JF1428: How To Purchase Real Estate At 0% Interest with Matthew Recore
Low on funds or just want to save as much money as possible? Matt is here to help you! He’s a creative financing expert, who often will close deals with 0% financing. Getting creative with sellers is his specialty, hear what he does to get sellers to agree to carry back 0% financing. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Matthew Recore Real Estate Background:
- Purchases between 3-8 properties per month in Northern California
- Even in his rising, expensive, hyper-competitive market, he has been able to negotiate many transactions where the seller carried back financing at 0% Interest
- Has written a book describing how he does it entitled “How to Purchase Real Estate at 0% Interest”
- Say hi to him at matthewrecoreATgmail.com
- Based in Sacramento, CA
- Best Ever Book: Loving What Is
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
With us today, Matt Recore. How are you doing, Matt?
Matt Recore: I’m doing great. How are you, Joe?
Joe Fairless: I’m doing great, and nice to have you on the show. A little bit about Matt – he purchases between 3-8 properties per month in Northern California. Even in his rising, expensive, hyper-competitive market of Northern California, he’s been able to negotiate many transactions where the seller carried back financing at 0% interest. I definitely wanna hear more about this, which is why we’re having our conversation… He’s also written a book describing how he does it, entitled “How to Purchase Real Estate at 0% Interest”. Based in Sacramento, California. With that being said, Matt, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Matt Recore: Sure. My background was in the tech world. I worked at CISCO Systems starting back in 2000; I was the youngest engineer there, at the age of 21… And it just didn’t feel like it was for me for the long term, especially after the dot-com crash hit.
I wanted something else, something where I was more in control of my future, and all roads pointed to real estate… So I got into real estate investing part-time around that job, in 2002, and started buying properties. Then right around ’04 and ’05 (towards the end of ’04) I got really scared of the market in Northern California and just wanted out… So I sold all my rentals, I sold my personal residence, and I actually bought a lot in Texas, and I also decided to leave the tech world for a little while… So that’s how I got into the business.
Joe Fairless: What scared you about the market in 2004-2005?
Matt Recore: The crazy mindset that I saw just popping up everywhere around here, in the Sacramento area. A lot of cash-out refi’s, a lot of loans that were interest-only; they were mainstream. There was a lot of no-income, no qualifying loans being given out, and it just scared me. Also, I got a chance to go to a seminar by a guy named Bruce Norris, that laid out how California was gonna have some hard times ahead… So with his advice and my own gut feeling, I ran for the hills, per se. I ran for Dallas, Texas, but being a remote landlord actually wasn’t for me either, so I ended up selling most of those and went back into the tech world, and then got back in full-time into real estate investing as a full-time investor in 2013.
Joe Fairless: On a related note, in episode 982 I actually interviewed Bruce Norris, and it’s titled, “When to be an aggressive investor.” So in 2005 you sold your stuff in Sacramento, and you bought in Texas?
Matt Recore: Yes.
Joe Fairless: What did you buy specifically?
Matt Recore: I bought a lot of single-family homes.
Joe Fairless: How many?
Matt Recore: I bought 13, and most of those actually were new construction. I went to builders and I bought a lot of their standing inventory. They had a lot of standing inventory at the time and they were willing to discount it, so I would go to like a DR Horton, or even a smaller builder – back then it was Gehan homes… But mostly DR Horton, and negotiated corporate-wide to buy a bunch of houses… So most all of those 13 – I think probably 11 of those – were from one builder, DR Horton.
We bought their standing inventory homes that were sitting on the market for a year or so, all brand new, and got a nice discount on them, and then put tenants in them.
Joe Fairless: Where are they located?
Matt Recore: They were all over. Frisco, McKinney, Rowlett… I don’t know if you know some towns there – Anna… There was a community called Savannah up in North Dallas…
Joe Fairless: DFW Area.
Matt Recore: Yeah, all DFW, all North Dallas.
Joe Fairless: That’s a good area right now.
