How to do creative financing deals like a boss- Payneless Wholesaling Podcast

Nathan: All right, Derek, how you doing? We are live right now with investor thrive. And I’m glad to have you on how’s it going?

It’s fantastic. I appreciate you having me on Nathan.

Nathan: Of course, of course. And he kind of reminds me how we got to, you know, to this point of how we get met each other.

Derek: I’d be honest with you. I think I got referred to you. I’m not 100 percent sure my assistant line this up.

So isn’t that happens, right? It’s like, Hey, I’m on a podcast. Let’s do it.

Yeah, we get the fun stuff. We get to talk.

Yeah, no, I love it. And honestly, it’s something I really enjoy getting to know, you and my guests. And just, you know, because we’ve never met, but I think it’s awesome that, you know, we can chat about, you know, what you have going on in your business. And we got to speak a little bit before and you’re saying right now your primarily your business right now is hard money lending. Is that right?

Yeah, hard money lending. And we’re still acquiring our goal is one to two houses a month, primarily, you know, single-family or small multi

awesome. Before we kind of get into that just diving into what you do and how you do it. You want to kind of introduce yourself to people that are watching so they can know who they’re listening to.

Yeah, for sure. So I’m in Green Bay, Wisconsin area, you know, we’re in the Upper Midwest type of market to give you a general idea, if I start talking about numbers or pricing, and started in 2003, just like everybody else, you know, bought some fixer-upper rental properties, built up a portfolio 2007 Hit lost that portfolio and decided that it was time to figure out well either quit or figure out a different way. Because when I started, everything I did was bank financing. And after 2007 2008 2009, you know, the banking industry was completely different. And my credit was destroyed, I had to rebuild. So that’s when two things really happened. I started building a network number one, which I never did prior, which was a huge mistake. And number two, I learned how to talk to people I think that’s something that many, many, especially starting-out many people don’t take the time to learn how to negotiate and interact with people in a way that’s not sleazy or manipulative.

Yeah. Wow. Wow, man. So let’s kind of talk about your experience and how everything’s going now. Is it similar to what’s what happened in the past, like, in 2007? Was with what’s going on now? Or not? Really? I was in high school still then. So I don’t remember what happened?

Well, I’m old as dirt, apparently. But-

I was like I was about to graduate. So isn’t that young

There are similarities, it won’t be the same. In my opinion, it won’t be the same effect. Because what really drove that uptick in house pricing back then was investors selling to other investors, and spec home builders selling to landlords. And this time, we’ve got a lot more of the sales have been homeowners, there is a shortage of dwelling units. According to the mainstream media, I don’t feel it’s nearly as large as what the mainstream media wants people to believe. Right. And I think that people are, they will do what they have to do to keep a roof over their head, including, you know, moving in with family or commingling families, if pricing is too high, or there is a lack of units in their area. So I see this market transition for me as a huge opportunity for a lot of people. I think they’re very nervous wholesalers. I know that’s your niche. I don’t think wholesalers are gonna get the 30 40 50 60 $70,000 wholesale fees. They’ve been able to pull the last two, three years.

Oh, definitely not.

And I feel like a lot of wholesalers have built up such a huge overhead cost with marketing and staff where they’re only as good as their next few deals, and they can start hurting pretty badly in the next couple of months. I think you’re spot on. I mean, I think wholesaling and having a wholesaling business, the way it’s been built out for the last over the last few years is not sustainable now, or even really back over the last few years. Or it’s just not a good model to just be spending tons and tons of money to just have to sell deals to have money come back. So I agree with you. On the flip side of that, the opportunity that’s going to and I say it’s going to it’s already here is dealing directly with consumers. But structuring deals in more creative ways, utilizing options and leases and seller carry back financing subject to purchasing, you know, all of these different strategies, if used properly, who cares what the interest rates are if I can go buy somebody’s house subject to their 3% mortgage that has 28 years left on it, I’m fine with that. Depending on your market in the Midwest, we can still buy cash flow. So I don’t necessarily need a lot of equity in that property if their loan terms are good. If you’re in a higher-priced market where you need that equity, you have to know your market, of course. But another opportunity that’s out there right now is using options. There are a lot of people, let’s take Florida, for example, the hurricane came through, there were plenty of people that don’t have proper insurance on their property, or they need to pay their deductible on their insurance to get their buildings repaired, you could go and just approach those people via door knocking or a letter campaign or whatever you typically do for your marketing and give somebody $10,000 to fix their house in return for an option to purchase their property for the next 10 20 30 years, you know, allowing them to stay there for now. But giving yourself future inventory, it’s a great way to build up your retirement account,
right?

