JF1652: How To Complete 100 Creative Financing Deals In 3 Years with Zach Beach

Sometimes getting creative is necessary to make a deal work. Zach and the company he works with, only do creative deals, or as he says they buy on terms. He has three primary creative financing strategies; lease purchase, owner financing, and subject-to. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Zach Beach Real Estate Background:

  • Successful real estate investor
  • Has completed over 100 deals in under 3 years, buying and selling properties without using any of his own cash, credit, or investors’ money
  • Based in Newport, RI
  • Say hi to him at www.freesrecbook.com
  • Best Ever Book: Surrender Experiment

 


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TRANSCRIPTION

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, Zach Beach. How are you doing, Zach?

Zach Beach: I am excellent, Joe. Thanks for having me on, I look forward to bringing your audience some value and keeping everything moving forward. Hopefully I’ve got some really great advice for you guys.

Joe Fairless: Well, you’ve set the bar so high, I appreciate that. I normally like to set the bar really low and then just kind of go right underneath the bar, or maybe right over it, but I love it. Alright, the bar’s high, you’re gonna bring a lot of value, looking forward to this.

A little bit about Zach – he completed over 100 deals in under three years, buying and selling properties without using his own cash, credit, or investors’ money. Based in Newport, Rhode Island. With that being said, Zach, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Zach Beach: Yeah, I’d love to. Just to bring some big picture to it as well, when I first joined real estate I had no experience at all. I actually joined my family’s business, where we actually buy and sell properties locally in Southern New England, but we also coach and teach people exactly how to do exactly what we do around the country as well, so we immerse ourselves in other people’s business and help them grow and scale that.

But yeah, when I started, when I was 25, I knew absolutely nothing. I didn’t come from a family that had real estate, although I did end up marrying into a family that was heavily involved in real estate, and that’s kind of how I got involved. Then looking three years ahead, I’ve done – of course, with all the credit to my team and the associates that I work with – well over 100 deals now, in less than three years. I’ll be full-time real estate in April of this year.

Joe Fairless: Wow. Well, congratulations on that. That’s a big milestone for sure, for being full-time. When you say you’ve completed over 100 deals in under three years, buying and selling properties without using your own cash, credit or investor money, my guess is that you’re wholesaling deals. Is that correct?

Zach Beach: That is not correct, no. What I meant by it – I’ll be full-time three years this upcoming April.

Joe Fairless: Oh, cool. Good. Well, three years congratulations then.

Zach Beach: Thanks, Joe. I appreciate it. So no, I’m not a wholesaler, although in my family business we buy and sell property on terms… So either lease-purchase, owner financing, or subject to deals. Then we do have other creative ways of getting deals done, but those are usually our three main focuses right there.

Joe Fairless: Alright, say that a little bit slower for me, so I can write down… Lease-purchase, owner finance, or subject to?

Zach Beach: Yeah, correct.

Joe Fairless: Cool. Let’s talk about each of them.

Zach Beach: Yeah, of course. I can always slow down for you. [laughter] I thought you were from New England…

Joe Fairless: Well, I’m from Texas, so there’s why I can’t keep up; nah, I’m kidding. But I usually type pretty fast, so — I heard them correctly: lease-purchase, owner finance, subject to… Let’s talk about an example deal that you’ve done recently for each of these, so we can be educated on the pros and cons for each. Lease-purchase, let’s start with that.

Zach Beach: Lease-purchase just means that you’re agreeing upon a price with a seller today. Typically, we’ll then take over any and all responsibilities of that property for a period of time, and then on or before a specific date I will cash them out. The really simple way to keep this is we’re gonna have like a net lease, where we put little to no money down, a net lease, and then a definitive date of purchase.

Joe Fairless: Cool. And do you have an example of a deal that this happened on recently?

Zach Beach: Sure, I’d be more than happy to give you plenty examples. We can just keep it super-simple though, so let’s say if you agreed upon a price with a seller for, say, $200,000, and they had a $50,000 mortgage on the property, you would be locking in $150,000 worth of equity right from the beginning, and then I would take over whatever their monthly payments are.

Let’s say PITI (principal, interest, taxes and insurance) is equal to $1,000 – we’ll take over that, and then on or before a specific date I will then pay off the remaining balance on the mortgage, and give them their equity that we locked in at the beginning of $150,000.

Joe Fairless: Let’s just do an example for each of the three, and then we’ll talk about pros and cons for each, and when you use them. Owner finance – pretty straightforward, but please, just elaborate on what it is and an example.

Zach Beach: Sure, so we actually do things slightly different than maybe your audience is used to hearing. When we do owner-financing deals, again, we’re coming in with little to no money down. We are typically tying up the property at full market value; we’ll then close on it. The seller will hold the mortgage. These typically range anywhere from, say, 3 to 10 years on average is our length of term; we then construct principal-only payments, which we’ll then be paying principal-only payments with a balloon date on or before whatever end date we agree upon.

Joe Fairless: And maybe an example of a deal you’ve done recently under owner finance?

Zach Beach: Sure. Recently we did a deal up here on the South Coast of Massachusetts. We closed on a house at $940,000, we then constructed a deal where we were gonna be paying the owner $2,500/month that was coming directly off the note, for 48 months, and then on or before that end date we’re then going to — whatever his bank credited, we’ll then pay that balloon to that property.

I think the important part to this too is – and we can get to it on how we actually make money and sell these; I’m only talking about how we’re buying them right now, which may kind of full-circle this around to why this makes sense and why we do this… But yeah, so that’s $2,500/month for 48 months; then we would just pay off the remaining balloon at that time.

Joe Fairless: And then subject to?

Zach Beach: A subject to deal – typically we’ll buy it subject to the existing loan. I know you can combine owner financing and subject to deals, but just to keep it super-simple on how we do it… Typically, we’re buying a property subject to if they’re selling basically for what they owe. Say the market is saying it’s worth $250,000, they owe $250,000 – we’ll then just close on it. We’ll typically pay just the closing costs, and then we will take title, but the mortgage will stay in the seller’s name.

What then we’ll do is we will have a long-term deal there where we’re waiting for the principal, the paydown, and the market to increase, that way eventually there’s a spread and we can sell the property.

Joe Fairless: So the market has to appreciate in value in order for the subject-to deal to work?

Zach Beach: The way we sell properties is we sell them to our rent-to-own program. We actually are able to sell the property at a premium, because somebody’s gonna need time… But ideally, on a subject to deal, it’s gonna be a long-term deal, so that way we can have the principal on the mortgage paid down, and then have the market appreciate and there’ll be a nice spread. But even if the market stays relatively flat, because we sell it through our rent-to-own program, we are gonna be able to create a spread right off the bat.

Joe Fairless: Now let’s take a giant step back and look at the three different approaches – lease-purchase, owner finance and subject to. Assuming that we know how to do each of the three, which you’ve just explained what they are, and some examples – how do you know when to implement each one?

