when they kick it back they charge you another fee. Or a penalty.
Mike: Don’t you need a notary on it though too?
David: You do.
Mike: Oh yes, so you can’t meet them at Starbucks [00:23:58-59 inaudible]
Jeff: I close it at VPS stores.
Mike: There you go.
Jeff: That’s all my final paperwork are signed.
Mike: Awesome, good to know.
David: Right, interesting.
Jeff: And so, transfer tax is the main reason.
David: So a title company would have it, I would imagine.
Jeff: If you are going to the title company, you probably gonna have a transfer tax. You do have to fill out something called a…
Mike: What’s transfer tax? I mean, I’ve done hundreds of deal and I have no idea.
Jeff: It’s just one of the fees at a mortgage company when you transfer a title to one person to another, you pay — it’s not a tax necessarily, I don’t know if they call it a fee — it’s just a transfer fee that whatever means you are powered in charges you at closing for —
[00:24:53 cross talking]
David: So you have the transfer tax for the most part, regardless of what it’s called the paper, and if you do it at a title company, they are gonna handle all the recordings, so you then have to handle that on your own if you don’t do it through the title company, right?
David: Which is easy, just go to the city office and go on to record the docks, right?
Jeff: I actually signed up with EPN.
David: So you are doing it online.
Jeff: Doing from my basement.
David: No way, how cool is that?
Mike: Yeah, that’s nice.
David: That’s super cool.
Jeff: Yeah I have a little tool where you line up the margins and stuff and just-
David: And you stick it right in there. Interesting.
Mike: How much does that cost? That’s a couple of hundred bucks a year, isn’t it?
Jeff: No, it’s free.
Jeff: The filings are — slightly more.
Jeff: [00:25:36 inaudible and cross talking]
David: You are not spending more than forty or fifty bucks —
Jeff: $35, I think.
David: Yeah, ten thousand more than what we are used. It’s pretty cheap.
Mike: You know, it’s actually probably about the same as getting it done through the title company. I’m sure they mark it up a couple of bucks too.
David: Right. But what about the dreaded do on sale clause? I’m sure all the listeners are wondering — I know I’m wondering, I’ve heard about this scary due on sale clause and I didn’t have to worry about with my in-subject to deal — I shouldn’t say I didn’t have to worry about it, but I wasn’t affected by it and then I’ve also heard other people that do a lot of subject to deals, they will put up – they will create a entity with the name of the person or the address — and shady is the wrong word, you know, because it’s a legit entity, that’s almost kinda like smoking mirrors.
Jeff: Yeah, they are trying to deceive the mortgage company based —
David: Thinking it transferred out of their name, so — it doesn’t matter at this point, but I was curious: do you ever worked around that? What’s the trick?
Jeff: As far as due on sale goes, I couldn’t tell you because —
David: Never happened to heaven.
Jeff: No. I don’t even know anybody who has happened to.
David: Me neither!
Mike: What about the sellers? I mean, when they say something like that. Or do they never bring it up?
Jeff: I tell them the same thing. I wouldn’t know.
Mike: Well played, sir!
David: Yeah, if that happens then we’ll deal with that. At this point I’ve done a bunch of these.
Mike: It just doesn’t happen, as long as the banks get their money, they don’t care.
David: Yeah! That’s kinda of the way I see it.
Jeff: Yeah. I mean, it goes back to — make the payment. Just no matter what, just make the payment. Like, I mean, don’t be stupid, like I wasn’t — and miss the payment. Make the payment.
David: Well it sounds like you learned a valuable lesson, you know?
Jeff: It’s measurable.
Mike: So there is one of the things that I don’t even know the right question to ask — so I apologize, because I’m ignorant.
David: Sounds like all of my questions!
Mike: You might know or you might not know. So — there’s also another potential objection would be — what if I want to get a mortgage again? In a couple of years. In my understanding is, there is something surrounding [00:27:55.9 inaudible], one of those laws that came out that said: if someone is still on a mortgage after two years or the mortgage has been paid, it doesn’t actually affect their — lending or credit worthiness — or something like that — I just — again, I’m pretty ignorant, I just want try to figure out what is —
Jeff: What they will do is that they consider — it will be just like you moving out of your house and you renting out your house and you go on to buy a new one. Your old one is considered an investment property, it’s considered a rental. As long as you can go out and get another mortgage, now you’ve got an investment property, which, if you own it for longer than a year, long term capital gains on it but, it’s no different than that. If they have got the credit score, they can go out and get a loan.