Explain that to me again. So you let them stay in it for a certain amount of time?

Well, every option is, is completely different. There are no rules. So Nathan, if you had a house that, you know, had a blue tarp on it, and you’re in Cape Coral, Florida, and that house is worth half a million dollars, you know, we talk and I said, Well, I’m willing to give you the money, you need to repair your house. And through our conversation. Again, this goes to how you talk to people, we need to solve their problems. We’re not there to take advantage of their issue. We’re there to solve it. So through that discovery, we find out that you know, they’ve got kids in high school, they’re going to be graduating in a few years. And at that point, they’re going to want to downsize to a smaller home anyway. Okay, great. Nathan, if I gave you 20 grand right now today to fix your house, that’s currently worth half a million dollars, and you give me the next 20 years to buy your house for half a million dollars minus what I already gave you as option consideration. It’ll allow you to stay there for at least five more years until your kids have graduated and they’re gone. Okay. So I have a 20-year option, I cannot exercise for the first five years after that I can exercise anytime in our agreed-upon timeframe, the majority of options don’t get exercised options are used as a currency, I could trade that option to somebody else, I could sell that option to somebody else, you as the homeowner may approach me in two or three years and say. You know what, Derek, we want to keep our house. We’re back on our feet. What do we need to do to buy your option back? So it’s a currency.

Okay, interesting. So I’m just curious if I understand this correctly, so you give them the money to repair the home, they stay in it and you’re buying over 20 years? Do you just happen to have that kind of money laying around to put into a house that you’re not going to be getting any rent from or any income?

So that depends on what you have, like I mentioned retirement accounts, if somebody has a small IRA, for example, maybe they’ve got $20,000 sitting in that IRA, and they don’t care about cash flow, and their IRA is gaining all of that future equity. So in 20 years, do you think that half-million dollar house is gonna be worth more than half a million? So let’s say 10 years went by, and that house is not worth $700,000, you exercise your option to buy it for 500? You turn around and double close it, flip it whatever you want to do at that time for 700. If you did that with a self-directed IRA, with a Roth component, that is all tax-free game.
are they living in it for free? Like, let’s say you give them 20?

nope, they maintain their own they own it, all you’re doing is buying the right, you know, the option is a right to purchase.

That is good, so interesting. So you’re like, hey, look, I’ll help you out, I’ll give you the money to do this. So you can stay in there, just keep paying it, but you’re giving me the right to buy it and 20 years, 10 years, you said that you can do 20, but you can actually exercise it before then if you want, like-

again, there are no rules or options. It’s whatever you agree to with them, whatever the terms are. So in that example that we were talking about, they really want to stay there, right? Because they’re they want to get their kids through high school, and then their plan was to downsize anyway. So in that example, we’re not going to exercise the first five years, anytime after that I can exercise my option, go ahead and purchase the property again, most of the time, they’re going to change their mind, they may want to refinance, they can’t refinance without talking to you clicked because you have a lien position against that

that which you’re putting a lien on the property is that what it is?

the option is the lien. You would go and record that option on public record. And for me, I do it differently than most I actually record a mortgage securing my option so I don’t put my option on public record, they pledge a mortgage that says I have the right to buy that property and if they don’t sell it to me or follow through on our agreed upon contract, I could actually foreclose and take that property away from them.

And that’s more powerful than just a lien.

Absolutely. Because picture this, you give me an option and then you decide to sell it to somebody else behind my back and somehow it gets through a title company, they miss the recorded option and it closes, what’s the likelihood I’m going to be able to ever reverse that sale and get that property

very low,

very low, I may be able to make a claim against title insurance, I may be able to sue you and get a judgment against you for money.

It’s a lot of work.

But I wanted the property if you stole it behind my back, and I find out about six months later, that mortgage wasn’t cleared, I absolutely can go and foreclose

got it

and still go after the title insurance.

That’s a better way to do it. Okay. Sweet. No, that’s, I mean, this sounds like a great opportunity. And honestly, not opportunity, but option like a tool to have in your tool belt, right? Like, because a lot of people do want to stay. And if you are able to, you know, you if you said you have some so many children, your IRA might as well use that, right? Because that’s going to appreciate more in the long run, you know, if you exercise your option, and you but you said a lot of the time options are exercised because somebody will want to stay in it, they’ll refinance and pay you off. Is that what you have?

So that’s a new negotiation at that time, if that property is not worth 700, and they’re going to refinance it for $600,000. And you said, Okay, I’ll go away for $100,000, you pay me 100, grand, we’ll tear up my option.
And you’re like, Okay.

