Chad Corbett chats owner finance, sandwich lease options, and subject-to deals with creative finance expert Chris Prefontaine.
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Welcome everybody. My name is Chad Corbett, founder of Magnum Opus Project. And with me today is Chris Prefontaine, creative finance expert extraordinaire. The name is familiar. Chris is the author of Real Estate On Your Terms. And the co-founder the CEO of have Wicked Smart, I am the founder, my man and CEO. Correct. Lots of things very active in the real estate community and really risen to the top as the trusted source for information and training on creative financing. And I know that's something that you guys have continuously asked me for more of every time we do transaction engineering on the phone, like in a live setting. People email me and they're like, what? Please teach me more. Teach me about lease options about sub tos. Ask The Expert is all about finding the people that are the best in the business at that their specialty and for creative financing that is Chris. So welcome to our community. Thanks Chad! It's always good to hang out because every time we talk we have these ahas together, we're on the same page, always. So I can't wait to dive in. Yeah. So our audience is a mix of real estate investors and real estate agents. If I have it my way, there would be one designation of real estate professional, and we would just quit this, you're black, I'm white kind of thing. So one of the, the commonalities, like the common values that Chris and I have is really wanting to kind of blur that line and create a real estate market, not a retail market and a wholesale market. I really firmly believed that each of you guys. And you don't have to do it overnight, but each of you should strive to be able to monetize every phone call. Every seller that owns real estate and has a strong motivation to sell, can be helped and you can monetize it directly or indirectly. so that's why I wanted to invite Chris. Cause he's got a really great community around that conversation and has mentored and trained thousands of investors and agents and brokers and real estate professionals. So Chris, if you could, just, summarizing what you've learned over the years. Of all the people that you've trained that have come into your community, what would you say is the increase as a percentage of their deal flow once they learn that creative financing skillset instead of saying, no, I can't help you. We track all kinds of metrics that I will tell you this to two sides of that coin, right? Because one side is we have a lot of people that come to us that never did a deal. Yeah.And there's two options to that:
I've spent tens of thousands to people, a hundred thousand on courses, but I don't know how to, I didn't do a deal yet; and then there's the corporate person transferring in, like Brian comes to mind. He's in Chicago, it took him 17 months. The guy's done, I would say a hundred grand in three and a half, three paydays. So that's that camp as far as people like you and I, that are in the business. And they go, Hey, I can tack this on because I want to do what Chad said. I want to be the master engineer that knows how to do every deal. I would say it's easy. Let me say simple, not easy. It's simple to tack on at least a deal a month extra quote, unquote, but let me quantify that on a three payday trademark system in the United States. Produces between 50 and $250,000 per deal. All three pay days. That's the student's numbers, not mine for anyone that, if that went over your head, Chris, could you please elaborate on explain each of the three stages of paydays in these types of deals? Yeah, certainly. And I, and our family, our own family, my son and my son-in-law and myself, ours is like on the lower end of that, where like 75 grand. But. Again, how many books you need per year. Here's the three pay days. We exit a deal, two ways only owner financing or rent to own in usually it's rent to own and if they prove themselves, we can transfer them to or convert them to on a financing. So what are the three paydays with either one of those buyers? One. Down payment. We're going to make sure that buyers not, Hey, I'm renting. I may someday hopefully want to buy no, these are buyers that legitimately need times we put up a non-refundable that's payday number one. And number two is going to be the spread between what I paid the seller or the underlying seller's mortgage and what I'm collecting from my buyer that ranges from 300 to a thousand that's paid to that's a spread payday three is really cool. Okay. Three is the mock up in the home that we did. Plus all of the parents will pay down that we realized while that deals in progress. That's lucrative, especially when you start instead of some of the ways we do all principal payments. So I say all three paydays averaging 75 grand for us. That's where they come from. Right. And that's the, and most people would look at the majority of those deals that you're talking about, the average realtor or the average investor or the beginning realtor investor. I think I would say the vast majority of them would say, well, that one just won't work out. I'm sorry. You just need to hang on to it a little bit longer, get a little