Mike: So they are not showing any income necessarily from it, but they are not —
Jeff: No, they can show — after — I can’t remember the exact rule, but if it’s — I want to say it’s a year, so let’s say that they are going move into another state and that would be one thing that I have told somebody before. You know, why would you wanna get involved? You moved out of your house now, why would you wanna [00:29:10 cross talking]. Just go see what’s out there, I’m not pushy about, but —
David: No, but why would you want to manage a property that’s hundreds of miles away?
Jeff: Right. And so – but that is definitely a thing and I think — I’m not a lawyer, so I don’t know the exact rules and regulations on that — I think it’s after, I’m gonna say it’s after a year, and you can actually use the income off of that.
Mike: Oh so if you are an owner and you are renting, you can.
Jeff: Oh, yeah, yeah.
Mike: But I’m saying if it’s a subject to seller, they wouldn’t necessarily have an income to claim, they would just have —
Jeff: Yeah, I would check with your — with your —
[00:29:52 cross talking]
David: But you know, I mean, if they could show, which they would easily be able to do by logging in their online banking, that they are even making those payments, it shouldn’t matter.
Jeff: I think at that point it would come down to debt to income.
David: Debt to income, right. So I guess the take away is that is, that it is probably case by case. But it doesn’t necessarily mean that — that seller won’t be able to get another mortgage? Probably going to complicate it and make it a little but more difficult for them of course, but I would think that they could still get another mortgage?
Jeff: I would just say — it might not be worth your time.
Jeff: I can’t help you, I’m sorry. If you are not willing to do it, I just can’t help you.
David: Sure. Let’s talk about exit strategies. So you have done a bunch of these?
Jeff: I didn’t want to interrupt you.
Jeff: You were talking about entities.
David: Entities, yes.
Jeff: So you can buy property like this in any way. You can buy it personally. A lot of people like to put it in trust. I like to put it in an LLC, that’s my preference.
David: That’s your go to?
Jeff: That’s my preference. Yeah, we talked about this before. I like an LLC because once I go get my insurance in that LLC on that property and I will name —
David: Insurance is a question I had too.
Jeff: I will name that property eerily similar either to the address, which is what I just did on this one —
David: There’s nothing wrong with that.
Mike: Ok, so that is a good, I mean that is a smart thing to do —
David: I have one for mine.
Jeff: You know, I don’t know. I’ve never tested it. I’ve never been called due on sale or anything.
Mike: So whoever you have learned from or questioned, it was just something you picked up along the way.
David: I have two properties that I didn’t even buy subject to that are the property address LLC. It’s not an odd thing to do.
Mike: Right. You have guys who set up trusts and every one of the properties is the property address trust. So it’s not uncommon.
David: It is a clever trick to prevent the due on sale scenario.
Mike: No one’s going to look further than that.
Jeff: That’s a really common one, to make an address. I do it on most of them with the mortgagee’s name.
David: Which is cool, too.
Jeff: LLC. John W Smith, LLC.
David: So you’re just the registered agent on the LLC.
Jeff: That’s right. And I’m the solely oper…
David: And the LLC’s is there. How creative is that?
Mike: It’s pretty funny.
David: It’s great.
Jeff: The number one —
David: Do they know that? Or does it not even matter?
Jeff: I tell them right up front. I tell them I’m going to create an LLC; it’s going to look eerily similar to your name.
David: I love it!
Jeff: And I haven’t had a problem with it. Not on. Not one problem.
Mike: I like that better than the property address.
Jeff: But do you know what, the transparency is the biggest thing. Telling tell, “Hey, I’m going to create this entity, I’m either going to name it the address or I’m going to name it the name of who’s on the mortgage that’s going to either have LLC or trust behind it.” And let them know, versus just doing that. And whatever happens later if you miss payments, they get all mad and they’re like looking into it, and they see that they have some LLC out there with their name on it; because to them it can be really confusing. Like, ‘who’s owns the LLC’ just because it’s your name doesn’t mean you own it.
Jeff: I tell them, I just say I do this because it takes some of the light off the fact that you just moved this over. Just tell them the way it is.
David: I love that. Transparency. It’s a creative way to keep the mortgage company from just —
Mike: There’s no red flags.