Has this gotten sticky for you? Where they’re like, oh, man, we shouldn’t have done that.

No, it hasn’t. But here’s, here’s a better way, Nathan, because I believe you’ve got a lot of wholesalers that listen to this, right? Ideally, no, as a wholesaler, you may not have any cash to go and get an option. But in lieu of getting a wholesale fee, if you are going to wholesale a property to a landlord, and the landlord didn’t want to give you your $20,000 wholesale fee, you could simply say, Great, assign the contract, you go ahead and close on the property. But I want an option to purchase this property from you at whatever you agree upon for however long you agree upon. And that option doesn’t have to be for 100%, it could be I get an option for 20% of the equity in the property some day in the future when you decide to sell.

So that’s how you get paid off.

Right?

Do you think that that’s a way around assignments, Simon fees that they’re trying to get rid of assigning the contract?

No, because you’re still doing an assignment of contract? After consideration, your payment is the option instead of cash.

Okay, got it. Yeah. So you still have to assign it to your end buyer. Got it. So a lot of I’ve heard that strategy. If you know, let’s say someone, you want to make $15,000 wholesale fee, but it doesn’t, you’re not getting that. So you can do just give me three, give me five right now. And then I’ll do an option for 10 When you sell it,

or you could take the remainder on a payment note and mortgage on parents.

Yep, you can get really creative with this kind of stuff.

That’s absolutely

that’s what I love about it. How long did it take you to master or it gets wrap your head around all the different options that are available out there?

It’s not something you read a book and it all sinks in at least for me, it’s not usually I would get into a deal. And I would be reaching out to my friends and people that have done this. And you know, say, Okay, here’s my scenario, what am I missing? This is what I want to do, do you see a better way to do it, and as you do more and more of them, it just becomes natural to you. Right? So I can tell you one property that I bought, the woman had a she wanted $105,000 for this house, and she had a $65,000 mortgage. So I bought that property subject to her first mortgage, I gave her $10,000 in cash, she carried back a second mortgage at 0% interest $200 payments until paid in full. And I then brought in a financial friend who had a small IRA because I needed about five to $10,000 and fix up money. Okay, so I took $20,000 from my friend’s IRA, we drafted up a note which is structured to where he participates, it’s a participating note is what it’s called. So my financial friend got a 6% rate of return quarterly interest only. And then I gave him a percentage of the equity someday in the future when I sell that at the very end of that after we fix it up. I put tenants in it on a lease with an option to purchase. So I stacked about five different strategies and solve everybody’s problem. The current owner got some cash flow, she got out of her house payment. I didn’t want to use any of my own money because it’s against my religion. I brought in a financial friend gave me the cash I needed he got a great return in his IRA fixed up the property the end users got what they needed period of time to fix their credit so they could get a loan and buy it outright.

How long was the option to purchase not option to purchase I’m sorry, that lease option. How long did that was that for before?

It was a two year deal?

Two year deal? Did they bring any money down?


Yeah. I want to say it was 7000 8000 I don’t let anybody in without at least enough money for them to have a down payment and closing costs on an FHA loan.

Do you use the money sometimes from the lease option down to pay the buyer I’m sorry, the seller or do you usually try to get someone else involved like your friend

I use? You can do that. I don’t do that. Because timing usually doesn’t work that well, I’m usually having to go in there and do some work to the property before I can put it out, as you know, to a tenant buyer. So I either use my own funds, which doesn’t happen often, right? Or I bring in a financial friend. So mind you, we also run a lending company. So I’ve got all my investors, and my lending companies is 100%, backed by people. There’s no institutions whatsoever.

Yeah, yes. So you’re, I’m assuming you’re giving people like maybe what eight 10%? You’re doing to 12%?


Yeah, we got, we got a fund set up, we pay our investors 9%. We lend it out at 12. And in parts of Milwaukee, for example, we landed at 13 and a half. So we’re an arbitrage business.

Right. Right. And then you make the points on there as well, assuming points,

three points throughout most of our state and four points in Milwaukee.

Is it higher than where I’m at? Just because the prices are lower in that area? Because I do two and 12 in here,

it’s higher because of competition? You have, you have way more money available in your area, I would guess than what we have.

Okay, because people probably feel safer about the projects or something.