Matt Recore: Yeah, it was really good, but being a remote landlord isn’t all it’s cracked up to be; I learned first-hand how property managers can really take advantage of a remote landlord, so you’ve gotta be careful with them, even if you have three or four managing your stuff… And turnovers can really hit you hard if you have like four or five tenants move out at the same time, if you don’t have another income source.
Joe Fairless: What happened? What are a couple other things with you being a remote landlord you got the short end of the stick?
Matt Recore: Well, you have a hard time really looking at the price of things when a turnover happens, for example. When a tenant moves out and the manager on the ground says that it needs this amount of work, and they also make a 10% commission off of all the repairs… That was pretty much the standard back then with my managers. So you get a $7,000 bill and they get a $700 commission, so they’re looking to get that bill as high as possible. That really impacts cashflow, and you don’t have feet on the street or you don’t have the ability to walk a house and see “You know what, that doesn’t need to be done. This is a rental, we don’t need to fix that.” You don’t have that ability there to really hone in… So I ended up going down from I think four managers to two managers, and then just decided to cut back a little bit.
Joe Fairless: You had four different property managers for 13 homes?
Matt Recore: Yeah.
Joe Fairless: Wow!
Matt Recore: So I gave each one three. My plan was to say “I’ll give each one of you three or four, and see which one I like best.” I quickly found that two of them weren’t that responsive, I felt like they were over-charging me on things, and I quickly let those go, gave my other units to those other two managers who I liked better… I let them compete against each other, because property management – it’s a really low margin business is what I’ve come to find, and it’s tough; it’s a tough business to be in. There are some people who work it really well and some people who just try to get the most from every owner.
You really want those that are high integrity, who are on your side, and that’s why I employed the four managers and the cut them back down to two.
Joe Fairless: Do you still have those 13 homes?
Matt Recore: No, I sold them at different times, just because I didn’t like being a remote landlord. Now I just have a few of those; I’m thinking about paying them off actually, and just keeping them for the long haul.
Joe Fairless: How many do you have?
Matt Recore: I have three.
Joe Fairless: So you sold ten of them.
Matt Recore: Yeah. I’ve just focused in on my local market, and focused in on building my rental portfolio locally where I’m at, and getting great seller financing terms at 0% interest, 2% interest, 3%, 4%, fully amortizing, and there’s no bank limit on those. There’s no limits as to how many you can have when a seller and you come to terms, on the terms of the deal… There’s no limit. You can have 1,000 single-family homes, all carried back with seller financing.
Joe Fairless: And we are going to spend the bulk of our time talking about that, because I’m fascinated by it. I just have another follow-up question on the 13 homes… So you sold 10; what about those three made you wanna keep them up to this point in time?
Matt Recore: It was location, and it was how much repairs the properties are gonna have over time. I really wanted like a 3/2 that was around 1,500 square feet, so that’s what I kept… And I kept them in great locations, where there’s a lot of growth coming… So Frisco, there was one in Rowlett, and actually one in Forney. There was a lot of growth coming, and I got it at a really good price.
Joe Fairless: Seller financing terms – you’re getting 0% interest from sellers… How do you structure that?
Matt Recore: It’s really structured with a blank sheet of paper honestly, and it’s structured with the offer being given to the seller. A lot of sellers get cash offers from buyers, and they get other types of offers from buyers, but I like to give them multiple offers. I like to give every seller a cash offer, and then maybe a seller financing offer with interest-only, a seller financing offer with a little bit of interest, maybe 3%-4% interest, fully-amortized, and then a seller financing offer that’s close to retail, at 0%.
I first heard about the idea back in 2004-2005 from another investor, and I didn’t implement it until 2014; I think that was the first time I started to send out or introduce the idea of principal-only payments to sellers… And I was very surprised when I got my first yes. Then I got my second yes, and then a third yes, and I think I’ve had now six people say yes to 0%.
