Podcast Summary
Leveraging Creative Financing to Build a Real Estate Portfolio: Real estate expert Pace Morby built a 300M portfolio using creative financing. 600K nonperforming homes offer opportunity for renegotiation, short sale, cash for keys, or wholesale deals. Becoming a lender comes with added responsibilities.
Pace Morby, a real estate expert, has built a significant real estate portfolio worth around 300 million dollars through creative financing, which allows him to invest without using his own money. Additionally, there are currently around 600,000 nonperforming homes in the US, meaning homeowners have stopped making payments, and servicing companies are willing to pay around $1,200 per house to transfer the mortgages to buyers. This presents an opportunity for investors to take over these homes and either renegotiate mortgages, sell short, offer cash for keys, or wholesale them to fix and flippers. However, it's important to note that taking over the mortgages also means becoming the lender, which comes with added responsibilities.
Underwater Mortgages and Opportunities in Real Estate: Despite historically low interest rates, many homeowners face negative equity due to housing market decreases. Investors can take over mortgages, assuming risk and owning property without extensive documentation, but face challenges. Opportunities include sober living homes due to government rent payments.
The real estate market has seen a significant increase in underwater mortgages, particularly for those who bought homes in the last two years. With an average decrease of around 16% in the US housing market over the last year, many homeowners with FHA or VA loans are now facing negative equity. Even though interest rates are historically low, new buyers are hesitant due to high prices and interest rates. For those already underwater, selling can result in substantial losses due to realtor commissions, closing costs, and other expenses. Interestingly, the asset in real estate isn't just the property itself, but the debt attached to it. In some cases, investors can take over existing mortgages, assuming the risk and owning the property without having to apply for a loan or provide extensive documentation. However, this comes with its own challenges, such as due on sale clauses, which can limit the options for using the property. One potential business opportunity in this market is investing in sober living homes. These facilities cater to individuals leaving drug addiction centers and require housing. The government pays a substantial rent for these facilities, making it a lucrative business opportunity for investors. By taking over mortgages with lower payments, investors can explore various options, including traditional rentals, Section 8 housing, mid-term rentals, and sober living homes.
Understanding Real Estate Ownership, Debt, and the Due on Sale Clause: Real estate investing in forms like mid-term or short-term rentals or sober living homes can provide higher cash flow. However, selling a property with existing mortgage debt can trigger the due on sale clause, requiring repayment of the mortgage. Solutions include selling, refinancing, or negotiating with mortgage companies.
Real estate investing, particularly in the form of mid-term or short-term rentals or properties like sober living homes, can offer significantly higher cash flow compared to traditional rental properties. Moreover, real estate ownership is separate from debt, and the transfer of ownership documents, such as deeds, is what establishes ownership. However, this transfer can trigger the due on sale clause, which gives mortgage companies the ability to demand repayment of the mortgage if the property is sold without paying off the debt. This poses risks for both the seller and the buyer, and potential solutions include selling the property, refinancing, or negotiating with the mortgage company. Overall, understanding the relationship between real estate ownership, debt, and the due on sale clause is crucial for successful real estate investing.
Beware of due on sale clauses when buying a property subject to an existing mortgage: Understand the due on sale clause and its implications, consider deeding the property back to the seller or buying on an executory contract to avoid potential issues.
When buying a property subject to an existing mortgage, it's essential to be aware of the due on sale clause and its implications. If you catch up on the arrears but don't follow the correct procedures, the mortgage lender may demand payment in full. One solution is to deed the property back to the homeowner and hold the title without recording the transaction. This method avoids reassessing the property value by the city or state. Another option is to buy the property on an executory contract or as a lease option, where the mortgage balance is the option price and the buyer gets credit for mortgage payments. In such cases, the agreement for sale is attached to the property, protecting the parties from lawsuits. Overall, navigating the complexities of buying a property subject to an existing mortgage requires careful planning and understanding of the due on sale clause and its implications.
Avoiding lawsuits through property transfers: Executor contracts or agreements for sale: Individuals can transfer property deeds under executor contracts or agreements for sale to retain control and avoid lawsuits. Two methods include 'subject to' and 'seller finance' transactions, which have different implications for buyers and sellers.