more equity or, you know, And that's the power of creative financing guys, where your competition is walking away and not knowing how to put the deal together because their lack of knowledge and experience and not having the right mentorship, you know, they're leaving literally millions of dollars on the table in their career. And for anyone who. Is listening to this and yes, you've heard me talk about it before you still haven't done anything. Chris, I want to come back to that, that second camp that you talked about, the people that have bought the books and put them on the shelves and maybe they bought your book and read that and they still aren't doing deals yet, it's that fear component. What's your best advice for someone to breakthrough that, because so many people have come to me and be like, Aw, man, if I could just, and I'm like, you can, I had to learn myself, but. what's your best advice to someone who's in that fear space or that lack mindset to kind of break through that and just finally get into this and start doing it, like, how did they find the courage? Okay. So this is a really good question, timely, because you wouldn't have known this. This is always the case when you and I chat right. Yeah, well, we just spent six hours today and we never do that. Six hours on clubhouse, specifically teaching creative specifically to help people know about our event for Saturday. And one of the questions was well, how come people are afraid of it? People don't jump same as you just said. So here's my take. and please understand if you're a realtor I wasn't realtor for 18 of my 30 year career. So I get it. I get both sides and you're leaving, as Chad said, a boatload of money on the table, we did a hundred homes a year as a realtor just that, just to give you some context. So that's good. That was in the nineties. But if I had known this and how to structure these now, not only would I bet a better helper a better guy for my sellers and buyers, I would have to set up lucrative wealth creation, like beyond belief. So what stops them? I think the belief and the confidence, but where does the belief from the confidence come from? Getting a deal done and having the right guidance to get it out in the next circle just keeps building. Right? Because you get more and more confident. Okay. So how do you get there without having any knowledge, you find someone in the niche yourself, me, there's other people in the niche. It's not just me. And you will find some that you can relate to. And then with blinders on, don't do anything, but learn from them in the trenches for the next three years. You will be in the top 2% in your marketplace period. And they won't be, if you're a realtor, I was talking to put that hat back on. They won't be anyone to touch you. No one. So, if you want to move from a job, getting one check per deal, one commission per deal. I did that - I get it, you can hustle- to: I'm going to get paid three times and I'm going to be an authority in my market because of it. There's no better way to go. the second biggest mindset challenge I see with people who want to get into this space is: Well, my broker won't let me do that. My broker doesn't want me doing that. We don't wait. We're not allowed to do that. And I have my soap box rant on that, but I'm really curious to hear your best advice to someone who's using that. And I'll call it an excuse because you can move a damn brokerage in a day. And it's not that painful for an agent to move, but how do you coach through that? How do you help people through that hurdle? Okay. And again, just so people don't think I'm stepping on toes. I was the broker owner. I get it. So here's my answer. You already alluded to it. Change brokers ASAP. I, there are people out there like us that we've trained to get it and want you to come in because they realize every listing. Even if you have a small office, I only had 14 agents when I added that's small. But every listing and every buyer you're losing, most of those you can capitalize on and be the expert in that broker. Broker-owner it doesn't realize that or see that they are missing the boat and you need to change ASAP. Now, if you, there are some people that I've coached that have an arrangement where they broke Groner that says this, it says, Hey, and I don't know your state laws. Right. But I don't know who's listening, but the battle bottom line is, is they said, Hey, As long as you're doing that in your LLC. Like if you're a builder or an invest, that's not brokerage deals, that's separate back, we'll refer, but there's this back and forth smart combined. Some of that will do it with it. And I don't want to have people losing their license unnecessarily, but I resigned mine on purpose as did my son. Cause I was just dealt with the drama. Think we would trying to take listings and all that junk. We're not, we're trying to deal status. So now we get referrals from them because they love us versus seeing us as competition. Yep. So when I first got started in this, I started wholesaling and realized that really just wasn't for me, it was like I had one offer and it usually hurt people or piss them off. Right. I'm like, oh man, I'm better than this. Like I can, I need to have more than one arrow in that quiver. That