Jeff: He said it best. Smoke and mirrors sort of thing. It’s not intentional.
David: It’s not a bad thing though.
Jeff: It’s not a bad thing. A lot of people do it. For instance I have two rental properties up in North County.
David: I do it and I didn’t even do subject to.
Jeff: No, but I wanted to touch on the number one reason why I do put these in LLCs. If you’re ever in a situation where you’ve got a buyer for this property and maybe it’s a quick sell, maybe it’s a fast sell, or maybe there’s a leaner or some kind of encumbrance on the title, but this buyer wants to get it: he can clear that up later. You can just sell the LLC. You can just; literally it’s a private transaction behind the scenes. I’ll create a bill of sale, hand it to that buyer, the insurance stays in place, there’s no title transfers there’s no nothing, the LLC owns it. It’s just who owns the LLC now.
David: Wow. That’s cool. That’s really cool.
Jeff: I have sold some that way and it works really, really well.
David: Now, whenever that happens, how do you handle that with the seller? Because you’re the one that has a relationship with them. Do you have paperwork that you put in place on day one? Day zero, day one, to say that this could potentially be sold or does it just get sold?
Jeff: They’re notified of that, but I never put that in writing because you just never know what’s going to happen.
Jeff: I definitely try not to make any promises I can’t keep.
David: Of course, of course.
Jeff: I mean I have no clue what’s going to happen to that property. The goal is to get it out of the LLC and sell it to somebody. I’m just saying that if you had to —
David: Sure. Well, it gives you more options.
Jeff: Right. If you had to, I’m not sure about a trust. I’m not sure you can do that with a trust. I don’t know 100% but this is a simple, private sale. There are no kinds of crazy taxes. The person just assumes that LLC. It’s theirs.
David: That’s awesome. So let’s talk insurance. Seller has house, you buy house subject to, you close either privately or at a title company. We’ve kind of come through all that. You now have all their mortgage information. You now have a limited power of attorney. And you now have —
David: I guess you now have title. Right? I’m trying to think, there’s another document in there, wasn’t there? Am I missing something? Limited power of attorney…
Jeff: I’ve got the release of information.
David: Oh, the release of information.
Jeff: So yeah, the process is —
David: That’s what I was thinking.
Jeff: —release of information. Then my signing period where everything’s signed. Anything that needs to be notarized I put it in one package, head up to UPS. That’s going to include — I have a distressed seller acknowledgment type thing I have notarized. I do a limited power of attorney. Tax and escrow refunds. I am not going to be hunting people down, so I have a notarized document where any taxes or escrow they have coming back to them at the beginning of the year, they become the company’s. And from there we’re on title.
David: You’re on title.
Jeff: So then we can get the insurance. Insurance, I’d love to escrow it. I hate paying…
David: Well that was going to be my next question.
Jeff: I just hate paying a big chunk of —
David: Yeah. So question one will be how do you handle the insurance part of it; and number two, which falls hand in hand, is that if the mortgage isn’t escrowed already — most are I would imagine — but if it’s not escrowed for taxes and insurance, is that a different process and so on and so forth?
Jeff: Well first, make sure you’re buying the right type of insurance. It’s going to be vacant for a while. Make sure it’s vacant. Make sure it’s a vacant policy.
David: Vacant policy, yes.
Jeff: Make sure you have a landlord policy if you’re going to put people in there. And insurance is literally a matter of me calling up my broker, saying I just bought this property and I need a vacant policy on such and such an address, and this LLC, and I need it escrowed. And that’s it. It’s immediately accepted by the —
David: By the mortgage company.
Jeff: Yes, and —
David: No shit.
Jeff: Yes, and there seems to be like a —
David: And if it’s not already escrowed, they will start escrowing it?
Jeff: Well you have to switch insurance. You’re switching the deed over to your —
David: Your company or whatever?
Jeff: So you’re now entitled. That was going to lead into my next statement. There’s a misconception I think that insurance is complicated because you’ve got a mortgage here and a different person on title. The fact of the matter is, whoever is on title must be on the insurance policy. If your house burns down and you’ve got this person’s name, who the mortgagee on the insurance policy, they’re not going to pay for that house. It has to be who is on title.
David: Interesting. So why would somebody do the whole additional insured?