Some individuals may attempt to transfer property deeds to avoid lawsuits, and this practice, known as an executor contract or agreement for sale, has been around for over a century. This method allows the seller to retain control of the property until the buyer takes specific actions. However, there are risks involved, especially for those holding mortgages. The two primary methods of acquiring property through such arrangements are "subject to" and "seller finance." In a subject-to transaction, the buyer takes over the existing mortgage, while in seller finance, the seller finances the buyer. The former is often used when the homeowner is in a dire situation and facing foreclosure, while the latter caters to real estate investors. The mortgage industry may not be fond of this practice, as it can impact their loan portfolios, but it continues to be a common occurrence.
The 'due on sale' clause is largely a myth: Despite common belief, losing a house due to this clause is rare. Focus on understanding the business side of real estate and generating leads to secure deals.
The "due on sale" clause, often cited as a major risk in real estate transactions, is largely a myth. The speaker, who has extensive experience in the industry, has never met anyone who has lost a house due to this clause. He emphasizes that it's important to understand the industry beyond the construction aspect and learn how to generate leads and secure financing. The speaker's transformation from a contractor to a successful real estate investor began when he was challenged by a homeowner, who pointed out that he was replaceable as a service provider and encouraged him to take action and learn the business side of real estate. The speaker started by sending out postcards and eventually secured his first deal, proving to himself that he was capable of success in real estate.
Lessons from a Real Estate Mogul's Mistakes: Understanding concepts like cost segregation, depreciation, and negotiation can lead to increased profits. Continuous learning and adaptability are essential in the real estate industry.
Experience and knowledge are crucial in the real estate business. The speaker, who made a large sum of money through a contract with Opendoor, learned this lesson when he discovered he could have taken home more if he had understood concepts like cost segregation, depreciation, and negotiation. He then started his own real estate journey, learning the basics through a mentor and eventually securing his first deal. However, he was inexperienced and unsure of how to proceed when faced with a potential buyer who had a lower offer than expected. Despite being unable to buy the house, he offered to help the seller in other ways, showcasing the importance of building rapport and being resourceful. Overall, this story emphasizes the value of continuous learning and adaptability in the real estate industry.
Unexpected opportunities in real estate: Be open to unexpected opportunities in real estate, as they can lead to profitable deals and introductions to industry experts
Sometimes, unexpected situations can lead to profitable opportunities in real estate. In this story, the speaker helped a homeowner named Janie by taking care of her Flemish bunnies, which she couldn't take with her when she moved. In return, Janie decided to sell her house to the speaker. The speaker was able to buy the house for a lower price and then assign the contract to a fix and flipper, making a profit. The speaker also met Eileen Brown, a veteran in the industry, who was impressed by the quick success of the deal. This experience introduced the speaker to the world of creative financing and real estate deals, leading to further profits. Ultimately, the story highlights the importance of being open to unexpected opportunities and the potential for profit in the real estate market.
Reviving Dead Real Estate Leads with Creative Financing: Creative financing strategies like subject to and seller finance can help turn seemingly dead real estate leads into profitable deals by addressing sellers' motivations of pain and greed.
Creative financing, specifically subject to and seller finance, can breathe new life into seemingly dead real estate leads. Eileen Brown taught the speaker how to identify and help distressed homeowners facing foreclosure, providing them with a solution to turn their debt into a cash-flowing property and rebuild their credit. The speaker's business grew as he helped wholesalers and agents convert seemingly impossible deals by offering creative financing solutions instead of cash offers. The key is understanding the motivations behind seller finance (greed) and subject to (pain), and using that knowledge to tailor pitches to potential sellers. For example, if a seller is getting lowballed offers and wants to retire, the speaker might say, "If I were going to offer cash, I would have offered that same amount. But I'm not offering cash, so let's explore creative financing options instead." By focusing on these strategies, the speaker was able to buy 300 single-family homes and 1500 multifamily doors using creative finance.
Creative Financing: Buying Real Estate with Flexibility: Creative financing, like seller financing, allows buying real estate with flexible terms, saving money and avoiding large down payments or good credit.