Joe Fairless: So it was three or four? Cash, one. Seller financing with interest-only, two. Seller financing that’s close to retail price, but 0% interest…
Matt Recore: It depends on the deal. If the seller has a paid off property, then they’ll get four offers. If the seller has a loan in place – let’s say it’s a small balance loan – then they’ll get an offer where we pay off that loan, and then the balance is carried back. There’s different terms on that. So they’ll get a cash offer and they’ll get an offer where we pay off the loan and we carry back a balance at different rates, so they get maybe two or three different offers on that carry-back balance.
Then we may even introduce a fourth option, which is us taking over their loan and also them carrying back a small portion of the balance, too. In that case, some people might get five offers.
So I like that idea so much better than just providing a cash offer, because when they get four or five offers from me, they’re less apt to shop and they’re more apt to say “Okay, well let’s talk about offer number two” or “Let’s talk about offer number three. This is interesting to me. How does this work, and how do I know you’re gonna pay me? What’s my security?” So the conversation starts to go deeper, and greater rapport is built because I offer to share my financials, I offer to share my track record to give them references to other sellers, and trust is built in a much greater way as time goes on there.
Joe Fairless: Will you walk us through one of the properties that you got 0% interest and just tell us the numbers on it, and maybe the back-story, too?
Matt Recore: Sure. I’ll share my second deal. My second deal was in a really expensive neighborhood here in the Sacramento area. The seller called and he wanted retail; he was a former loan officer, retired, and at the time had I think around six rentals that were all paid off. He wanted to start to sell them piece by piece, but he wanted retail for it… And retail on that house was a little over 500k, maybe 520k-525k at the time. My cash offer was somewhere in the high threes, honestly… He said no, he said “I want retail”, and I said “Okay, I can do (at the time I think I said I can do) 480k” and then he said “No. Well, could you do 490k?” So I then sent him an offer that was 490k, 10k down, and 480k was gonna be carried back over 240 months, which is over 20 years, at 2k/month. So 2k/month over 240 months equals 480k.
He said, “Yes, sure.” And he said yes because of a few reasons. He was currently getting 2k/month in rent, and for him, he didn’t wanna be a landlord anymore, he wanted to slowly get out of the business, but he wanted to keep his cashflow… So his net after taxes was around $1,600/month on that property.
My offer was gonna get him $400 more in his pocket, and my plan was to raise the rent to $2,400. I saw that the market could support up to $2,300-$2,400 on that, and then with my taxes and insurance at $400 I was gonna be at a breakeven with him… But $2,000/month was gonna go towards principal every month, so I saw it as a great way to get a property close to retail, but with a lot of principal paydown coming, in an A neighborhood. This house was in a really, really nice neighborhood.
He said yes, and we closed, and I raised the rent up to $2,400, the tenant stayed in place, and that house is still one that I own. I’ve owned it now for two years, and my principal is now down to about $420 or so, somewhere in there, and the house has gone up to maybe 560k-570k. So now it’s essentially a wholesale deal. If I were to see that house right now, I’d probably offer all cash 420k or so, and the house is worth 570k or so… So now it’s become a wholesale deal, but it’s in the long-term keeper pile of my rentals, because there’s no way I could sell that with those terms.
Joe Fairless: Yeah, it’s pretty cool. So you’re basically breaking even and you put $10,000 down, but the break-even – you’re building equity in the property, because you’re paying down the principal over time… And should rent increase, then maybe you’ll make $100 or so a month, who knows… But it’s really about the long-term play.
Matt Recore: Yes, absolutely. And it’s like a for savings account. That $2,000/month is a for savings account that I don’t see, it doesn’t show up in my bank, but it shows up in your net worth statement. As well, it’s not taxed. So it’s savings that you get to benefit on, but you don’t have to pay taxes on it. So it’s not like earning regular, ordinary income. It’s net worth that grows, but you’re also not being taxed on it.
Actually, I could have something else that cash-flows $300-$400/month, that maybe that house might be a negative some months, and that cash-flowing property could offset that, so they could balance each other out.
Joe Fairless: You’ve done six of these… I’m gonna choose a random number, one through six, but not two, and will you tell us about that one?