Jeff: The only way I would do additionally insured is if I had a tenant in there, I would make my tenants put me down as additionally insured. I’ve not had a problem, let’s just say that. I’ve not put the mortgagee or the seller on my policies.
David: So if you buy one and the seller already has an insurance policy, you call your guy and you get a new one. You may even have that guy cancel the current one I imagine.
Jeff: Right. So you have to understand that the mortgage —
David: Or girl. It could be a girl.
Jeff: The mortgage company cares about the asset. They don’t care about whose name is on it. It only makes sense —
David: Right, they want to make sure that their investment and asset is covered.
Jeff: Right. So it’s whoever is on title is what the insurance has to be placed in.
David: Figured it would be a lot harder than, or more confusing, but it’s pretty simple.
Mike: So did I. It’s funny because you’re talking to someone who’s done it and they’re like, “Oh, you know, you just call them up and they do it.” It is, it’s not that hard.
David: It’s not.
Jeff: Literally I mean insurance is like the least of my worries. The biggest worry I have is paying with my credit card over the phone. That’s it!
David: That’s awesome, man. That’s awesome. So you just call them up and just have them change it over to your name. So would it be Jeff Coffman or would it be 123 ABC Street?
Jeff: It would be whatever LLC.
David: The LLC. Because that’s who’s on title. Like you said. Okay, it has to match who’s on title.
Jeff: That’s right.
David: Ok, and I guess you could do the additionally insured in your name but it’s not really required because you owe the LLC.
Jeff: Right, I think you’re —
David: I’m trying to over-complicate it.
Mike: You’re over thinking it.
David: Right. Keep it simple. Okay, cool.
Jeff: As long as you’re, you know, I’m a sole member of an LLC so the LLC benefits, if something were to happen to that property, yeah.
David: Right, awesome. So assuming that –that was a great explanation, Jeff. Thank you, thank you. So assuming that you take over one of these subject to, which blows my mind that you don’t ever say subject to to them, which is crazy and awesome.
Jeff: It scares them off.
David: Right, I guess it does.
Jeff: Because then they go one and start looking, they go out on the internet and they see ‘subject to’ and with any business there’s always positives and negatives and they’re always going to focus on the negatives. I just don’t tell them what it’s called.
David: Right. But it doesn’t matter.
Jeff: If they do find out, as has happened to me, if they do find out I’ll say —
David: Some people call it that.
Jeff: Yeah. It’s a great option, it’s something that can definitely help you out, and if you’re wondering whether or not this is a scam — and probably many people have heard this before — but I’ll say go check out line 503 on a HUD-1, not that we’re issued HUD-1’s anymore, we get these ALTA statements now, but I’ll say go check out line 503. And that is your official government seal of approval right there. It’s actually a legal thing. We’re not doing anything illegal here. It’s just that you’ve not heard of it this way before.
David: Right. What is line 503? For all the listeners and viewers.
Jeff: Line 503 on the HUD is the, it actually says title taken subject to existing financing.
David: Says it right there on the statement, never noticed that.
Mike: Yeah, neither did I. You’d blow by it.
Jeff: I think it’s line 201 on the seller’s side and 503 on the other side.
David: You’d blow right by it. That’s awesome, that’s awesome. So another question. You buy one that’s not escrowed. So does that complicate the deal at all?
Jeff: Start escrow.
David: You just have the mortgage company —
David: Because I guess at this point you have limited power of attorney, so you can act on behalf of them. So you just call up and say, “Listen, I got insurance in place, I either owe taxes or just paid them (whatever the case is), I want you to start escrowing.”
Jeff: You’re insurance company will just send them a mortgage — what do they call that? I’m zoning right now, I can’t think of the name for it. But it’s handled through your insurance company. They’ll just say we want this escrowed.
Mike: Let’s escrow!
David: Let’s escrow, right.
Mike: Let’s escrow, guy.
David: In the text message of the email you send to your insurance guy you say it in there and they handle it.
Jeff: It’s all one big swoop. It’s crazy-simple.
David: It’s so simple. Holy cow.
Mike: So, is there anything we haven’t asked. I mean, what aspect of the deal do you think, I mean you don’t think of when starting out or just starting. What didn’t we talk about?
Jeff: I would say just the education of it. I fell into it and I made tons and tons of mistakes.
David: But that’s why you’re the expert now, man.