Creative financing, such as seller financing, can offer flexible terms and allow individuals to buy real estate without relying on traditional methods like credit checks or large down payments. The speaker shared a personal story about how he was able to sell his truck for more money by offering payments, and how he has successfully bought multiple real estate properties using this method. He emphasized that while not everyone may be in a position to do this, it's an option for those who may not qualify for traditional financing. The speaker also mentioned that he has closed deals worth up to $109 million using this method, and that the process can be quick, with no need for appraisals or inspections. Overall, the key takeaway is that creative financing offers a way to buy real estate with more flexibility and potentially save money, even without a large down payment or good credit.
From equity to interest in private money deals: The speaker transitioned from offering equity to paying interest to private money lenders, allowing for creative finance deals and managing over 1800 properties while focusing on cash flow and tax benefits.
In the beginning of his real estate investing journey, the speaker relied on partners and private money lenders to get deals done, offering equity in exchange for their investment. However, as he gained credibility and learned to raise money without giving away equity, he shifted to paying interest to private money lenders instead. Creative finance allows for private money to be used for down payments, bypassing the need for traditional loan requirements. The speaker now manages close to 1800 properties and has a team to help manage them. His focus is on cash flow and tax benefits, with the ability to pay no income tax through real estate investments. The current market presents an opportunity for creative finance due to people facing financial challenges and the availability of higher interest rates for borrowers.
Adapting to new challenges and learning in real estate investing: Successful real estate investing requires continuous learning and adapting to new challenges. Building a network and teaching others can lead to new opportunities and deals.
Successful real estate investing involves adaptability and continuous learning. The speaker shares his experience of starting with Airbnb for higher cash flow, but facing regulations that led him to switch strategies to sober living homes. He emphasizes the importance of getting educated along the way and learning from mistakes. Now, most of his deals come from people he has taught, demonstrating the power of teaching others and building a network. The speaker also mentions his shift from outbound lead generation to inbound deals from his students. This journey of learning and adapting is a common theme in real estate investing, as agents and investors face new challenges and regulations.
Exploring Alternatives to Traditional Financing: Creative finance offers opportunities to acquire assets without relying on conventional financing methods, building trust between buyers and sellers, and has a historical significance in wealth-building
Creative finance provides opportunities to buy various items, even high-value ones like a professional camera or a house, without relying on traditional financing methods. The speaker shares an example of buying a professional camera for a videographer using seller finance, demonstrating the trust-building aspect between the buyer and seller. He emphasizes that while it may require more work and trust, it's a viable alternative to conventional financing. The speaker also highlights the historical significance of creative finance in building wealth and fortunes, as seen in companies like DuPont and Walmart. In essence, creative finance opens doors to acquiring assets that might seem out of reach with traditional financing methods.
Seek advice from top earners or experts in specific areas: Investors should look for advice from experienced and successful real estate professionals to maximize their chances of success. Persistence and follow-up are crucial in securing deals, and alternative methods like seller financing and renting can be effective strategies.
The quality of advice and knowledge in real estate can greatly vary depending on the experience and expertise of the person giving it. The speaker emphasized that agents, who make up the largest portion of the real estate industry, often have limited knowledge and experience in areas outside of traditional sales. He suggested that investors should seek advice from top earners in the industry or those with extensive experience in the specific area of interest. The speaker also emphasized the importance of persistence and follow-up in securing deals, and the potential for successful real estate investing through methods such as seller financing and renting properties. Additionally, he highlighted the importance of education and self-learning in the industry, as agents may not be adequately educated on certain topics.
Partnering with Private Money Lenders: Real estate investing doesn't require your own funds, as partnerships and private money lenders can provide the necessary capital. Sharing profits and responsibilities with a partner is a common arrangement.
Real estate investing doesn't always require using your own money. Partnerships or private money lenders can help you get started without relying solely on your own funds. For instance, a 50-50 partnership with a private money lender like Kevin in Vegas could bring you a deal and the necessary funds, while you both share the profits and responsibilities. However, even with a property management company handling most of the day-to-day tasks, some level of involvement is still necessary. Additionally, some successful investors, like Dave Ramsey, advocate against debt but still use leverage to build their wealth. By understanding the benefits of partnerships and leveraging other people's resources, you can expand your opportunities in real estate investing.
Building strong community relationships leads to business benefits: Prioritize collaboration over competition for a powerful business ecosystem. Balance aggressive visionaries with operators for growth. Consider off-market deals carefully and maintain balance for financial success. Ultimately, a strong community and balanced approach drives business success.