was the interesting part where when I decided to get my Virginia license, I already had three. I had. Three state licenses, but not the Virginia. So I interviewed over a dozen brokers and the first dozen were just terrified of anything that wasn't just a retail conventional deal. I'm like, so you can, don't other people buying real estate, even when they go into debt at like a hundred LTV, you can done that. But you don't want your agents actively participating as a real estate professional. And they're just like, uh, you know, there was that it wasn't in the recruiters handbook and I'm like, this is certainly not the place for me. And I know that that for people listening, if, you know, moving brokerage might just like, be like, oh my God, I could never do that. But you've got to look at what's your goal here. Are you, are you looking to create a job? And that's the thing, the thing that we talk about a lot is. I know we help new real estate professionals, trait, really good jobs. And then we try to have them turn those jobs into real businesses and turn those businesses into passive income, passive investment activities, and then turn it into the lifestyle that you want, whatever that is for you. And. If your allegiance to your broker for some of you guys that have just keep coming up against that and saying, well, I can't because this person, like your allegiance to that person could be costing you financial freedom, and it could be adding years to your career. And, they used to your week and hours to your days. Because when you get into some of these transactions where you're getting paid in multiple ways, or you're controlling real estate without any money out of your pocket, you have infinite returns and you're not, you're not always just when you're not on that cashflow rollercoaster like you are. If you're just waiting on a commission check 30 days from now, So I would encourage you to if this is, if this conversation is exciting to you and you would like to serve at a higher level and not have to say no to so many people and be able to monetize almost every phone call that you make or you get inbounded, I would encourage you to sit down with your broker and talk it through and say, listen, there's a way to do this ethically. There's a way to do this legally. There's a way to do this responsibly and sustainably. And I can do that here, or I can go find somewhere where I can, but I'm looking for an environment that will support me as a real estate professional that provides a broad spectrum of service. If the consumer has a need, I'll have a solution. And I'll tell you that will scare the shit out of 95% of brokers out there. And the ones listening are like this guy he's he would look, and I get it like, just like Chris said, I get it, man. You've got to protect your assets, but it's. In a service focused business, like service-based business. Like for me, I look at the consumer's need. So if no one is offering this that I feel compelled to offer this. Now the bright side of that is that's called no having no competition. Right. That's a blue ocean and I don't care what market you're in the United States. I don't care how big or how small. If you educate yourself and you do creative financing with ethics and with transparency, you won't have any competition. Even in the biggest, most competitive markets in the country. There are, there's only a small handful of real estate professionals who offer this type of service. So what is the most let's talk about the current environment, like of all those strategies. And we can link to this guy. I did a series last year called shift happens as COVID was coming on. And before drone pals started, he gets his money printing machine. No, we tried to get in front of this and say, here's what might be happening. And here's how you can prepare. And when, if sellers get stuck, if the market stagnates, even with this historic equity levels, here's how you can get them out. Now we pulled the labor and printed trillions and trillions of dollars and it kicked that can down the road. But as part of that series, I did one called it was shift, happens episode four, I believe. Yeah, and I just took eight of the most common creative financing strategies that are used. But in this current environment where you have people struggling, investors and listing agents struggling to find inventory, buyers struggling to find the right house. Tell us about what the environment is with your folks. Are you guys like falling all over yourselves, begging for business and competing with 30 and 40 offers on your buyers? Tell us I want to show them that contrast of what this is a whole like underground market where you have very few, very little inventory at any given time, but the buyers are they there, they know that they can't be so picky that they have to, you have to go look at 75 houses. And they're just grateful to have one, oftentimes, but anyways, talk about what you've seen over the last, let's say 12 months in this COVID market and has creative financing become a stronger strategy for you or has it become harder? Yeah. Okay. A couple of different answers and ways to do that. Chad one is since COVID to answer your question by and large, we're up two or three times with how many properties