Zach Beach: Yeah, great question. Just a quick rule of thumb would be if there’s a mortgage on a property and the seller has equity in it, it’s simply gonna be a lease-purchase deal, because we’re gonna take over the mortgage. If there’s a free and clear property, that’s when I would be implementing the owner financing, even though we may be able to do the lease-purchase as well… But if it’s free and clear, I’m always aiming for an owner financing deal.

Then the subject to deal – it would make the most sense if you’re buying the property at roughly about what the seller owes, and there’s little to no equity in it.

Joe Fairless: And how do you make money with the subject to? I know the component of what needs to happen, because we just talked about that, but where does the big profit come into play for you on a subject to?

Zach Beach: Again, we’ll sell it on a long-term rent to own. The profit – we actually make three paydays, and this is how we get paid on each one of these deals. So we’re gonna get paid from the non-refundable deposit that comes in from our tenant buyer. A tenant buyer tends to be someone who is looking to become a homeowner, they just need some time in order to become mortgage-ready… So someone who’s self-employed, or had a legitimate hiccup in their credit. They’ll come in with a non-refundable deposit, which is going to be above and beyond what we bought the property for, so we’re able to sell it at a premium.

Payday number two is gonna be the difference between what we have to pay – either the mortgage or the seller – and what we can get for a monthly rent payment. Then payday number three is when the property actually gets cashed out, when the tenant buyer becomes the homeowner. That will happen from the premium that we put on the house – there’s usually an additional premium left over from the original non-refundable deposit – and the principal paydown on the property. Because if you kind of caught what I said before – we’re locking in the seller’s equity today; obviously, on the mortgage, it is gonna pay down throughout the term, which we’re gonna get that benefit. So on the back-end, when it sells, we get that premium as well.

Joe Fairless: The rent payment that your rent-to-own person is paying – does that go towards their principal balance whenever they go to exercise their option to purchase?

Zach Beach: No, it does not. The only thing that counts towards the actual purchase price is going to be their non-refundable deposit, which we usually collect anywhere from 3% to 10% down, but not every buyer is gonna have, say, 10% down… So what we’ll do is throughout their lease term – we will schedule additional payments, which will count towards the purchase price. Because ideally, I wanna get the buyer up to about 10% for them to be able to get into the best programs, not just any program to get a mortgage. And then also, I would love it if they didn’t have to come to the table with additional money.

Joe Fairless: And how long are the loans usually?

Zach Beach: Our typical timeframe for a lease-purchase is gonna be anywhere from, say, 12 to 30 months.

Joe Fairless: What percent of those don’t exercise their option to purchase and just walk away?

Zach Beach: Yeah, so obviously there’s a couple things we can do to bring down that percentage, but I would say about 10%.

Joe Fairless: That’s pretty low. That’s lower than I thought it would be.

Zach Beach: We have a very predictable process to put these buyers through, and we constantly are innovating our process… Because I know there’s a bunch of people out there that are doing rent-to-owns and they don’t really care if they buyer ever cashes out. That’s the opposite of how we approach this. We’re a family business, and we typically sell to families, so we’re always looking to constantly innovate and increase that number of people that are successful.

We bring them through a very strict vetting process. We will never place anybody in a property that we didn’t truly thing was gonna get to the finish line, and then we always make sure that they have legitimate steps in place that if they do A, B and C, they will become a homeowner.

Joe Fairless: When you have a property that you’re acquiring through one of these three methods, you obviously need someone who does not have good credit, but can qualify and improve their credit, and be a customer of yours… So how do you attract those individuals?

Zach Beach: We’re attracting those individuals by different marketing concepts that we do. It’s roughly about 80% of the market nationally that cannot walk into a  bank and get a loan, so you’re talking about a very significant piece of the market. It’s definitely an overlooked niche on which we focus on… So finding buyers typically isn’t the issue. Now, don’t get me wrong, out of that 80% I was talking about, maybe 20% of those are real, qualified people that we would wanna stick in the house… But as you can imagine, that market is just significantly bigger than someone that can actually walk into a bank and get a loan today. So finding buyers typically isn’t the problem.

Joe Fairless: Based on your experience as a real estate investor, what’s your best real estate investing advice ever?

Zach Beach: I would say don’t sign personally. We have created this entire business around the fact that my father-in-law Chris actually got hit in ’08, and now we just don’t want that to ever happen again, especially with an up and down economy, and a real estate market that can be volatile at times. So don’t ever sign personally, and don’t use your own credit if you don’t have to either. And  if you can avoid using other investors’ money, certainly do your best to do so, even though I know that there are definitely positions where that is 100% valuable. But if you can avoid doing any of those, then you’re taking away some major risk if the market does fall out again.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Zach Beach: I love it, let’s do it!

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:14:54].24] to [00:15:51].16]

Joe Fairless: Best ever book you’ve recently read?

Zach Beach: The Surrender Experiment.

Joe Fairless: Oh, what’s that about?

Zach Beach: It’s Michael Singer, who’s the CEO of WebMD. He talks a lot about meditation; I don’t know if that’s something that you’re into, but it’s all about surrendering to the Universe, and instead of placing your own desires and wants and trying to control everything, to almost surrender and allow things to happen around you and be more present.

Joe Fairless: Best ever deal you’ve done?

Zach Beach: The best ever deal I’ve done is a property that we have in Connecticut, where we did an owner financing deal; $1,000 principal-only payments on it, 48-month term… Had an additional one-bedroom unit over the garage that we rented as well, so not only do we have a great lease-purchase deal going on on the main house, but we’ve also got some additional cashflow coming in from another piece of the property, and that should equal us well over six figures. But the best thing about that was that we were able to help out a seller that had a legitimate need that other people couldn’t necessarily fulfill, and he had a wonderful family, so I’m just happy that everything’s working out.

Joe Fairless: What’s a mistake you’ve made on a transaction recently?

Zach Beach: I always like to go back to it… My biggest mistake is definitely on a transaction — maybe not recently, but my first deal, which was almost three years ago. I didn’t do enough vetting process, so as soon as we actually took over the property we actually had to de-let it and it cost over $30,000.

Joe Fairless: You had to what?

Zach Beach: De-let the property.

Joe Fairless: De-let it, okay.

Zach Beach: Yeah. I didn’t do enough due diligence, so that was 100% my fault, but being young and early in the game, I was trying to prove myself, and sometimes you make mistakes when you’re trying to go too fast.

Joe Fairless: Best ever way you like to give back?

Zach Beach: I donate a part of each one of my checks to the Purple Project, which was created by Chris Herren, who used to be an ex Boston Celtics. It’s all about helping people that are coming off of drugs.

Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on?

Zach Beach: I’d love to give you our free Amazon best-selling book, and I mean free. I’m not asking you for shipping or handling. It’s actually by my father-in-law, Chris. It’s at freesrecbook.com. Enjoy it. It’s a best-selling Amazon book, and there’s tons and tons of great advice in there.