Well, in the Midwest, we don’t have the huge spikes. We also don’t have the huge declines. So we’re a pretty stable market throughout history. Yeah. You know, we were in Florida, when I got destroyed in 2007. I mean, I built a house for just shy of half a million dollars ended up short selling it for 129. You know, it was a, it was a bad, bad time, in time period, property values in Wisconsin went down 10 to 15%. So it’s just regional, you got to know your market.

Looking back, do you feel like you could have kept some of those deals that you had to short sale? Or get rid of? Or like, if you had new different strategies? Or did you have to get rid of them all?

I didn’t have a choice then because lack of knowledge, number one lack of infrastructure or, you know, I didn’t have contacts, I didn’t have people that I could reach out to for advice. And what I really realized was because we use bank financing for everything, we had zero control over our business.

Yeah. And it’s rough. Okay. Well, Dang, this is awesome. I love this conversation, because there’s so many different ways to structure deals. And that’s honestly super important right now with how the industry is moving. Like I think wholesaling is such a, like a, I don’t wanna say juvenile, if that’s even the right word. But like, it’s, it’s something people do, and they just don’t know a lot, right? There’s just like, let me get it really low. And if I do, I can make a fee, there’s so many better ways to do deals, right? And you’re just set a bunch of them. And I think educating yourself is important. So let me ask you this, we that deal, that scenario you gave us where you did all those different options, all those different scenarios, how long did that take you in your investing journey to be able to do something like that with confidence.

I would say, a year to two years, anybody that’s starting off today that diligently started learning those processes and marketing for those types of deals, you can learn in under a year, the reality is go out and find somebody that’s already done it, shadow them, partner with them, whatever you want to do in your market, and that’s going to shortcut it.

do these properties that you can do creative and be creative with, they can’t be absolutely destroyed, right? Because you, it’s very difficult to structure like a lease option, or terms where you can get someone in there if you have to do like a complete rehab on them. Right?

That’s the beautiful part about it is you can do this with pretty houses, you don’t have to deal with the trash.

That’s what I’m saying. I mean, I think the trash deals are making it difficult because I have a one that it’s like, you know, very low interest rate, but the house has got meth broken windows that people don’t want to move out. So in order for us to even get to the point where we would be doing a lease option or rent, we’d have to pay like 40 to 70 in it, and the seller wants what she wants 20 down. So we’re talking 90 Just to get into a deal. And I think those kinds of deals, crush creative deals.