we're acquiring are some months tougher than others, just because the market is screaming hot. Math is defined by. I got to talk to maybe instead of 17 sellers. I know my metrics. I might talk closer to 30 to get that lead, right. Just because properties are selling. So what ponds are we fishing in? So to speak we're fishing in ponds, people that are needing our guidance because they were caught up in the COVID that we weren't affected by it, but they were affected by it. And as such, they're behind in their mortgage. There's about to be millions more, there's millions right now that are behind. And so just recently this week, there's been several students doing deals with people that need financial relief. So it's a great rocket because we will help them not lose their house. Right. And they need our guidance and be super profitable. So you're providing a service. You can pay directly related to what you can provide. Those are not deals that are hard to find. And are they taking those sub two or rap most commonly in this market? We're going to have mostly taped them sub to cause most of those that are aware, they're finding us or we're finding them are behind and there's not much almost low to no equity so if you would pull lists, you pull lists purchased the last three years, less than 10% equity. That's a great list that we work, but we also have people finding us. Now that's people that say, I need help financially. I need a guide. The other segment that I love and this market is free and clear property, no mortgage. And they're out of state. Because in my area of people leaving their other home to come here because we're near the water. So if you're in these other areas where people are going, Hey, I get two offices, I'm leaving that one for now. They don't need the cash today. They're, debt-free what they want is the best price. And they're smart enough to know that someday the market's going to come down, they'll lock in a nice on a financing deal with you and you don't care, frankly, their market goes down because you making monthly principal payments and you're going to get 10 or 15 year terms. That's a killer deal. These deals, if you did four years in terms of six figure deals, but we do them six figures every time on a $200,000 house, even. So I know that's going to get your brain going a little bit, but. it'll get there's. These two deals are prevalent everywhere, and there's other lists Chad but those are just two that we're talking about right now. Yeah. So what we're talking about guys is free houses, right? Like there's no better house than a free house and if you're investor. And we talk about this in probate. You can actually JV with the estate. Roll the asset into a land trust or an LLC and partner split, but then that's coming back to you as earned income. You're paying a higher tax rate on that. You've got the risk you're kind of in partnership with that owner. This is different. This is where you say, listen, like what relief do you need? Okay. Whether that's financial relief or if it's time, like we just need to be out of here, like tomorrow, you know, oftentimes, you figure out what their needs are. You put the deal together, like on a sub to, for anyone who's not familiar with the conversation, like it's subject to the existing lien staying in place. So you're basically assuming their mortgage, but it's not allowed to be assumed. I think it was at 1991 was when they started putting the fine print and on the do on sale clause. And the word assume also means that you and I are going to sign Presley, which we don't do. We just make the payments on their behalf. Right. And personally, what I do is I put a third-party servicing company in place. So there's an email on a snail mail receipt that goes to me and to the seller. So they know that it was paid and just set up on auto. So you literally just get a free house. And as you were saying typically if they're in a bind and they're there. Maximizing the prize and locking in today's equity level is the most important you can oftentimes get these, just offer them full retail or slightly above with 0% interest on a 30 year amortization. And you can balloon it at five or balloon of the 10 or some people even go full term, you convert their real estate to an annuity, and it just becomes money over time. And they pay a capital gains rate on that sometimes. But. It's so taking these home subject to, I think a lot of people think is illegal. A lot of people are afraid of it. Their broker tells them it's illegal. It's certainly not. And if you have a good home in good condition, you take that subject to the existing mortgage. My recommendation is roll rolled into a land trust. So if anyone does look at title, it looks like estate planning. And as long as that loan is current, the bank will be foolish to call the note. If they do call the note. Yes. What. Yes, go refi it. You've got a tenant in place. You've got a debt coverage ratio of probably fricking 2%, right? So you can go to a commercial bank and into the community bank, into the commercial division and say, Hey, I need to do a cash out refi on 85 LTV. And they will close within the next 30 days as fast as they can get an appraisal. So your contingency plan, even if it goes completely sideways, Your