Joe Fairless: Well, I enjoyed our conversation. Because I’m not doing subject to and lease-purchases, I always need a refresher, and you certainly gave me a refresher, and perhaps some Best Ever listeners who are focused on the single-family home stuff, three really valuable tools to use whenever you’re looking at opportunities.

I love that you talked about when each circumstance comes into play. For lease-purchase, if there’s a mortgage on the property and the seller has equity, then usually a lease-purchase. If it’s free and clear, then usually owner financing, and if you’re buying it for what the seller owes on it, then usually subject to. I’m sure we could do an episode on each of the three in detail, with ins and outs of them, but you gave us a great overview and I’m grateful for that.

I appreciate your expertise, I appreciate you sharing your advice with us. I hope you have a best ever day, and we’ll talk to you soon.

Zach Beach: Thanks, Joe.

JF1502: Avoid Banks And Buy On Terms #SituationSaturday with Chris Prefontaine

Chris is back on the show to share a situation with us that helped him grow, and happens to be a situation many real estate investors encounter themselves. Sometimes we just can’t find all the money we need to complete a deal. Wouldn’t it be nice if you had a way to buy with owner financing more often? Chris has some tips and proven techniques he uses that you can use to make that happen. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Chris Prefontaine Real Estate Background:


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Do you need debt, equity, or a loan guarantor for your deals?

Eastern Union Funding and Arbor Realty Trust are the companies to talk to, specifically Marc Belsky.

I have used him for both agency debt, help with the equity raise, and my consulting clients have successfully closed deals with Marc’s help. See how Marc can help you by calling him at 212-897-9875 or emailing him mbelsky@easterneq.com


TRANSCRIPTION

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.

First off, I hope you’re having a best ever weekend. Because today is Saturday, it’s Situation Saturday, where we’re going to talk about a specific situation, and if you come across it, then you’ll know how to handle it. We’re gonna be talking about the situation of, well, you don’t wanna use banks, and you want to buy on terms, so we brought back Chris Prefontaine to discuss that with us. How are you doing, Chris?

Chris Prefontaine: I’m doing awesome. Good to be back, Joe, as always.

Joe Fairless: Yeah, nice to have you back. If you recognize Chris, then that’s because you’re a loyal best ever listener. Episode 1128, “How to purchase 4-10 properties per month with lease options.” Chris is the founder of Smart Real Estate Coach, and also the host of Smart Real Estate Coach Podcast. Based in Newport, Rhode Island. With that being said, Chris, talk to us about a deal that you’ve recently done, on terms, and then we’ll go from there.

Chris Prefontaine: I’ve got one on the top of my brain here that we did actually with a student, a ten-acre parcel land. The guy was actually debt-free, and the reason I wanna use this one as an example, Joe – a lot of people hear “terms”, and they say “Well, why the heck would a seller do that?” or “They must be desperate”, or you get all those kinds of comments… This guy was actually not desperate whatsoever, other than the fact that – he had no debt – he wanted to leave the area and get to (it was during the fall season) a holiday several hours away on a plane to be with his kids.

So he was trying to sell his property – gorgeous property – at 599k, dropped it to around 499k, and then dropped it even lower. I think we ended up buying somewhere around 429k. We structured zero money down, we bought the property by making payments $1,540/month, principal only. We actually got a two-year term, which is against what we usually do; we usually go longer. But we got a two-year term, and then we turned around and sold that property… And I’m giving you rough numbers, but we turned around and sold that property for 499k, on the same two-year terms, rent to own, keeping in mind we got the massive principal paydown every single month, a nice little payday upfront when we [unintelligible [00:05:09].29] and of course, a nice monthly spread. I think on paying the loan at $1,540, our intake was around $2,300. A great little deal. Without doing the math, I think there’s about 100k-120k on that deal.

Joe Fairless: So you bought it at 429k, you sold it for 499k, so there’s 70k right there… And then the 30k that you were referring to, rough math, that makes it 100k – is that on the spread of what you pay the seller and what the lease to own person pays you, plus the down payment they paid initially to get in the deal?

Chris Prefontaine: Well, you’ve got two that we didn’t quantify. Yeah, you’ve got the spread to sell, just the markup, and then in principle paydown over 24 months you’ve got just under 40k, and then on the spread itself, which is the difference between the 23k and the $2,300 and the $1,540 you’ve got about $760. Now, out of that comes a little bit of insurance… So call it $600 even, over two years. $600/month times two years. That’s a decent one, too; I think that’s 14k-15k. So you’ve got 40k, 15k, and then the markup on the house.

Joe Fairless: When you look at deals, what are some red flags – or perhaps green flags I should say, where it’s like “Oh man, this is perfect for a lease option.”

Chris Prefontaine: We look at motivation, so that’s a good question… Any deal is good with the right motivation. And again, not necessarily in debt or anything, just the right motivation. “I’ve gotta leave the state”, “I’ve got a job”, “I gotta leave because I wanna be with family.” Anything that says “I’ve gotta leave at a certain date.” And then, of course, there are the stressful ones, too.

I just look at motivation quite frankly because any deal can be structured on a lease-purchase or owner financing. Every deal can, except for the person that says “I need all my money now. I’ve gotta go buy a house for my family.” That’s the only person we can’t help. Every other deal, we can help.

Joe Fairless: When you’re doing a deal and you are structuring the lease option, what are some initial objections that they might have?

Chris Prefontaine: Need their cash now. Every for sale by owner or expired listing we speak with of course says “No, I’d rather have my cash down”, to which we say “Yeah, I get it. 99% of the people we talk to want their cash now”, but the reality is that a lot of the buyers aren’t qualifying right now, and we go through the whole process with them. So the biggest objection is “I’d rather have my cash now.”

Joe Fairless: So what do you say to that?

Chris Prefontaine: I plant a little – for a lack of a better word – [unintelligible [00:07:28].16]. We tell them, “Depending on the market you’re in, the statistics say nationally that somewhere between 15% to 80% of the buyers today, if they walked in as is, cannot qualify for the loan, whether that’s they have great credit and they need seasoning, or whether that’s they don’t have enough down, or they have crappy credit.” We explain that to them, and they’re like “Oh, man. Maybe I won’t sell it by the day I’ve gotta get out of here.” That’s one thing.

The second thing is they’re usually netting more cash out with us. They’re not paying a realtor, they’re not dealing with pullback on home inspections, because we do our own, unless unbeknownst to us something happens. We’re usually not doing an inspection. So it’s usually more net out and less hassle for them.

Once we get them through that – again, as long as they not NEED today the money – we can usually work them around sticking around and get more money with us.

Joe Fairless: And the challenge for you is to find someone to then do the lease option… Otherwise, if you don’t, then you’re stuck paying the monthly payments to the seller.