Jeff: Man, I tell you, and I talked to you before about this condo I have — or had, I finally, finally sold the thing. And it nearly killed me. If it were a normal sell — so, just to explain this a little bit, with condos and community living areas like that, read their bylaws.
David: Right. Is it an FHA thing?
Jeff: It was an FHA thing; it was also a rental thing. And I was aware of both of those when I got into it.
David: Oh yeah, I remember telling you that.
Jeff: And I knew the rental thing, I knew it was going to be a flip. I knew I was going to put it right back out on the market; fix it up put it back on the market. But I missed the FHA. They will not fund a, well a certain percentage. I want to say it’s 40% of the units —
David: Of all the units in the complex?
Jeff: Could only be FHA. The rest of them had to be conventional.
David: It’s going on across the street right now, in Brentwood Forest here, where there’s like a waiting list for I want to say 15-18 months to rent it, because there’s so many rentals now that the people that are moving in aren’t able to get FHA because the rental percentage is high. And yeah, I think it’s 40% and it may vary from areas and states and whatnot. So you were close on there and it affected you? Were you limited on your buyers?
Jeff: Huge. Huge.
Mike: So you couldn’t sell it then? You kind of got stuck. Is that the —
David: You could sell it, you just couldn’t sell it to a buyer that needed the FHA loan.
Mike: Right, to a buyer that wanted it.
Jeff: That could actually buy it. I mean I had, it sat — total hours sitting on the MLS and that’s another thing I’ll talk about. Total hours was maybe 26, and I had four different buyers. Four different people, one after the other. First day it sat on for three hours I got an offer. Second day I think it was like six. Second day was the longest one. After that one couldn’t get financed I put it back on the market, and it sat on there for six hours. Next one was like three hours. And finally, and actually I’m kind of fibbing a little bit, the last two contacts I had on it were from the same buyer.
Mike: And now they were — the reason they couldn’t get financed is because of the FHA loan, right?
Jeff: No, because the complex would not allow FHA. They were already at their limit; they could only do conventional financing. This person had —
David: You’re saying that, so maybe I’m going to be schooled here for a second.
Mike: Yeah, because I’m not getting it.
David: Which is totally possible because I’m wrong most of the time. So you’re saying that there’s a limit both on the percentage of rentals —
Jeff: First of all, there were no rentals allowed in this place.
David: Okay, so that eliminates that. But what I was just mentioning across the street here was —
Mike: The rental numbers.
David: The percentage of rentals to even allow a FHA loan to be able to come in. I mean we’re talking about two different things.
Jeff: No, I’m talking about a totally different exit strategy.
David: So what you’re saying is that there was 40% of the units that already had been purchased using the existing FHA loans. Holy cow, I never even heard of that.
Jeff: They would not allow, and I missed it. I totally missed it.
David: So they said you can sell it, but not with an FHA buyer. They had to go conventional.
Mike: To be honest, I had no idea that was even a rule.
David: Right. Me neither until right now.
Jeff: It’s not an FHA rule, I’m just saying —
David: It’s their bylaw rule.
Jeff: The point of the story is that, in community living situations —
David: That’s why condos are tricky, man.
Mike: Fucking condos, man.
David: I know.
Jeff: Yeah, I tell you. In community living situations, I mean I would take the time to sit down and literally read every line of their bylaws. Because you just never know. It was a nightmare. Total nightmare. It almost destroyed me.
David: Well you’re talking about the difference between — well what’s FHA, 3.5% and the conventional is typically going to be 20%. There’s a 16.5% difference.
Mike: Yeah, that’s probably 90% of buyers. If not more.
David: Or more, right?
Jeff: Yeah. The other thing to look out for, and you guys probably already know this, but as a wholesaler if you’re going to get into a property and it’s a divorce situation and you’re going to try to sell that contract to somebody else, if you’re going to do subject to, be very, very, very paranoid about divorce situations.
David: Oh, I remember you telling me about this. You had to track somebody down one time. And oh man!
Jeff: It was a nightmare.
David: Tell us some stories.
Jeff: Sure, simple thing. One guy called me up on a Friday night, I was heading out to dinner, and I put his house under contract that night. I told him everything that was going to happen, no big deal, he agreed to everything and by Sunday we were all signed up minus the —
David: So you and him?
