David: Alright guys, welcome back to the Discount Property Investor podcast. Your host David Dodge, co host--.

Mike: Mike Slane, welcome guys.

David: Good morning buddy, good morning.

Mike: Hey, Dave, how are ya?

David: I'm good.

Mike: Good, we always say morning, doesn't really matter what time it is.

David: That's true.

Mike: Good morning.

David: Good afternoon.

Mike: -- listening on your way to work, on your way to the gym, make you're on the tread mill, I know that's when I like to listen to my podcast and audio books. So good morning, guys. Hopefully it's a good day for you guys. It's a great day here at the Discount Property Investor office. We just went through our third quarter rocks, and we crushed it on our rental goals, sorry our second quarter rocks, and we are looking to crush it in third quarter too. We are doing exactly what we are talking about today, which is purchasing rentals.

David: Love purchasing rentals.

Mike: We do, we love it. We have been wholesaling a long time. That is our-- intro to real estate investing for most people out there; we think it's the best way to get started. We have a whole free course on it, freewholesalecourse.com. You can check that out, again, this is kind of step two, phase two for us is acquiring rentals and we decided to do it together as a company, because it is just kind of more fun. We like playing with real estate together, and we are buying rentals.

David: If you want to scale to a number that is maximum, that is a big, big number, doing it on your own is going to be difficult to acquire more than five to ten a year. We can maybe acquire ten a quarter with the efforts of the team. It's pretty awesome. Today we are going to be talking about funding your purchase. So you do marketing to get the motivated sellers to contact you. You keep the best and sell the rest; that's what we do in our company. So we wholesale off the deals that we don't want to keep, but the best deals we get from off market we keep, okay? And we're going to get those at a significant discount, which is really the very very first foundation of the BRRRR strategy. If you are not buying at a discount, it is very difficult to increase the value of the property enough just from the rehab to get there. It's possible, but it's not likely. So buying at a discount is important.

Mike: I love it. Buy the best and keep the rest, that's a great little motto too. But to any of our buyers that are listening or whatever, that's not necessarily always the case, because what our metrics are, are not necessarily what someone else's metrics are.

David: Oh yeah.

Mike: -- whereas the best for you-- why are you giving that one up? Well it's because we have got enough in our areas that we are buying that these are--.

David: Either way, pick your best area. Then the model works the same. Keep the best ones, and sell the rest. Wholesale them off, keep the best ones. So when you keep the best ones, what does that mean? That means you have to buy that property, and start the process of fixing it up, getting an occupancy inspection, getting it rented, then taking it to a bank to do a refinance on it, alright? That's the process. So step one in this process is finding the deal. Step two is buying it, funding it. So how do we fund those deals? Mike, tell us a couple of ways that we can use to actually fund the deal once we say, alright this is one of the best ones, we're keeping it.

Mike: Sure, let's kind of start in the simplest way to buy, and kind of go down to the--.

David: I like that idea.

Mike: Or the most difficult I would say almost.

David: There ya go.

Mike: The easiest way to buy a property is with cash. So as a wholesaler, you are ususally saying, I'm a cash buyer, I am going to close quickly, and that's true, because you are going to find a cash buyer to partner with to buy that deal. So cash is the easiest way--.

David: Cash is king.

Mike: There is the least amount of obstacles, you don't have to deal with the lender slowing things down, you don't have to get the appraisal upfront, all sorts of things. So you're thinking to yourself, if you're new to this, well shoot I don't have that much cash. Well you have to go back, check out that free wholesale course, and do some wholesaling, and stockpile that cash. You are going to stockpile that cash to be able to buy your first rental. Rentals don't have to be $100,000 rentals all the time. We buy tons of properties that are $5,10, 15, 20, 30,000 and they make decent rentals. Again, it just depends on what your metrics are and where you're at in your real estate investing career. So cash is the easiest way to fund your purchase as far as difficulty wise.

David: Difficulty, quickness and fees too. It is going to be cheaper to use cash at the end of the day, than it will be to go a different route. So the next easiest route would be-- I would say private money.

Mike: Let's talk about that. Private money, and we are calling this a one to one, right?

David: Uh huh, so what does that mean? It just means that you contact somebody that has money and they lend you the money to buy it, then they put a lean on that property so that they can secure their investment with that real estate, but you own it, and you just owe them money and pay them an interest rate. That could be any way you decide to work with that individual, that's between you and them, and it's just a private loan. They fund it, you provide it and work on it, and everybody wins.