Chris Prefontaine: Typically, with very few exceptions, all our deals are written contingent upon us finding a buyer. We usually get 90 days to do that. Some don’t care and let us take our time, some want a little less, some are such good deals we do just go ahead and commit to it and pay them payment. If we’re getting a sweet deal, we don’t wanna milk it and lose the deal over getting greedy over one or two payments. So it just depends. But most, especially if you’re new, you wouldn’t take it on. You’d wait till you found your buyer.

Joe Fairless: Okay. How do you find the buyer?

Chris Prefontaine: Believe it or not, the buyer is the easy piece, because people are looking for terms, and a lot of these buyers gave up, they threw their arms up because they can’t get a house… So we put it on 20-21 different portals, but it starts with just simple things like the new Marketplace on Facebook, Craigslist, RentLinx… Just very simple sites like that, that we can put rent to own, we can do for sale, but we’re driving all of them to rent to own.

Joe Fairless: What’s that conversation sound like?

Chris Prefontaine: My son is the buyer specialist, but basically, when he brings the person through the system, that might start with a phone call, but 80% of those, despite what your ad says, 80% of them are renters. They’re just calling, regardless of what the ad says. So he’s putting them through some automated videos that explain rent to own. So he’s not talking [unintelligible [00:09:33].02] and just wasting all that time. We drive them to our website, they go through how does rent to own work, commonly asked questions… If they feel they’re qualified after that or if it’s a fit, they give him a call back, because it tells them right in the video “You are gonna have to have a down payment. This is about a buyer, not a renter. You are gonna take responsibility for the home, you are gonna do all the repairs. This is just like you own it; we’re just a bridge for you to get you to your mortgage point.”

Joe Fairless: Any local or state laws that are different that you have to be aware of, or does this just apply everywhere?

Chris Prefontaine: There are little quirks. Like, you can’t do sandwiches in Texas. You can buy all day long on owner financing in Subject to, and then turn around and do what you want, but you cannot be in the middle of a lease; you can’t be in a sandwich. You can’t lease option a house and rent to own it. That’s a no-no in Texas.

There’s a three-day right of rescission in North Carolina; that’s just like doing a regular refi, conventionally… Things like that. Nothing that can’t be worked around as long as you understand the nuances and the laws in the states. Most of them are pretty basic.

Joe Fairless: What’s another deal, a recent one that you’ve done?

Chris Prefontaine: I can actually talk about a sandwich, since we keep talking about it. I threw a owner financing at you… We did a nice little deal where an older gentleman owned the house outright, so I preferred at the time to do an owner financing. He didn’t wanna give up the deed, so I said “Fine, we’ll structure a lease purchase.” We put that under agreement. He couldn’t sell it (let me back up) for 189k. He could not sell it for that. And keep in mind, this gentleman is in his 80’s, he’s caring for an ailing wife and didn’t have time, so I don’t think he did it justice, which is why he was interested.

We bought the property on a lease purchase at (I think it was) 177k and change. We structured an $850/month payment, and we stipulated that $350 of that – because remember, there no mortgage – would go towards the principle. We structured a three-year term, and we turned around and sold that for 225k on a three-year term. The seller, by the way, whenever I say a three-year term, has an automatic built-in “one year if I need it.” So I always build in a buffer.

So we sold it for 225k, we sold it for the monthly amount of $1,276. So a small spread between $1,276 and $850, the markup from the 189k to the 225k, and then of course, that $350/month principal paydown.

Here’s what’s cool, Joe – you’re always doing three paydays… Because I know investors are always like “I need cash today.” Okay, so you get the upfront down payment, you get the monthly spread, so you get money over time, and then you get in the back-end. So it’s a nice little way to build up equity and build up wealth.

Joe Fairless: Does that down payment go towards the amount that they pay on the house when they buy it?

Chris Prefontaine: Yeah, absolutely. I think this one might have been somewhere around 10k-12k if I remember. I think it was 12k. Yes, that’s just like a standard purchase and sales agreement, in that they’re getting full credit for that.

Joe Fairless: Got it. What’s a typical issue or mistake that beginning investors make whenever structuring these deals?

Chris Prefontaine: A biggie is you get the deal and you’re going “Man, now I’ve gotta sell it!”, and we’ve done this… So, it’s putting a buyer in the home that doesn’t have a big enough down payment, and here’s how I would define that – in a couple states that we operate in, you can at least take first month and last month, or first month in a security, from any renter, if you wanna be in the renter world.

So if someone comes to us and they have — say, in this deal, a couple grand… That’s equivalent to a renter doing that; that’s what you wanna stay aware from, because all you’re getting is a renter. We want buyers that legitimately had a little [unintelligible [00:13:05].01] in their credit, or had a legitimate “I’m self-employed, I need some seasoning with my bank, sometime…” That’s what we want. So they need to come up somewhere between 3% and 10% now and over time, or you’re making a major mistake; you’re asking for a default there. You just get a renter.

Joe Fairless: What happens when the default takes place?

Chris Prefontaine: We’ve had plenty, obviously… What happens is if they have to leave because they had a life event and that caused a financial event – a divorce, a death, we’ve had them all – then what happens is they leave, or you have to evict them; sometimes it’s amicable, sometimes it’s not (I’d say 50/50). Then we put the home back on the market and we exercise our extra year option with the seller if we need it, and we just resell it to another rent to own buyer.

Or, we had one recently where one of the spouses became handicapped, and they left, so they forfeited the deposit and called us and said “Well, I’ve gotta leave.” It was a sad thing, they left. We didn’t have a lot of time left; I was very friendly at this point with the seller, we had a good relationship, and I said “Look, I’ll just put it on the open market and we’ll sell it.” That’s always an option. So we put it on the open market, got him what he wanted, we made out great and we moved on. So you can sell it conventionally, or you can resell it rent to own.

Joe Fairless: What’s an example of a deal where you lost money on this approach?

Chris Prefontaine: I honestly haven’t gotten hit on a lease purchase because when we get hit — I’ll give you an example of when I say “We got hit.” You can just extend the deal or resell it like I just said. So we had a deal early on – this would have been like 2013 – where we had a seller sign a lead disclosure, your standard state lead disclosure. So we took that for face value, we put a tenant buyer in there; the tenant buyer had little kids, the walls started chipping… Long story short – we get a lead test and there’s lead.

I took it Subject to, so this seller is long gone. In this case it’s not a sandwich lease where I have in my agreement they have to handle it… So we did get stung. The right thing to do was to not force them to get out but to fix it. And it was an expensive one, it was probably 30k or so. What we ended up doing because we owned it Subject to is we just extended the term actually with the buyer. We didn’t have to do anything on the seller end. And they happily did that, and we said we needed more time because of the lead repair.

Now, if that was a sandwich, we have now built into our agreements that the seller is responsible for any lead, mold, asbestos – we’ve built that in over the years. These agreements are super-important when you get down these roads where you can create some headaches. We’ve created enough, and we’ve fixed them with the future agreements.