You’re right. What I would say Nathan is every lead that comes in could be a creative deal. And when I tell people they’re like, Well, how do you find all these deals, you don’t find them, you build them, you build them through conversations with the sellers. And a lot of people don’t want to ask the tough questions I start every interaction with with a new seller lead within the first two minutes of that. Typically, it’s a phone call, because I buy in a 200 mile area. So I’m not driving and meeting all these people, unless I’m pretty sure we’re going to contract exactly what I got an elevator pitch that I give everybody and it goes a little something like this. Okay, Nathan, we buy houses in several different ways. All cash is not a problem. But that’s typically going to be my lowest offer. If that offer doesn’t meet your needs, we could look at taking over your payments. If you still have debt. If you don’t have debt, we can make payments to you over time or in some cases, we just lease your property and put an option in place to buy it at a future date that usually works well with landlords that are trying to offset capital gains. I tell you all this just so you know, I’m going to ask you some questions that most people might not answer you. Is that okay with you? Yeah, they find elevator pitch right.
That’s amazing. You know, I because like the way the strategy that I was taught and most people do is they they Lead with the wholesale offer, right? The low cash offer. And then people say no, which 90% Then do and they say, Well, hey, there’s different options that I can present you. But I mean, you’re just straight up front with it. And let me ask you this. So with you saying that, and they say, No, I’m not interested in payments, I just want cash, does it revert back to them saying yes to terms later when they know how low it is? And they’re like, Okay, let’s, what other options did you have?
Absolutely. And if you don’t have the cash, you make that offer so low, they will never accept it. And if they do accept it, you’ve got a really smokin deal. That should be no problem signing out. But what it really helps with Nathan is now when you’re asking them, how much debt do you have? What are your tax consequences? What are you going to do with your profits? They’re not offended, they gave me permission to ask those questions.
Well, the thing that I see about it is like I did some Franklin, I’ve done a lot of Franklin Covey sales, training, a lot of sales training, and what the most important thing is at the beginning of the conversation is setting the stage or letting them know like where you’re taking this conversation, right? So you just go in there, and don’t tell them what you’re trying to do. And just ask all these questions. Like, why are you asking all these questions, but you sounds like you set the stage, you let them know exactly what this call is going to be like and what we’re going to talk about, so they’re prepared, and they’re okay with it. Absolutely.
And even in the case that they still get upset, or they still don’t want to answer a question, you revert back to it. And you say, well, listen, I’m not trying to get nosy or dig into your business. I’m just trying to help come to a solution for you. That’s why I’m asking this question. And usually that de escalates it. Yeah.
That’s exactly right. And then you got it. When you feel like there’s something in tension in the air, you feel some over that phone, you gotta call it out, right? You just can’t be sailing through that. Because there’s, there’s obviously, I do the same thing. If someone if I feel like there’s some off, I’m like, Did I say something that might have offended you? Right? Like, or did they say something wrong? And maybe you don’t like all these questions? I really, I agree with you. I think that’s an awesome sales technique. So let’s, let’s, we talked earlier about this about you have a book that you’re coming out with, and you have, I think, a seminar is that right?
Yeah. So talk about those. I’ve got a book that I’m authoring which is how anybody can be a private lender. It’s, it’s A to Z. And I’ll preempt this Nathan with I was a construction worker with a high school, you know, I’ll say a PhD, I’ve got a public high school diploma, a good work ethic, right? That’s right. Never saw myself being a lender pushing 20 loans a month. And it got to the point where we were just raising private capital for our own deals, and we raised more money than we had deals, and then we started lending to our friends, right is an arbitrage. So anybody can do it. That’s what the book is about. And it’s going to be published. Hopefully, in January. We’re about a month behind schedule. Right now. I’ve also got a nother book that I’m co authoring with a bunch of other cool investors. And I’d like to give both of those away free to your listeners version will email to you as soon as it’s ready,
please do I have a Facebook group, right? So you know, you can go in there and post that.
Okay, awesome. Anybody that’s listening and shoot me an email, just my private email. Personal Email is my first name Derek, D, E, R E, K, at best r e i funding.com, which is my lending company. And we’ll throw you on that list for when the books are out. And Will my system will hit send and they’ll come out everybody that wants one.
I have the email right that’s going across the bottom. Derek.
You got to put best and then our E is funding.
Okay, hold on. Derek, at best, our ei funding. comm.com. And check us out. You gotta give me the approval. Give me the thumbs up best, Derek at best. Rei funding.com. Cool. Guys, you heard it here first, if you want some free books, I mean, why not? For some free ebooks? Check it out.
Here’s the other thing real quick. The generations of wealth is a conference that we put on once a year. It’s in Cancun, Mexico, February 27 23. That was designed to be a networking event. And it’s not for newbies, I’ll be honest with you. Not that newer people can’t come, right. It’s just this is advanced type of stuff. And so I’ve got non selling speakers that come in. It’s a five day conference. We speak from nine until one each day, from one o’clock through dinner is open networking, meeting all the people that are there meeting the speakers. And then in evenings, we have Town Hall sessions that are more interactive. The thing I love about it is I encourage people to bring their kids, especially if they’re 10 and older, and they can sit in on as much or as little as they want no additional charge. The reason it’s called generations of wealth, people that taught me all this stuff used to run a conference, we took that conference over they handed it to us that was kind of a shift in generational knowledge. I want to do the same thing with our kids. Wow. So it’s not about the kids learning how to do all these advanced strategies because hell most adults don’t understand them. It’s about the kids me Getting other kids who have parents that are freaks like us. Wow. building their own network in their teenage years.
Cool. So those are the two things you got going on. You got the ebook that you’re gonna give, if anyone emails, you are gonna put it in my group. And then you have the awesome conference that you’re doing in Cancun.
Yep. And that is, anybody can go to Gow V voyage.com, which stands for generations of wealth voyage. And this is not a sales pitch. Nathan, this is just straight up fact, I’ve got an all inclusive resort that I’ve blocked a certain number of rooms that and this is not a huge event. This is 125 250 is our goal. Once those rooms are gone? I can’t guarantee that resort will release additional rooms to me. Yeah, yeah. So I mean, it’s, it’s up there, go check it out. We’d love to have you or your listeners or anybody that that thinks this is for them. And it’s a it’s a lot of fun. The people you meet are top notch. And this is this is how I learned most of what I know how to do going to the right events and talking to the right people, rubbing elbows with the right people and building those relationships.
That’s what it’s all about. 100% So Gio w voyage.com Yes, sir. Well, hey, man. It’s been a pleasure, Derek and honestly, I think you bring a ton of value to my community and people around you. So I want to thank you for coming on.
Thanks for having me. It’s always a pleasure. You got it. I will. We’re signing off and we’ll catch you next time right there. Thanks. Yep.