exit plan might have to change. You may have to go do a quick cash out refi, or you may have to go to another investor and get them to carry a first on it. But it's almost impossible to get pinched in these, if you, if the house isn't completely trashed or, there's other circumstances, like they build an interstate through the front yard or something drastically changes like that, or you didn't have insurance and you have a fire or other disaster, but these types of deals are in every market. And it's it's based regardless of the market conditions, people have events in their lives, divorces job transfers, job losses triplets, quadruplets, like people's situation engine. They end up with real estate that they. They don't have time to get rid of, or they don't have time. The time that it would take to get the number that they want. And, these are in probate and you guys hear me talk about it, like the thing that if you're, a probate specialist and this sounds interesting to you, the thing you need to be aware of is just the chain of title. And how that, how probate affects that. And so if you have, for example, a husband and a wife who had, or tenancy a joint tenancy with rights of survivorship, then in most states, that asset is just going to go ahead and transfer. So you don't have to wait around for the probate to close. You don't have to wait around for court approval. The court can like the state succession law will allow that deed to transfer. It goes from spouse. I had a spouse be spouse B can write a contract with you, whether that's a lease that you can do. And that scenario, a home that has 67% of these homes are free and clear. So in those cases, you can do a lease option. You can do owner financing. You can do, 0% owner financing. There's lots of stuff you can do with those homes. And a lot of folks in probate don't really look to creative financing because they think, well, you can't do that. The court won't let you. And it's understanding which of those. So a lot of folks in probate are terrified to call a surviving spouse and they're just like, oh, they lost their partner. And I get it. I understand I commend your empathy, but also those are oftentimes the people who need help more than anyone. So the very first house that I did in probate, that kind of was my aha moment. Like the house that changed everything for me was that situation. Husband, dad, wife didn't have a plan. She was going to stay there. She had a stroke, everything changed overnight. She had a hundred percent, she had full, a free and clear title to the house. But she had almost no liquidity and had to go into a rehab center, like a memory care. And like the creative financing was the most attractive solution because I was able to get them an $8,000 option fee, 1101st month's round 1100 last month's rent. And our full retail price. Like we, I pushed it to the top of the market value and we got a lot of money really fast. And then we got even more money over time. And Pam got a really good payout on the house. And I got a really nice payday myself. So there's like these can be done in the probate space. Especially if you have a surviving spouse situation. So if you're shying away from those, you just think those people, if you have a husband and wife who live in a 3000 square foot house that you know, they're, and they're living on two social security checks, spouse, a passes away, the income cuts in half the responsibility and the maintenance doubles and. Two or three months in, they realized, holy crap, I can't live here anymore. And other realtors are like, well, you're going to have to clean all this stuff out and you're going to have to fix this and you got to do this, and this is going to take, you know, I'll give you two or three months and then we can get it on the market and it ends up stressing them out. Now, if you can walk in and say, you know what. You guys, let's just, let me just take this over. I'll give you 30 days. My guys will help you move your stuff to wherever your, you need to go. And we'll get a tenant in here that can make these debt payments. And oftentimes it's a huge relief to them. And it's something that we should all at least be equipped to offer. So here's how many of the deals are your students finding probate deals on their own? Are they targeting them? They might stumble upon them, but it's a fraction of what they're doing. So that's one of the reasons that you and I are collaborating and trying to bring some different ways of bringing that to the community. I want to do that by the next major event we have in the fall to equip them, because it is a nice niche and obviously you're the master of that end of things. So we'll be doing more as you and I already discussed with that. Yeah, well, I know we're going to keep it short today, guys, what Chris and I will be doing more in the future. I know you have an event coming up as well. Tell us, tell our folks about that. The spring event or summer event. I have summer deals event. It's going to be this Saturday. It's one day of all deal structures, literally like we publicly outline the entire deal, how it came together, what the three pay days challenges that were, we don't give you all the flop we give you all nuances all the challenges we talked