Matt Recore: Yeah…
Joe Fairless: Four. I’m gonna go with four. The random number is four.
Matt Recore: Number four… Let me go into the book. Oh, number four was an interesting one. This turned out to be a 0% interest deal in a vacation home market here in South Lake Tahoe, which is about an hour and a half from where I live. This one was one where I took over the seller’s mortgage, because the house was going to foreclosure. I actually found out about this as we were in Escrow, that the seller had a loan mod done back about five years ago, and they had — I took over the balance of like 260k… And they did a loan mod to where they moved around 100k to the back of the mortgage, and 160k of the mortgage was being paid over time. The other 100k was essentially a 0% interest, off to the side, off to the shelf, and wasn’t being touched… So it was essentially a 20-year loan on that 100k that I didn’t have to do anything with; it was off to the side, and I was just paying down the 160k.
What’s great about that is in a vacation home market like that, my payment was only $800/month, and the market rent on that was around $1,400-$1,500. So that’s a different type of 0% deal that I came across, because I inherited a loan mod…
Joe Fairless: Will you summarize that real quick one more time, just to make sure I’m following?
Matt Recore: Yeah, so the bank negotiated to split the balance up, and they took 160k and they said to the previous owner, “Okay, 160k of that we’re gonna fully amortize at 2% interest, and then we’re gonna take 100k of the balance and we’re gonna put that on the shelf and you’re gonna have no payments and no interest on that. It’ll be due when the property sells in 20 years, or when this loan is paid off, but we’re not gonna have you pay anything on it.” So really, the balance, all that was being paid down was the 160k at 2% interest. That became a great monthly deal, especially in that market, South Lake Tahoe – it’s tough to find inventory there, it’s tough to build there, it’s tough to get deals and it’s tough to cash-flow.
I actually partnered on that with someone in my office who works for me, and he goes to Tahoe all the time, and we kind of used that as part of the compensation package, and we partnered on that deal, because he was gonna be using it a ton… So yeah, we kept that in the office, and he got a huge win out of it.
Joe Fairless: Based on your experience as a real estate investor, what is your best real estate investing advice ever?
Matt Recore: Best advice ever would be to get started. Just do it, and learn — every day you go to school in this business; every day I learn something new, every day I’m growing and expanding, and applying what I learned six months ago, today, or what I learned today to a situation that’s coming up… So the best advice is to get in the game and just continue to learn and grow.
Your knowledge is cumulative, so you’re gonna make better decisions as times goes on, and it’s always best to mitigate your risk and plan for the worst-case scenario; also know the best-case scenario, and be very careful about leverage and about liquidity crises that can happen. Don’t put yourself or allow yourself to be in a position to where you’re gonna experience a liquidity crisis.
Joe, there’s probably about six different pieces of advice there…
Joe Fairless: There were, and that’s helpful, and even as much or perhaps more for some listeners your approach to how you’re doing these deals… Because you’re living and breathing exactly what you mentioned; it’s a cumulative process (the learning), and you started one way, and now you’ve evolved it based on your education to another way, and it’s working even in a market that is incredibly competitive.
In your second deal example you were working with a former loan officer. They know their stuff, or they should know their stuff, and the creative aspect of this wasn’t how you got the deal, it was the actual loan… So if the loan officer is approving it because it makes sense for him, then it’s something that could work for other people, too.
We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Matt Recore: Sure, let’s go.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Joe Fairless: Okay, best — you know, I’m changing this question up… How about what’s the best book that you’ve read most recently?
Matt Recore: Oh man, best book recently… A book that I’ve gotten a ton out of recently has been “Loving What Is”, by Byron Katie. That’s impacted me the most, and the principles behind [unintelligible [00:20:19].24] have impacted me the most.
Joe Fairless: Best ever deal you’ve done that we have not talked about?