Building strong community relationships in business can lead to immense benefits, beyond just transactional gains. The speaker shares his experience of having a go-giver network where collaboration over competition is prioritized, leading to a powerful business ecosystem. He emphasizes the importance of having a balance between aggressive visionaries and operators who provide a counterbalance. In the real estate industry, off-market deals offer significant opportunities, but require careful consideration and turning down deals to maintain balance. The speaker's net cash flow is different from the total amount of real estate owned, and he emphasizes the importance of understanding the financials behind each deal. Ultimately, the success of his business comes from a strong community and a balanced approach to growth.
Understanding market and politics crucial for real estate investing: Focus on market with proven success, continuous learning, and adaptability key to real estate investing. Creative financing can offer flexibility in property investments.
Real estate investing, whether it's RV storage facilities or multifamily properties, requires different levels of management and resources. For smaller RV storage facilities, on-site management might not be necessary. However, larger facilities or those with specific requirements may need on-site personnel. The speaker, who has experience building RV storage facilities but not owning one, emphasizes the importance of understanding the market and politics before investing. He shares how his initial investments in Atlanta came from deals he encountered there, leading him to focus on that market. The speaker also mentions the potential for significant wealth accumulation through real estate investing, but stresses the importance of continuous learning and adapting to changing circumstances. Additionally, the speaker discusses the benefits of creative financing, such as delayed 1031 exchanges, which can provide flexibility in rolling funds from one property to another.
1031 Exchange: Seller's Payments Towards Replacement Property: In a 1031 exchange, the seller can't receive sale proceeds directly, but can make payments towards a replacement property, allowing for extended payment terms and application to the exchange.
In a 1031 exchange, the seller cannot directly receive the proceeds from the sale, but instead must identify a replacement property and make payments towards it. These payments can be made over an extended period, and the funds can still be applied to the exchange. The speaker also predicts a potential real estate market decline of 12-15% in the next few years, with certain smaller markets being hit harder than others. Creative finance strategies, such as assigning mortgages to end buyers, can be particularly beneficial during these market conditions. The speaker emphasizes that this is an exciting time for creative finance due to the high demand for housing and the potential for assigning mortgages to a large pool of end buyers who are unable to purchase properties outright.
Wealthy individuals often carry significant debt and the use of technology like the Oura ring to monitor and improve health, especially sleep, was discussed.: Despite their wealth, many successful entrepreneurs and business leaders carry debt, causing emotional stress. The Oura ring, a wearable health tracking device, can help monitor and improve sleep quality, leading to better energy levels and performance.
Wealthier individuals, even those with substantial fortunes, often carry significant debt. This was a common theme among successful entrepreneurs and business leaders discussed on the podcast. The speaker himself admitted to having debt, despite his wealth. However, he emphasized that the stress of debt wasn't a financial decision for him but rather an emotional one. He also mentioned Hormozi as an exception, who seems to be debt-averse. Another interesting topic that came up during the conversation was the use of the Oura ring, a wearable device that measures various health metrics, including sleep quality. The speaker shared his experience with the ring, explaining how it helps him track his sleep score and improve his sleep hygiene. He mentioned that a good sleep score, above 90, leads to better energy levels and performance the next day. Additionally, the ring measures other health metrics like body temperature, steps taken, and calories burned, making it a comprehensive health tracking tool. In summary, the discussion revolved around the common theme of debt and its impact on the wealthy, as well as the benefits of using technology like the Oura ring to monitor and improve various aspects of one's health, particularly sleep.
Impact of Personal Habits on Productivity and Growth: Personal habits like alcohol consumption and sleep patterns impact daily life and productivity. Prioritize self-improvement, delegate tasks, and make informed investment decisions for growth.
Personal habits, such as alcohol consumption and sleep patterns, can significantly impact our daily lives and productivity. The speaker shared his experience of how alcohol affected his sleep quality, leading to frequent wake-ups and reduced REM sleep. He also discussed the importance of competition and continuous learning in personal and business growth. Furthermore, the conversation touched upon the role of technology in streamlining business operations and the importance of delegation. The speaker shared his approach to expanding his business by hiring experts and trusting them to manage day-to-day operations, allowing him to focus on new ventures. Lastly, the discussion highlighted the importance of finding the right investment opportunities and considering long-term benefits, such as raising rents over time and having a fixed mortgage payment. Overall, the conversation emphasized the importance of self-improvement, delegation, and making informed investment decisions.