Joe Fairless: What else, if anything, should we talk about as it relates to lease options that we haven’t talked about during this conversation?

Chris Prefontaine: The biggest thing is – I just explained some basic deals, but there’s something I call [unintelligible [00:15:42].21] on these things, because things change. Let me give you a few examples. I’ve done it, my students have done it – we’re in a lease purchase agreement, the buyer calls and says “Hey, good news. I know we have two years left, but I got my mortgage.” We had this happen in month 11 once, on a four-year deal. Now, logically, if we stay in longer, we make more money. So I said to him, “Great!” We’re not gonna hold him up.

We call the seller and we say “Look, we came across some money where we may be actually selling the property. If we we were to cash you out three years earlier than you expected, what’s the lowest you could take?” and every single time they answer with a lower number. Every time.

I had a recent six-unit close out that had an owner financing deal put together on it, and I said to him “I know you’ve got 14 months left, Fred, but we can cash this out sooner. What’s the lowest you could do if we can pull this off?” He came down 12k in one conversation. So you’re creating these “fourth paydays” on these cash-outs on the back end. So on face value they’re good, and they can get even better if you’re creative and get to know the nuances.

Joe Fairless: Yes, it’s super-smart to take a challenge which could be a bad situation for you all, and then figure out a way to make it a good situation. For anyone who agrees to those terms to do a lease option with someone, now we know if we get a call and they say “Hey, if I can buy you out early…”, we say “No, I’m good. I’d like the same amount… Or more.” [laughter]

Chris Prefontaine: Yeah, really.

Joe Fairless: Yeah, or more… Then it’s like, “Well, okay. Fine, we’ll just pay you what we agreed to.”

Chris Prefontaine: Well, it’s kind of cool, because in my book I called it the [unintelligible [00:17:07].20] but think about it – you’ve been at this a while; I know a lot of people have a set niche, and we do too, but I wanna be able to, if a deal comes across my plate, know what the heck to do with it. So whether that’s [unintelligible [00:17:18].25] to your or someone else in a different niche, or whether that’s me getting creative because I know how to do it, you just wanna be trained enough deals, enough times you’ve seen it where you can pivot and make money out of a deal no matter how it comes to you.

Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on?

Chris Prefontaine: They can just jump onto the site, nothing tricky. It’s SmartRealEstateCoach.com, and there’s  a free webinar there, if they can stand listening to me for another 60 minutes. It’s totally free, and I give them all kinds of goodies at the back end, so it’s worth your time. If it’s something that resonates – fantastic, and if it’s not, keep digging, because there’s plenty of good people out there.

Joe Fairless: Well, I really appreciate you sharing some insight into lease options, talking about the case studies with the 10-acre parcel of land, where the guy was just debt free and wanted to leave, but wasn’t in a financially tight spot, how you structured it, and then also that fourth payday, should unexpectedly your tenant buyer want to purchase it early, get approved, and there’s a way that you could perhaps position that so that you get paid an additional amount of money.

Thanks so much for being on the show. I hope you have a Best Ever day, and we’ll talk to you soon.

 

real estate advice podcast

JF1128: How To Purchase 4 to 10 Properties Per Month With Lease Options with Chris Prefontaine

It takes 120 leads just to close 4 to 5 properties. Chris has built an amazing company and team that finds those leads, makes the calls, closes properties, and helps with other aspects of the business. From an online automated bird dogging campaign to a dedicated full time phone VA. If you want to invest at a high level, listen to this episode and take notes! If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Chris Prefontaine Real Estate Background:
-Founder of Pre Property Solutions, a real estate investment firm
-Real Estate Entrepreneur and Mentor with over 25 + years of experience investing in real estate
-Buys between 4-10 properties monthly and a large percentage of those are done via lease/options
-Built over 100+ single family homes in the 1990’s,owned a Realty Executives Franchise and eventually sold the brokerage business to Coldwell Banker in 2000
-Based in Newport, Rhode Island Say hi to him at  www.smartrealestatecoach.com
-Best Ever Book: McDonald’s: Behind The Arches


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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, Chris Prefontaine. How are you doing, Chris?

Chris Prefontaine: I’m terrific, thanks, Joe.

Joe Fairless: Nice to have you on the show, my friend. A little bit about Chris – he is the founder of Pre Property Solutions, which is a real estate investing firm. He buys between 4 to 10 properties a month, and a large percentage of those are done via lease options. He has over 25 years of experience. He is a real estate entrepreneur and mentor, and he’s based in Newport, Rhode Island. With that being said, Chris, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Chris Prefontaine: Absolutely, and if you want me to expand just let me know. I’m gonna date myself here, Joe, but I go back to about 1991 as far as real estate goes. I started off with doing some spot building with single-family homes, doing that by locating lots during that rotten real estate market back then, and actually putting up homes using other people’s money, even the vendors who built the home.
I transitioned from that after building a few hundred homes, bought a Realty Executives franchise in 1995, and then ultimately sold that business in 2000 to Coldwell Banker, and that kind of took me into the coaching world and my own deals, and that ultimately lead to the lovely 2008 debacle that I had such a fun time going through, as I’m sure a lot of listeners have.

Then because of that, in 2012-2013(ish) we started buying on terms – you alluded to lease purchase; we also do owner-financing obviously. Those are our primary ways, and that’s kind of my shortened, 10,000-foot view of the path I took to get here.

Joe Fairless: You only buy on terms now, which is owner financing and lease options, right?

Chris Prefontaine: Yes, absolutely.

Joe Fairless: And you’re doing 4-10 properties a month?

Chris Prefontaine: Yeah, we do 4-5 a month right here in New England with my son-in-law Zach, my son Nick and my daughter Kayla. They actually run that buying and selling piece of our business now, 95%-99%. They run it. I’ve kind of trained them over the last years to run it.

The other 5%+ or more come from around the country with the different joint venture partners we team up with. And we are literally partners; we’re not just coaching, we’re partners in the deal. Total, it approaches ten to a dozen a month around the country.

Joe Fairless: Wow. And how do you structure a partnership like that with someone?

Chris Prefontaine: We call them joint venture partners around the country, provided that we’re a fit for each other, not just them to us. Then we have different levels they can come in on with smart real estate coach, and depending on what level they come in at from a mentoring and involvement issue, then they will have a split. Generally speaking, it’s a 50/50 split. Some of the higher level partners have as high as an 80% split to them.

What does partnering mean? It means we’re on the phone with their seller with them, we’re doing a follow-up with them, we’re making offers with them. We’re literally in the trenches doing deals with them.

Joe Fairless: Let’s focus on the ones that you and your family are doing. The 4-5 in New England a month – so you’re finding 4-5 owners a month who are willing and ready to do either a lease option or owner financing.

Chris Prefontaine: Yeah, we generate around — our goal is 120; we’re usually at or slightly above that as far as leads in a given month, and out of that we’re coming to contract on 4 or 5, average.

Joe Fairless: Wow. How do you get 120 leads?