Jeff: Correct. He was already divorced. So I was thinking awesome. I’ll just go pull title; I’ll see what’s out there. I did a preliminary title search on it and I saw the, it’s a martial wavier, so it’s basically — a martial wavier is given to a divorced couple, even married couples, who don’t want any part of the —
David: Bad transaction for the most part.
Jeff: Right. Well, what we didn’t know was that that martial wavier was created for a different buyer. Not me. It was created for someone else. My title company did not like it.
David: They didn’t except it.
Jeff: It took months; it took months to get that place sold. And all it needed was carpet and paint.
David: You weren’t over at Old Republic were you?
Jeff: I don’t know.
Mike: To remain nameless.
David: I could see that title company saying no to that.
Jeff: That’s absolutely who it was with.
David: And nothing against that company but they’re very, very conservative. We have problems over there. And we’ll still use them whenever sellers or buyers that are doing deals with us want to use them. We’re open. We’ll do it. We want to make it easy for people, but —
Mike: So we’ll go back to talking about —
David: Some companies are harder than others to work with.
Mike: In the past we’ve talked about selected title companies and you want to find an investor-friendly title company, and that would be an example of one that’s not. Their bread and butter is not investors.
David: They just want to make sure they have all their t’s and i’s dotted and crossed and they know what they’re doing.
Jeff: Those are super nice people, don’t get me wrong. But I felt like when I went in there, as I was learning more, I was teaching them. And it’s like, I’m paying you for this when just down the road here, from here, there’s fantastic title companies where you don’t have to worry about any of it.
Mike: You’re taking words right out of our mouths were we —
David: Right. Well it’s a good lesson for viewers and listeners.
Mike: Yeah, we absolutely encourage you to go to a title company that can help you, not the other way around. They’re supposed to be experts on it.
David: And I’m not trying to bash that particular company —
Mike: I’m not even talking about that company anymore. I’m just talking in general.
Jeff: In general.
David: Yeah, totally.
Mike: If you’re teaching them something, you probably want to find a different title company that can figure out what you’re doing and help you along.
David: And help you. Yeah, and that’s one of the things that we love about the two main companies that we use in town. They work for us. So if we have a problem, we usually would email or call them and then it’s kind of like they go to bat to try to get that, whatever the issue is, handled. You know? It’s awesome.
Mike: If I’m paying a title company, exactly, I want them to work for me.
David: I want them to do that, exactly.
Jeff: Well I want to go back to the beginning just a little bit.
Jeff: Disclaimer, I’m a part-time real estate investor. So I do have a W2 job and that’s why, when I first started looking into this, it was born out of necessity. I didn’t have the cash to go out and do this. So, I guess my point behind that is educational. And I would not, would not make this your primary method of buying houses. It would just be something to —
David: I look at it as a very advanced strategy of real estate investing. That’s one of the most unique things about when I met Jeff is like ‘I only do subject to deals’ and that’s crazy to me.
Mike: Well see that’s what I think too, it’s very niche. There’s probably only a handful of guys in St. Louis that even do, or have done, subject to.
David: But what else is unique is that the way he markets, isn’t necessarily competing with the way we’re marketing. Not that I look at Jeff as a competitor, but he’s marketing to people that are, that fit that profile. Where we’re like, ‘we want equity! We got to get equity to make money’ you know?
Jeff: The thing is, it’s great because it spans any list you want to mail, it spans it amount of equity you have on a property you can do it. If you can sell yourself and make yourself comfortable, you can do it on just about any deal. That’s what I liked about it.
David: You should give Jeff the deal we’re working on now.
Mike: We should.
David: And let him handle it because he’s an expert at it, obviously. And if there’s 10K that needs to be put on the line for the sewer, we should just put it up. Because I know there’s 20-30 grand to be made on that property.
Mike: Yeah, we’ll talk after this episode.
Jeff: Well how do you like that? Make me an offer right on the air.
David: Well I know you’re the guy who can get the deal done.
Mike: Right. Somebody ought to do something with it. And to help the lady.
David: Something with, right.
Jeff: Well I’ll make you a fair trade. I’ll make sure that you know how to do it next time.
David: Even better, even better. Cool. Let’s talk about exits real quick. Let’s see here, we’re at about 51 minutes. We should wrap this up here pretty quickly. But whenever you’re going to these subject to’s, what is your main exit? Are you looking to fix up and then list? Are you looking to get tenant buyers? Is it deal by deal?