about, how we get it sold and how we funded everything. So we're going to be doing that from sandwich leases, to owner financing free and clear to sub tos in combinations of those. In addition to the three payday system we created, we show you how to get a fourth and fifth payday kind of the deal after the deal or the deals after the deals. So we're going to do all of that setting from eight 15, till four o'clock Eastern time. Cool. And where can they find that if anyone wants to join, they can go a summer of deal, a hundred bucks. And if you can't make the whole thing, you get the recording later. So we've never dealt with like that. So a hundred bucks coming out with us. Summer of deals.com. We'll show you how to create paydays for up to 75 grand or more for a hundred bucks. Okay. That's amazing. Holy smokes. I always say like one of the best investments I've ever made in my life are books right? You can get the lifetime of a man's experience for like seven or eight bucks. And I think it's something like 91% of books purchased or are not fully read, it's one of cheapest and best ROI investments you could ever make. But guys listen for a hundred bucks, everything he just talked about, even if it's just inspiration to go find the right mentor in your market, a hundred dollars to do you'll make, I mean, I would think that you should make no less than 10,000 bucks on your first creative financing deal. So I think that's an amazing value. I had no idea. I didn't know it was not affordable. One last thing I just thought of, I think a big hesitation I've seen from a lot of people is "Well, can you send me your contracts? I don't have a guy in my market. I don't know what attorney to use the attorneys tell me this stuff is illegal." So what if someone were, we're like lit up and full of ambition right now? And they said, you know what, I'll be doing this by next week in my market. What team members do they need to make sure there's enough oversight that they don't make mistakes? Our course does that Chad short answer is and I'm not saying that because it's our course, I'm saying that because unlike a lot of people, we, you and I talk about this. We give everything, like, we go, here's your resources, where to get them who to work with, how to get leads. Here's how you say what you say. Here's how to structure the deal. Here's how to work with the attorneys. And, oh, by the way, here's module 11, that has every checklist and every agreement that our attorneys have done for 10,000 hours, it's all in there. It doesn't matter where in North America you are. We have people, all of us in Canada doing the same thing and then where we're a phone call or a zoom meeting every week away. So our support to all of you. So if you're serious and committed, you can get out fairly quickly and that's in QLS right. Yeah. Yeah, yeah, yeah. So guys we'll link to Chris's QLS course. There's a half a dozen of you guys that have already taken the course and are out there doing these types of deals. But I want to have more and more of this conversation because I'm really passionate about each of you being able to do this. For me, it's not even as much about money as you can serve at a much higher level. And I don't care how much your competition is bitching about competition. If you can do these types of deals, you're never unemployed. Like you can just go out and find them. I was shocked how easy it was to find a lease option deal, or a sub to deal. There's always somebody. And Chris touched briefly on lists. I mean, you have high equity out of state owners. You have divorced probate low equity, no equity, underwater houses. And that's, those are the fun ones. Realtors oftentimes think, well, short sales are hellish. We're not going to do those. But you can take a house with negative equity in this inflation and this interest rate environment. It would be beautiful to find a house that was originated in the last couple of years that has somehow found itself in negative equity territory, just slightly or marginal equity territory. And pick that up in this rental environment, inflation will pay off your debt. Yeah, it will be the wind in your sails. And the rents are just this keeping inflating and just keep rising. So you can literally build a portfolio. You could build a balance sheet of millions of dollars over the next 10 years without a damn dollar out of your pocket. And these people would be grateful because they didn't know that their office would be consolidated and shipped to a hub in Atlanta when they just bought a house in Raleigh. And they're stuck because they can't afford, they don't have the cash to pay another set of closing costs and realtor commissions. You are a savior to them at that point. So there's lots of different lists that you can do this on. Anyways, I, if you guys are interested, Chris, has his summer event, coming up this weekend, we'll link to the QLS course here. If you're interested in taking that. And Chris, thanks so much for lending us your time. We hope to have you back. And maybe we'll do a live event with our folks next time. Or we'll put you in the hot seat I know for certain we'll be doing walk together, buddy! All right. Well, thank you so much for being our guest and you guys will see Chris again soon!