Chris Prefontaine: We do a couple things. We have a virtual assistant… One in particular, who’s been with me four years now, has done nothing but calling for 22 years – believe it or not, Joe; you can appreciate that… That’s quite a few years on the phone, so he’s good. He grabs a lot of the for-sale-by-owner leads after sifting through them to get rid of the junk…

Joe Fairless: Where does he find the leads? Is it just like forsalebyowner.com, or Craigslist?

Chris Prefontaine: Yeah, he sources them from a bunch of places. We use a lead service on [unintelligible [00:05:09].16] it’s free, and it’s a company called “my +plus leads.” A lot of the [unintelligible [00:05:13].18] will come from that. Craigslist, we have field agents that go around and look for signs only, that aren’t also online, and they’ll feed those to the VA… So the [unintelligible [00:05:22].19] market is kind of his world, and then we’ll go after a lot of the expired, as well. We have pretty much an automated system in-house to go after the expired listings.

Joe Fairless: You said you have field agents that look for bandit signs, so that’s another layer of lead generation. Who are these field agents and how are they compensated?

Chris Prefontaine: We run gigs online, my son-in-law does. He’s looking for people that don’t mind or are already in a position where they’re driving around, like these traveling salesperson or just someone who does a lot of driving… And we compensate them $10/valid lead they send in. They have rules, they know what “valid” is. “Valid” is they can’t have it just someone that’s online, it’s gotta be a sign only. “Valid” is it’s not a duplicate, we don’t already have it, and if all of those pass, then every Friday we do PayPal and all the field agents get $10/lead.

We have one girl in particular who gets up to 10-15 or those per week around New England… Just delivers signs; it’s pretty cool.

Joe Fairless: That’s outstanding. How is that advertised, or where is that advertised? I know you’re not the one doing this, it sounds like your son is, but is that just a Craigslist posting, or what?

Chris Prefontaine: Yeah, we just run free gigs, free postings on Craigslist under Gigs, and we’re looking for those types of people. We’re running it on Craigslist, and there’s no contract or anything to tie to, so you do lose some, but every now and then, every four or five people that come forward, you’ll get one that sticks, like this woman that’s driving around for us now and doing a great job.

Joe Fairless: This is great stuff. Alright, so let’s talk about this VA… 22 years of experience doing calls, you’ve been working with him for 4 years. What would you say separates him from others that you’ve seen doing what he does?

Chris Prefontaine: Oh man, I burned through, without exaggeration, by myself (before my kids took over) I burned through three or four VAs and I was so frustrated; I was ready to throw in the towel and say “Forget it, I’ll do it myself or I’ll find someone here.” This guy that I finally stumbled upon – the short answer is he’s scripted and very comfortable, and therefore sounding confident, as you can imagine, in any real estate conversation. So that’s the big difference.

Joe Fairless: How did you find him? And I don’t want you to give up the source because I don’t want to rock the boat, but just in general, how did you come across them?

Chris Prefontaine: I actually went through, as I said, three or four different VAs, with a couple different companies, and stumbled upon him. And once did, I literally, from the next month on, kept dropping seeds that “Look, I want you to come with us. At any point you’re dissatisfied with where you are, come with us.” We’re now four years with him, so about three years ago – one year into our relationship – he did come onboard.

What’s really cool is the joint venture partners we were talking about earlier, they have access to him. So our of our 21 partners or so, I think 17 or 18 have him on the phone, so it’s pretty cool that they all have access to him like I did.

Joe Fairless: So for a Best Ever listener who is listening and they’re like “I want a high-quality VA”, where would you recommend going?

Chris Prefontaine: Well, they can go to our site and they’ll see we have two or three different recommendations on the site, but if they decide that “Hey, that JV thing is something I wanna delve deeper into or jump in with both feet”, they have access to our own VAs.

Joe Fairless: So for someone who’s not in the lease options space – maybe they’re with storage units, or in my case multifamily – but they wanna find a good VA, what’s a good website or company to go to?

Chris Prefontaine: Sorry, I’m not gonna remember the newest one we’ve got, Joe, that actually trains them for hours in the real estate world before they put them to work; they find a fit… It’s quite a unique concept. They do charge like $1,000 to do that, and I like it; we started hiring them. My daughter is on vacation and I can’t even yell out and get that answer for you, I apologise. I want the Best Ever listeners to get it, though. If they wanna message you or message me, I will get that for you.

Joe Fairless: Okay. Well, is that on your website, or is it not?

Chris Prefontaine: It should be on the website, and if it’s not, by the time we hang up, it will be; I’ll make sure it gets up there.

Joe Fairless: Sweet, sweet. And where on the website? Because I’m on your website right now. Where will it be?

Chris Prefontaine: They will go under Resources.

Joe Fairless: Oh, Resources, Virtual Assistants. Got it. Well, 120 leads a month, getting five deals… What’s a deal look like? How is it structured? And maybe do a lease option and then do an owner-financing? And ideally, if you have a specific example for each of those, that would be best.

Chris Prefontaine: I can look on my desk and then I’ll think of the numbers for that particular deal; it’s literally a deal we’re doing right now. So there’s a lease purchase deal — I’ll talk generically, and then I’ll actually give numbers to it. The lease purchase deal in New England that we just recently did – I’m gonna give you round numbers, Joe, just to have the listeners drive home the point… So we tied it up for the balance on their mortgage plus 30k cash; the balance on the mortgage for the seller was around 300k. The cash we agreed to give them in addition to the balance on the mortgage was around 30k, so call it 330k all-in. There’s a caveat to that mortgage balance [unintelligible [00:10:30].12] but on the surface going into the deal I’m looking at 30k cash and 300k mortgage.

I went to market at 439.9k, we procured a buyer at that number. My monthly mortgage payment on that 300k is gonna run around $1,600-$1,700. I went to market at $2,400, so you can see already the spread in the price, the spread in the monthly are both great. Those are two paydays. But the other payday that’s built-in there is when we talk to a seller and we say “Great, your mortgage is 300k, we’re gonna give you 30k cash also”, when does that take place? It doesn’t take place till at the end of the term, which for us is typically 36 months. At the end of that 36 months, we’re gonna at the closing give them 30k, but pay off the mortgage that three years ago was 300k and now is some number less. So there’s built in principal pay-down that accrues to us as well, so there’s actually three paydays for every lease purchase deal, if that makes sense.

Joe Fairless: Alright, so you’re making money on the spread with the mortgage versus what you’re doing the lease option for, and then – explain the 30k part where you’re paying it at the end again.

Chris Prefontaine: Yes, when I talk to a seller it’s either one or two things, typically, to be generic here. Let’s say you’re my seller; you have a mortgage, and that’s about what you’ve settled with me that that’s gonna be your total thing. We’re taking care of your mortgage for you; we’re paying your monthly payment, and at the end we’re gonna pay it off.