Mike: So there are a few things with private lending, and we are going to talk about private lending again here in another one. Private lending when you are doing one offs like this is a little bit easier to do than if you are kind of pooling funds from multiple people. You really don't want to do that unless you know what you're doing, then we will talk about that coming up. It's much better to find one lender for one deal to fund a property for you, so that you can purchase and rehab it. So real briefly we will kind of touch on where you find private lenders. So-- and who is a private lender. Well private lender-- again that's like the fancy word for it, just think of it as mom, dad, aunt, uncle, rich cousin. If you know someone with money, you ask them to borrow it.

David: Absolutely. A lot of people have retirement accounts,  a lot of people have hundreds of thousands of dollars in those accounts, and they may be making anywhere from 2-6% on that money. That's just a slow way to grow your money. So you can offer them 8-10-12-14% to borrow that money. That money is secured by real estate, so it's not 100% risk free by any means. But it's not just a loan, they are actually getting something in return for the loan as collateral. So it reduces your risk significantly.

Mike: It does, but again, Dave said, cash is the cheapest, this one is probably one of the more expensive ways to borrow money.

David: That's correct.

Mike: This one is going to cost you-- again we pay between 10 and 12% depending on the lender. That's-- the typical going rate is 10-12% on the money, 1% per month. So if you borrowed $50,000, that's $500 every month you're going to have to pay just to keep borrowing that money until you are able to refinance that property. So this is one of those things where I am going to reiterate again, you have to know your numbers when you are doing to the BRRRR strategy, you have to know what your holding costs are going to be. Am I going to hold this for six months? Then on that $50,000 loan I am going to have to calculate six months worth of holding, $3000. So again, you have to know your numbers, private one to one, again, pretty easy way to do it.

David: Love it.

Mike: The next one that I would say as far as difficulty would be just a traditional mortgage or bank loan. That one--.

David: Line of credit if you have it.

Mike: I think that's more complicated though to set it up.

David: We have to set it up. Okay, let's--.

Mike: Traditional bank loan, where you go out and you find a property, then you talk to a mortgage broker or bank and say, hey I would like to buy this house, they send you through underwriting, they approve you to purchase the house. Now this one you are probably going to have to come up with--.

David: 20% typically.

Mike: 10-20% down, then you are also going to have to have your rehab dollars so that you can rehab that property as well. You can find some banks that are willing to lend the rehab dollars as well. You just want to make that plan clear to the bank upfront what you're doing, so they know and-- so everyone is on the same page.

David: Right.

Mike: So you know what you're doing.

David: W2 jobs help definitely get bank loans, unless you have two to three years of a business return. So it might be difficult to get a bank loan if you don't have a job.

Mike: Yeah, I highly recommend if you are currently working in a job, and you have a W2, and that's the way you filed your taxes in the past couple of years, keep that W2 until you are earning a decent amount of money from your rentals, so you will be able to support additional loans at that point. It's very important to be bankable. So the next one is what I would say-- I think it's a little harder is-- [00:09:55.01 - inaudible], Dave, do you want to talk a little about [00:09:55.28 - inaudible]?

David: An evolving line of credit is something you can get through your personal name or get one for a business, okay? It doesn't really matter. Mike said earlier that it-- a little bit more of a progress to set one up than a bank loan that is correct the first time. After you set this up, you can draw from this line pay it back, draw from this line pay it back by just walking in the banking center. So it's really cool and it's a great tool to fund your purchase, that's what this episode is about. The process of setting up an [00:10:30.01 - inaudible] is pretty simple, but essentially you are going to put up collateral. That can be in the form of cash, it can be a CD, it can be real estate or it can be stock. There are probably a couple of other things. But basically what is going to happen is, the bank is going to look at how much of these assets you control, how much debt you have on them, that's what we call equity, they are going to multiply that by like 50%, or 60% or sometimes 70%, and they are going to let you borrow against those. So those assets are going to be essentially tied up or frozen, you can't sell them, but you can borrow against those. So the benefit to this is, as your BRRRR strategy progresses, you can start pulling equity from other assets that you have owned for a long time. You can collect a return in two ways, one on the initial asset itself with the cash flow, two, you can borrow against that to acquire more. Very powerful tool and it is an advanced strategy, so let's not dive too deep, but setting up a revolving line of credit with assets, cash, stock, or anything that you have of value with a bank is another way to fund that purchase.

Mike: Again, this one is not for everyone, you have to have some assets or equity in properties to be able to set this up. But it is--.

David: It's a tool.

Mike: Once you get it set up it is super easy to use.