Investing in Real Estate for Wealth Creation: By buying properties and renting them out, you can generate income and build equity, but ensure mortgage payments are lower than rental income, consider specific circumstances, and assess financial situation, goals, and risk tolerance before investing.
Buying real estate, including your primary residence, can be an asset if managed wisely. By investing in properties and renting them out, you can generate income and build equity over time. For instance, if you buy one property per year starting at a young age, you could accumulate a substantial real estate portfolio by the time you retire. The key is to ensure that the mortgage payments are lower than the potential rental income. However, it's essential to consider the specific circumstances, such as location, property prices, and maintenance costs, when evaluating the asset value. Ultimately, the decision to buy real estate depends on your financial situation, goals, and risk tolerance.
Adapting to Opportunities and Life Changes: Stay open to new opportunities, even if they don't align with initial goals or preferences. Adapt to life changes and prioritize relationships for a more fulfilling life.
While some individuals may have specific investment goals, such as seeking a large-scale, high-value real estate deal, opportunities may not always align with personal preferences or capabilities. For instance, a person may desire a big house or a good cash flow deal, but the market may offer commercial or multifamily properties instead. It's essential to adapt and consider partnerships or alternative investment strategies to make the most of opportunities that come along. Additionally, personal experiences and life changes can significantly impact perspectives and priorities. For example, getting married and having children can shift an individual's focus from being solely self-centered to recognizing the importance of relationships and balance. These experiences can also influence travel habits and even reconsider past judgments about family dynamics. Ultimately, being open to new opportunities and adapting to life's changes can lead to personal growth and a more fulfilling life.
Balancing Entrepreneurship and Family Life: Effective time management and protecting personal space are essential for entrepreneurs with families. Considering alternative education options like homeschooling can help maintain flexibility and control over schedules. Personal experiences and environmental influences shape outcomes, emphasizing the importance of making informed decisions.
Effective time management and protecting personal space are crucial for entrepreneurs, especially for those with families. The speaker shares his experience with public and private schools and expresses concerns about the potential negative influences on children. He is considering homeschooling as an alternative to maintain flexibility and control over his family's schedule. The speaker also reflects on his past and shares how his brother's experiences with drugs influenced him, emphasizing the importance of individual predispositions and the role of environment in shaping outcomes. Ultimately, the speaker emphasizes the importance of being mindful of personal experiences and making informed decisions to create a positive and productive environment for personal and professional growth.
Parenting Styles Shape Individuals' Paths: Though siblings share the same upbringing, parenting styles can significantly impact their futures. Strict parenting can lead to challenges, but these experiences can also foster strengths.
Upbringing and parenting play significant roles in shaping individuals' paths in life. The speaker's brother and he, despite having the same parents and environment, turned out differently due to varying parenting styles. The speaker, who was a mischievous kid, was strictlier parented than his brother, leading him to face challenges in school and face consequences such as being grounded for ten months. However, these experiences did not define him negatively, and his social skills became his strengths as an adult. The speaker also reflects on how the label of being a "distraction" in school impacted him and how it could have been used to his advantage if framed differently. Overall, the discussion emphasizes the importance of understanding the unique experiences and perspectives that shape individuals' lives.
Finding silver linings in difficult experiences: Even though challenging situations can be frustrating, they can also lead to valuable lessons and personal growth.
Even our past mistakes can lead to unexpected blessings. The speaker shared a story from his childhood where he was an annoying kid in class and caused some trouble, leading to being grounded. During this time, their house was robbed, but his iPod Touch and PlayStation remote were hidden and not stolen. He saw the silver lining in the situation and used it as an opportunity to correct his behavior. However, he got caught using an old iPhone and was grounded again. Although it was a challenging time, he learned valuable lessons and realized that maybe not having an iPod Touch at that age wasn't a bad thing after all. The experience brought him closer to understanding the importance of being responsible and appreciating the good things in life. The speaker also expressed his gratitude towards his former teacher, Mrs. Schneider, for her role in his life during that time. Overall, the story highlights the idea that every experience, even the difficult ones, can teach us valuable lessons and help us grow.