Or, an example I gave you, we came to terms, you and I. We said “Look, the house is worth more than I owed. Let’s call it 330k, Chris.” So you’ve gotta take care or my mortgage at 300k, but I also want 30k at the end of your lease purchase contract. So that’s where we come up with the extra cash, if they have equity. And if they do, we’ll give it to them at the end of the lease purchase term when our buyer is cashing us out.

Joe Fairless: And what if your buyer doesn’t cash you out?

Chris Prefontaine: Great question… Probably the biggest question from sellers, buyers and clients. So here’s what we do. If I structure with you a 36-month term, I’m gonna go and get my buyer’s prescreen with my credit enhancement company out of Pennsylvania that is gonna give me a term that I can live with with some risk factor built in, meaning they’ll tell me a couple different brackets. They’ll say “Chris, I spoke to your buyer, and they’re gonna be [unintelligible [00:12:44].15] between 9 and 12 months, 12 to 18 or 18 to 24.” I won’t take anything longer than that, because that to me sounds like a major headache, and that gives me no buffer because I already told my seller on “honor before 36 months.” Now, that’s going in the door; that doesn’t mean they can screw it up as they go along and life happens, so what do we do? We require them to be in the credit enhancement program; it is part of their rent-to-own agreement with us, so at any one point if they fall off of that program, I’m notified and we go right to them and say “Look, not only you’re in default, but we’re not gonna get you to the finish line here”, and we get him back on the program.

If by chance – and this happens, I’m not gonna tell you it never happens… Once or twice a year, out of 40-50 deals, we’ll have some that had a life event, they not only fell off the wagon, but they can’t get back on, or they had to go out of state, or they had a death in the family, or a divorce… These things have all happened to us. So what do we do? We have that 36-month buffer built in, we immediately go back to market, we find a buyer that can go ahead and get that done inside of that tight timeframe, 12, or 18 or whatever is left in that period with the seller.

So that’s critical, and let me just say this, Joe – this is so important… I have so many people that call me and they say “Look, I’ve looked into this lease purchase stuff online and all these investors care about is putting these buyers in, and they’re not getting them to cash out.” I’ll tell you that we have about a 98% (maybe a touch higher) cash-out rate. Why? Because we’re obnoxious at the beginning with pre-qualifying these people and make sure they understand they’re buyers, not some glorified renter slapping a deposit down only to walk away later; I don’t wanna know about that. I wanna get these people to the finish line, and move on so we have happy people on both ends.

Joe Fairless: What’s your long-term approach, since you’re recycling properties…? In this model you’re not keeping them.

Chris Prefontaine: On our property list, let’s call it – I call it my wealth management list – we’ve got about 62 properties today, if I took a snapshot, that are waiting to be cashed out. So every year there will be X amount coming on and X amount being cashed out. Now, some of the techniques I use go like this – let’s say you’re a seller and I have you in a (I call it) sandwich lease. About a year after a sandwich lease I’ll call the owner up, especially if they do cash in a couple years, like the 30k example, and I’ll say “Look, Joe, I know you’ve got 30k coming out in a couple years. If I was able to put some cash together for you, are you in a position where you can discount it to get your cash today?” And I’ll go ahead and take the deed to the property, give them a discounted cash amount, and then I’ll have no interim on that home, and therefore less pressure on my buyer. Those tend to be a little bit longer term, because I don’t have my foot on the buyer’s back, pushing-pushing-pushing; I’m just letting him be in the home until [unintelligible [00:15:24].13] mortgage ready.

So some of these do get termed out, but right now out of those 60-something properties in our inventory, I’ve got about 2.7 million in cash-outs. So if I stop today, over the next 3-5 years I’ll have about 2-point-something million in cash-outs. Of course, we don’t stop, but if we did, it’s not about little snapshots. It’s not a 15-year snapshot, it’s a 2 to 5-year snapshot, if that makes sense.

Joe Fairless: And then are you buying things for long-term, as buy and hold for 30+ years, or is this the model and you’re sticking to it?

Chris Prefontaine: This is the model, but there’s caveats and exceptions. I have three properties in our inventory right now that are nine-year lease purchase terms with the seller. Well, how the heck did they do that, or why would they do that?

I’ll give you an exact example. I had a woman that was referred to me from Washington DC. Her credit was fine, she was paying her mortgage fine, she just no longer wanted to come back to the snow in New England and deal with the property or have a tenant in it and worry about it. But at the time (two or three years ago) she owed about what the mortgage was by the time she would get done with the realtor, and closing costs etc. So I said to her “I need time for the market to come up and time for your mortgage principal to come down, so I will go ahead and buy your house on a lease purchase, the term will be honor before nine years, and I will in the meantime keep everything current, you won’t worry about it if I lose my buyer or not… I’m handling it, and you’ll get your payoff of your mortgage honor before nine years, but you get no cash out of it.”

She just wanted that mortgage relief and to keep her credit good, so I’m still in it. I’m into that house for about three and a half years now, and that’s a longer-term deal. Other times we’ll look for and buy on terms multi-units. We have a four and a six now in our inventory. So regardless of the term we structure on those, we will either sell it before the term comes up, or refinance it conventionally, which is odd first to do, but if we really love the property, we’ll keep it long-term like that.

Joe Fairless: And what about now an owner-financing example?

Chris Prefontaine: I tell my clients, the owner-financing are home runs, because when I structure an owner-financing — I’ll give you an exact example, the most recent one I can remember. We did a deal that was a small home, 189k on the open market; they couldn’t sell it with the realtor, they were moving out of state. They remembered me from another property they had that they did not wanna do terms on, and they called and said (you’ll get a kick out of this) “Look, today is Friday, and I’m leaving Monday to South Carolina. Can you come this weekend? We wanna do that owner-financing thing.”

It was the last property he had to unload, he didn’t really care about it, and he owed zero on it. The owner-financing deal is typically when they owe zero; in my world anyway. So I went in and I said “Look, if you sold it with a realtor, at best you’re gonna get somewhere in the lower 180s. I’ll give you 183k owner-financing.” Remember, it was on the market for 189k, and prior to that higher. “So 183k owner-financing, I’ll pay you $925/month, and I want a 48-month term.” At the end of the 48 months I either balloon him out with cashing out my buyer, or I refinance it and keep it for longer term. But the point is for 48 months I got $925 coming down off the principal. So if the market even dove on me, I got 48k there, or whatever that number is.

I went out and sold that for 239.9, for $1,500/month, plus they pay all taxes. So I’ve got a nice monthly spread, I’ve got a great principal pay-down, and I’ve got a spread on my price.

Joe Fairless: Say those numbers again? You sold it for 240k…

Chris Prefontaine: I bought it for 183k…

Joe Fairless: Yeah… How much a month?

Chris Prefontaine: $1,550.

Joe Fairless: Wow… Okay.