David: It's one of the best tools that we have, absolutely. But there are other ways to buy houses, guys. So funding your purchase, we talked about cash, we talked about private money loans, one to one, we talked about the bank loan which is just a traditional mortgage. Next we just talked about the revolving line of credit. There are still more ways to do this, guys, still more. So next, Mike, maybe we talk about private equity fund.

Mike: Okay, so this one is above my pay grade. I will be 100% honest, we have not done this. We have not done this as a company. We looked into it and it--.

David: We have friends that do a lot of them.

Mike: It was kind of complicated. So what it is-- a private equity fund-- when you go out and say-- I am trying to raise money, I am trying to raise X amount of money so I can do this with it.

David: From multiple people, the key point there.

Mike: So you are going to approach multiple people, take their money. Again, there is a big thing with pooling, I don't think you are supposed to call it pooling, I don't know what it is.

David: You have to have a fund in order to it.

Mike: So--.

David: You can do many private one to one loans with people all day, but when you start mixing these people's money together to buy an asset, it muddles the water for litigation, therefore you have to fund it into a fund that everyone owns a share of, and the fund owns that asset, versus me owning 42% and you owning the difference. It's the fund owns 100%, that's how it works.

Mike: So this is-- again, we have actually built a course on this called Savvy Leverage.

David: Great course.

Mike: You can find it at DiscountPropertyInvestorUniversity.com. We partnered with our buddy Dan Gibson, and he is the guy that Dave was mentioning.

David: He's great, he's got multiple million dollar funds, and does a great job.

Mike: Yeah, we definitely would be able to connect you with him. But check out that course if you want to dive into that a little bit deeper.

David: Right, so private money equity fund, we have a course on it, it's a good one.

Mike: One more thing I want to say about that is-- I know that it is under a million, you can fly a little bit safer under the SCC versus over a million.

David: That's a big difference there too, that's a good point.

Mike: So it's different types of funds, and there are different regulations. So typically think of under a million--.

David: Going to be a little bit easier--.

Mike: It's a whole thing, and again, you definitely need to educate yourself like I said, I'm not an expert on it. But it is a way that you can generate or pool funds so you can purchase properties, so very cool. The next one is subject-to.

David: I've done a couple of subject-to deals, and subject-to is an interesting way to buy a property. We did this with [00:14:25.15 - inaudible], Mike, we've done this a couple of times, we even wholesaled some subject-to, to Jimmy and Bob at some point in the past. But subject-to is a way to acquire a property subject-to the existing mortgage. So the name subject-to is just a shortened phrase for buying a property with the existing mortgage in place. So how does this work? Well it's very simple. You just have to get a seller that is motivated enough to basically let you take over their payments. Additionally you have to convince them, or show them that you are trustworthy enough, hopefully the latter that you will make these payments and not stop, because stopping making payments will screw up the credit, and the house could be lost by both parties. So you take over these payments with an agreement to close out that loan or pay it off in a certain time frame down the road. That could be three years, that could be five years, it could be any number of years that you and the seller agree. So why would somebody buy a property subject-to? A, they may not have any money at all, and they come across a property at a great deal, and the seller just wants to not have to pay the mortgage anymore, they are willing to walk away from equity in trading that for convenience. Somebody else comes in, makes the payments, they get it rented out, they rent it out for $1500 a month, the payments are 1000, they make 500 bucks a month.

Mike: So subject-to is one of the ways that you are going to have to be talking directly to the seller. So this is not one you-- most likely not one you are going to be able to pick up off the MLS. You are nine times out of ten-- I would say 99 out of 100-- this is one where you're talking to the seller, or dealing with the seller directly.

David: This is where your wholesale marketing really comes in to play, because if you are not having motivated sellers, or off market property owners contact you to sell you their property-- you are not going to come across these type of deals, you need to find that motivation to get these done. But they can be great deals, people make a lot of money on these days. We have a friend-- we did an episode with, Geoff Hoffman, great episode with Geoff about it. He used the subject-to strategy to flip properties. So he will buy properties or start making payments for people that have properties with some equity, then he will go in and spend his own money rehabbing the unit, increasing the value. So if he spends let's say ten grand fixing it up, in theory the value of the property increases by 20 or 25, then he will sell it and pay off the loan, then make the spread of 10,15,20k. So it's a very interesting strategy. But again, it is just subject-to, you are buying the property subject-to the existing mortgage. So also in that same realm of having to talk with the seller about negotiating, or ways to purchase it, there is another way to do this, and it is called seller carry back. Mike, tell us about seller carry back.