Jeff: Well first, this is why I got into, you know, getting to know you was because I would get into properties that I wouldn’t necessarily want. So I was strictly looking for carpet and paint properties. I would carpet and paint them and then. my main exit strategy was flipping out on the MLS. Doing this by myself I would do a flat-fee listing, so I’m only paying 3%. I’d pay the full 3%. Some people don’t even do that. So I’d pay the 3% and flat listing fee. So that was my primary exit strategy. That was my bread and butter. There’s no market like the MLS. You’re just not going to beat it. So that’s what I did and that’s still what I like to do. I like to do quick in and out. And then trying to network, talk to people who know wholesaling, because I do come across those other ones. So I’m truly like, when somebody tells you or you see the ads ‘Oh, I come across these properties all the time and the ones I don’t buy’ this, that — that’s truly me.
David: It is.
Jeff: You know I really don’t buy everything that I see, so — but that’s my primary exit strategy.
David: But again, there’s lots of different ways to do those.
Jeff: Anyway you want, really.
David: But I guess it creates a bigger win for the seller though, if you are able to paint carpet or whatever the repairs that are minimal and quick. And even if you list it and even if it takes a couple of months, you sell it. You know, you are exiting them from their issue. Because their level of motivation must have been high enough for them to agree to the situation, the subject to situation —
Jeff: And that’s another thing that I’ll do. I’ll tell them that I have not had one — other than that condo — I have not had one go over 90 days.
David: Man, that’s quick.
Jeff: If I’m in negotiations with tell I’ll say that I’ll determine — I won’t make any guarantees just because you know, there could be titles problems or whatever — I will say I’ve not had one of these go over 90 days. If you can save me the money on the closing costs, on closing twice, I’ll have it gone in 90 days Sometimes I’ll even pay them out of my proceeds. Like, I’ll have nothing in the game until I sell. I don’t make them a partner, but I will pay them out of those proceeds a little more.
David: So, in that particular example, they would continue to pay any type of fees? It’ll all be on you?
Jeff: Yeah. I’ll say I’m going to make your payments, I’m going to get in here and fix this up, and I’m going to sell it. If they’re flexible I’ll give them a little more on the back-end.
David: Oh, I get it. That makes sense. So say if you guys can walk with $2500, however you’re not getting it today you’re getting it when I sell it, it’s going to come out of the 15-20K that I intend to make. Got it. Okay, cool.
Jeff: Right. I offer them a flat fee. No percentages, no partnerships, nothing like that. A straight flat fee.
David: I love it. I’ve learned a ton today. And hopefully we’ll create a partner right now, too, on a deal that we’re working. Which would be pretty awesome.
Male speaker: I’ve got another for him too, subject to —
David: You got one, behind the curtains back there?
Male speaker: I’m the curtain guy here.
David: Okay, cool. Well let’s do that one, too.
Mike: OK guys. Well Jeff, is there anything you wanted to add or plug? I mean what are you looking for? How do we help you?
Jeff: I’m not a coach. I will say that if anybody out there has any questions you can just ping on Face book. You’ll see me around Discount Property Investors page. I subscribe to them; a lot of the wholesaling pages I subscribe to. My last name is spelled COFFMAN. Just ping me on Facebook if you have any questions. I’m not going to hand not my phone number.
David: No? I wouldn’t suggest that either.
Jeff: I will answer questions on Facebook or through email or anything like that.
Mike: Cool. Awesome.
David: And if there’s any other wholesalers in town or any sellers that, you know, could use Jeff’s services then connect with Jeff.
Jeff: This is a really viable alternative to a short sell or definitely a foreclosure. And those are two primary areas that I target.
David: Bankruptcy, too.
Jeff: Well, yeah. Any motivated seller situation but particularly when you’ve got no or negative equity. I mean this is something you can get into and it’s a slam dunk.
David: Love it.
Mike: That’s great, that’s cool.
David: Well Jeff, I want you to give us the closing quote if you don’t mind.
Jeff: Oh no!
Jeff: I don’t have the voice for this. This requires a big, thundering voice. Everyone’s heard this quote. Maybe not the last part of it. But the quote is, “A quick nickel beats a slow dime: but not a slow quarter.” Think about it.
David: Love it. Think about that.
Mike: Jeff, thank you so much for coming in, man. We appreciate it.
David: Alright, thank you, Jeff. Appreciate it, man. Alright guys, until next time.
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