Chris Prefontaine: So it’s $600, or whatever it is in monthly spread… Plus the principal pay-down, which is what makes that whole deal. So that deal, if you do the math, it’s over 100k. It’s probably a 110k-120k. All of the owner-financing deals, if you stretch them out 48 months (which we do), you’re talking a six-figure payday no matter what, as long as you have that full principal, and they don’t argue with it.

Joe Fairless: And before you say how much you put down, explain the full principal – so you mean that your payments (the $925) to the owner pays down the principal amount (the 183k).

Chris Prefontaine: Absolutely.

Joe Fairless: Okay, got it. So you’re counting when they actually exercise their option, the 183k, times that by 48 months, that amount is minus 183k, and that’s what you’ll eventually owe.

Chris Prefontaine: Yeah, so picture — it’s over 240k… I’m gonna owe the owner probably 145k, 148k, or whatever that is. There’s a nice spread there at the end.

Joe Fairless: And how much did you put down?

Chris Prefontaine: We actually put down $925. We put down one month on that deal.

Joe Fairless: $925?

Chris Prefontaine: Yeah, that’s what we put down on that one.

Joe Fairless: Wow. Did they ask what is the interest rate?

Chris Prefontaine: Some people do, and my answer to them is “I can pay you interest if you wanna mess with calculating the reporting of income every year and all that, but how about if I just pay you the right price right up front and you don’t have to worry about reporting any interest income?” [unintelligible [00:20:18].01] to which they usually agree.

Joe Fairless: What document do you use to put this all together?

Chris Prefontaine: Great question. I have taken our attorney who’s local here – we’ve got one in different states, but our main attorney is here in Rhode Island and he has customized a purchase and sale agreement for us to either do subject to properties with existing debt in place and still taking the deed, owner financing… Either one of those are handled by this custom agreement, so it’s literally a fill-in-the-blank and very self-explanatory for the seller and very protective of us obviously, and then we go to a conventional closing with a HUD statement.

Joe Fairless: Okay. What’s a way to convince a seller to do owner-financing?

Chris Prefontaine: Usually it’s price, Joe. For example, we did a 10-acre estate in Pennsylvania recently… This place is gorgeous, and he couldn’t sell it and he’s ready to go to Texas last November before Thanksgiving to be with his five kids. Well, there’s some motivation there.

I said to him, “Look, you’ve been trying to sell this thing forever for 450k and you didn’t sell it, and you were gonna pay a realtor. I will give you the 450k if you give me the term of 48 months in the principal payments monthly. I’ll give you the price you’re looking for.” So there’s nothing to convince.

What I always tell my [unintelligible [00:21:26].12] clients and my kids is “You’re not here to convince, you’re here to just offer them a solution if in fact they are looking for one. The only person we can’t help is someone that needs cash today to go buy something else – well, then I don’t have a solution. But every other person, we can have a solution for and there is no convincing as long as we know what that pain is, so then we can fix it.

Joe Fairless: Let’s go with that example, the 10-acre estate – what do you do in that scenario?

Chris Prefontaine: Okay, so this gentleman said to us – and I’ll be real close on my dates – probably last September/October, “By Thanksgiving I wanna be gone. My kids are there”, etc. I said, “Okay.” Very scary for my new partner in Pennsylvania, but I said “Don, we’re gonna go ahead and do this and we’ll close this thing by 1st December for this guy.” And he said, “But what if we don’t get a buyer?” I said, “Look, don’t worry about it, we’ve got plenty of time”, because I knew that the price we were offering this guy for a month of $1,500 in monthly principal payment was very low for a $450,000 home.

So we put it on the market in our rent-to-own program, and we did prop it by around 1st November. We had a nice, strong, qualified buyer in there with about 60k down up front, non-refundable. So we were able to sit with that buyer, close them (on a lease purchase) and put their money at my attorneys and then simultaneously turnaround and close on the actual purchase of this property. If we do pay upfront, Joe, we’re not giving any money; we’re actually gonna pay the transfer tax and anything up front, because we can’t expect that coming out of pocket to close. So we don’t put a down payment, but we do pay their transfer tax if it does apply in that state.

Joe Fairless: So in that scenario you’ve got to find someone who will pay the price that you have it under contract for, and if you don’t, then since there’s that principal pay-down, you have to just watch the principal pay-down and just time it so that they’re closing later and you have some principal pay-down that lowers your eventual purchase price to cover up the difference?

Chris Prefontaine: That’s one option the way you’ve just described it, exactly. The other two options are — if you think about it, the other one is in our purchase and sales agreement there’s an option to check off a box that makes the entire agreement contingent upon you finding a buyer. We didn’t do that with this house, but with the partners that are new, a lot of times I’ll say “Just make it contingent upon the buyer. If they can live with that – great. If they can’t, it’s okay.” We should give ourselves a 90-day window to find a buyer, and if we don’t – okay, no hard feelings, everybody goes their way.

Or worst case, you commit to closing right away, and things blow up and you don’t close it. Well, you lose your deposit, which is about $100. That’s worst case. We haven’t had to go that route, but that’s your worst case.

Joe Fairless: What is your best real estate investing advice ever?

Chris Prefontaine: My best advice ever would be not to sign personally on loans and not to use your own cash until such time you have a reservoir to go to to use your own cash. I made the big mistake in ’08 – prior to ’08, but it came to a head in ’08 – of signing on about 30 loans or so, because my credit was good and because I could, and because the money was easy. Well, big boo-boo. When things hit the fan, it took me three and a half years to dig out of that mess.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Chris Prefontaine: Yeah, let’s roll.

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [00:24:35].25] to [00:25:40].00]

Joe Fairless: Best ever book you’ve read?

Chris Prefontaine: McDonald’s: Behind The Arches.

Joe Fairless: Best ever deal you’ve done?

Chris Prefontaine: Owner-financing the deal I told you from the guy going to Texas; by far the best deal.

Joe Fairless: A mistake you’ve made on a transaction?

Chris Prefontaine: Signing personally on a loan.

Joe Fairless: What is the best ever way you like to give back?

Chris Prefontaine: We had an experience with my son having a head injury, going into a coma after a snowboard accident, and we give a piece of every single deal we do to Franciscan Children’s Hospital after that. We love doing that, great energy.

Joe Fairless: How can the Best Ever listeners get in touch with you, Chris?

Chris Prefontaine: They can go to SmartRealEstateCoach.com, or they can simply e-mail us, support@smartrealestatecoach.com.

Joe Fairless: Chris, this was a conversation that fed me the real estate knowledge I was looking for this morning, and I’m very grateful of that. You’re actively doing it, you’ve got a system, you’re very intentional about the two types of deals that you do, and you got into the specifics. Thank you for walking us through the lease option purchase deal, the owner-financing approach, how to navigate both of those should a couple different scenarios come up.

I loved our conversation, I’m very grateful for it. I hope you have a best ever day, Chris, and we’ll talk to you soon.

Chris Prefontaine: Thanks, buddy. Thanks for having me on.

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