Mike: Seller carry back is very similar to subject-to. You are going to be dealing with a seller like Dave said. You are going to be working directly with them. In this case they may have the property free and clear. They may not have a loan on it. They may be willing to-- again, if you say, oh I will buy it for 10,000 and they say no I want 20,000. You say, listen I can't do 20,000. I can do 10,000. I can do this 20,000 if you are willing to finance it for me. That might appeal to them. So basically you are using the seller as the lender on the property. So you create a note with them, and they finance the property for you. That is the easiest way I kind of look at the seller carry back. They are the banker now, and they have agreed to finance the property for you.

David: Correct.

Mike: -- payments to them each month instead of the bank.

David: So there are advantages to this strategy from both the buyer and the seller side. Of course for the buyer, you are getting a loan from the seller, you are not having to go to a private lender, you're not having to go to a bank, you are not having to create a revolving line of credit or use your own cash. You are getting a loan from the seller. What would be the benefit to the seller? Well there are multiple here, guys. Think of it creatively, think of it this way; if a seller is willing to sell a house to you at market price or near market price, even though they have to give you a loan on it, they are going to make more in the long run, okay? That is one advantage. Another advantage is people who have owned these houses that you are buying-- that have owned them for a very long time, they have depreciated these houses on their taxes down to zero, are going to have to pay a major tax bill when they get paid. So if they loan you the money over a longer period of time, it actually reduces their taxable income. So there is actually advantages to doing a seller carry back which sometimes will be very favorable by these motivated sellers, so do some research on seller carry back, I am sure we have an episode or two from some individuals that have done some. I have done some as well, and great ways to go about funding your purchase.

Alright, next I would say-- I wouldn't last but not least, because there are probably 100 other days to fund your purchase. But the one we really wanted to talk about, which is obviously a more common strategy is lease option. So you can buy a property with a least option, or you can sell a property with a lease option; we've done both. So what does that mean? What is a lease option? A lease option is where you lease a property from the owner, but you have the option to purchase it at a later date for a specified price, that is agreed upon by both you and your seller. If you are selling a property it is the exact same thing You talk to your buyer you say, here is a lease agreement for X number of months or years, and I am going to give you the option to buy it at this price within this time frame, or on or before this time frame, or on and before this date, okay? So there are advantages to doing these. Again, if you are on the buying side, using a lease option to buy is a great way to get into a property with no money, because you can essentially use whoever you re-lease it to as money to pay the lease, plus a spread. When you're selling you can typically make more money selling that deal, because you are giving somebody flexibility, you are not just saying oh no, no food for you the price is 20,000, you don't have 20,000 go away. That's not your mindset. Instead it's like hey 20 grand, if you can pay me 600 bucks a month for 24 months, any time within that 24 month period I will let you buy it for 20 grand, right? So you are giving them the ability to work with you. So lease options are a great strategy, we have done a podcast with Gavin on it, even one with Joe [00:21:21.03 - inaudible], there are probably several other podcasts out there that we have done personally on the advantages of lease options and how they work. So let's recap, guys. There are tons of ways to go out and fund a deal. One thing I do want to emphasize in this episode, don't let the money stop you. Don't spend six months trying to get someone to loan you money before you start looking for deals. The reason is, is because it takes a while to start your deal funnel, you need to be following up to build this, so you don't want to delay, you want to jump straight into that, okay? Number two-- I lost my train of thought--.

Mike: Don't let not having money--.

David: -- stop you. Number two, deals sell themselves, that's what I was getting ready to say. If you find a deal and you go talk to any other investor at a REIA club, or somebody that is doing hard money, and you show them that you have a deal, they will throw their money at you to try and make an interest rate. Money is actually one of the easiest things to get, but you have to have a deal in order to sell that transaction.

Mike: 100%, and that's again what-- I reiterate what you just said in a little bit of a different way is that-- you need to start wholesaling first. You need to start your marketing efforts now to find off market properties, to find motivated sellers. Once you find those deals, you are going to find that money by wholesaling it, meaning you are going to have somebody else buy it, or you are going to find that money by having somebody else help you fund it, property is going to be in your name, going to stay in your name. Again, that wholesaling, that marketing for motivated sellers is one of the most important things you can do in your real estate investing career.

David: Know your numbers, guys. Know your numbers. If you have a deal that has good numbers, funding your purchase should be easy.

Mike: Shouldn't be a problem.

David: That's all I've got for this episode, Mike. Anything you want to add? I think we did a great job of covering this one?

Mike: Yeah, thanks for listening in guys.

David: Until next time, signing off.