Matt Recore: I would say the [unintelligible [00:20:30].00] two come to mind right away… First would be the [unintelligible [00:20:32].21] deals from that one seller who came to me and said “This worked out for me so great. I wanna sell you a couple more properties, but the other ones are gonna be at 3% interest. Is that okay?” I said “Absolutely, that’s fine.” So there’s a couple more deals that came from that seller… As well as another 0% interest deal in an area that is very supply-constrained. They wanted 50k down though, and I went ahead and did that deal; rents have almost gone up about 70% since I did that deal, and I’m quickly paying down that mortgage.
And there’s another 0% interest deal I’m just thinking about as I talk to you that we’ve paid down a ton since we’ve got the deal, and rents have more than doubled since we got it, as well.
Joe Fairless: What’s a mistake you’ve made on a transaction?
Matt Recore: Oh man, I’ve made a mistake — a recent one would be one where I got sued. I got sued about a year and a half ago because I bought a house with the occupant in place, and I bought it from a trust, and it just so happens that one of the beneficiaries of the trust was also living in there… I didn’t really think much about it, I had a lease. Well, one of the beneficiaries of the trust was also married to a woman who didn’t like the fact that she was going through a divorce with the trustee of the trust, and she decided that she wasn’t gonna leave no matter what, and she then hired an attorney, and…
Joe Fairless: It sounds like a Jerry Springer episode.
Matt Recore: Oh my gosh, it got horrible… And there was actually a win that came from all of that – the attorney was amazing, and he kicked my butt and I had to pay a big settlement to get her out…
Joe Fairless: How much?
Matt Recore: It was 20k. So she left, but he pretty much kept all that money, because her attorney’s fees were so high… And I’ve adopted that attorney. I’ve hired that attorney now to be my attorney. He’s been my attorney on probably seven or eight different unlawful detainer actions, and he’s amazing. So there was a win that came from that… He actually put me on the stand for an hour and a half during a regular unlawful detainer hearing, and I was sweating, and it was horrible, and I was in the right in so many ways, but he found a couple little loopholes that my attorney messed up on, and he was able to win, and then secure the settlement for me to settle.
Anyways, I adopted him as my attorney, I hired him, and he’s become a friend of mine, and that was another huge lesson – you’ve gotta know about the occupancy situation when you’re purchasing a property; get the story, and get the lease, and really understand what the dynamics are, and where you’re exposed and where you’re not when you’re buying with occupants in place.
Joe Fairless: Best ever way you like to give back?
Matt Recore: Honestly, at home, as much as I can – time, presence, with my twins… We’ve just had twins a year ago with my wife…
Joe Fairless: Congrats!
Matt Recore: Thank you. I would say at home, and then with my team, but primarily at home and with my parents and family.
Joe Fairless: How can the Best Ever listeners get in touch with you?
Matt Recore: They can get in touch initially through the book. They can go to Amazon and learn more about the strategies of buying at 0% interest by typing in “How to purchase real estate at 0% interest”, or my name, Matthew Recore. The books is I think around $17 right now.
Then there’s ways to contact me in the book, if they’d like some extra coaching, or help, or support in a deal, or a question that they may have as to how they can implement the 0% interest strategy into their market… I’d be more than willing to help and coach them.
Joe Fairless: Well, Matt, thank you so much for being on the show and talking about your transactions with 0% interest, how you offer 3-5 offers on a property, and then some case studies… And then you were talking about the attorney that you adopted and the lesson you learned; the lesson I took away from that is you saw the bigger picture, because most people (I’m gonna say most people) would be offended and pissed off at that guy for putting you on the stand for as long, and would hold a personal grudge forever against him… But you were seeing the bigger picture and you saw that you could make a foe an ally in the long run, and help you out in the long run. That takes a lot of vision and swallowing of pride a bit in order to do that. That I think is a microcosm of how you’ve approached your business as you’ve evolved it.
Thank you so much for being on the show. I hope you have a best ever day, and we’ll talk to you soon.
Matt Recore: Thank you, Joe. I appreciate it. Great to talk with you. Thanks for the compliment.