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Real Estate Investing School Podcast
214. REAL DEAL: Unlock Deals Using Seller-Financed Down Payments with Luke Hoffman
00:44:55
Welcome back to the Real Estate Investing School Podcast! In this episode, Brody welcomes guest Luke Hoffman, who shares the details of his first real estate investment—a creative deal involving seller financing that required little money down and...
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- [00:00]
Brody Fossett
What is up? Welcome back to the Real Estate Investing School podcast. This is your host, Brody Fossett and this is a real Deal episode. So this is when we dive into one real estate investing deal so that you can learn from it and implement all the things that you're learning now. One of the cool things about real estate is it doesn't take as much money as you think. A lot of times it's keeping people from investing in real estate is the fact they have to have all this capital, the fact that they have all this credit, the fact that all this experience and a lot of those are just self limiting beliefs. And so this deal is kind of a fun one that we're diving into with Luke today where he goes over one of his first ever real estate investing deals. How he bought a portfolio of deals, didn't use that much money and did not use any of his credit, didn't have to use a lot of things that t typically keep people from getting started. So we're diving into this deal so that you can replicate it. Let's get to it. We're always finding ways to buy real estate creatively. And it's not, it's not because we want to over leverage things at all, right. But instead it's because we want to maximize our roi. Right? And if you can understand and use these strategies, even if you have money to be honest and you can know how to buy real estate with none of that money and it's still cash flows like you're going to be in a really good spot, right? Because then you can leverage your money even better. You can get higher returns, all these things. So these charges are really important to know. I think a lot of times people hear like no and low money down and immediately they assume like, oh, that's way risky. Right. There's so much risk that's involved in that and we'll talk about a little bit today, but I actually think it's, it's the opposite a lot of times, right. There's not nearly as much risk because you don't have any money into it, especially when it cash flows right out the gate. So this drive specifically what we're going to talk about is using seller financing not to necessarily finance the entire purchase price, right. But instead to finance the down payment of the purchase. Now there's some hoops that are involved in this. But honestly, what's so cool about the strategy just in general is, I mean I, I would say probably like, like, at least from my experience, I would say like 50, 50 are, are open to it, which sounds like a crazy high statistic, but surprisingly, and I don't know if it's the way that I word it, right, like very, like you're not committing to anything. Like if the terms were, were good, if it was the right amount down, all these things, if, if, if would you be willing? And a lot of people are open to it, right? Especially when they have so much equity in their house. And the way that rates have been a little bit. Now the next thing that we run into is, is what essentially how much they're willing to finance, right? That's usually where the issue comes into play. Sometimes people are willing to find like I have two deals where they're financed almost a hundred percent of the purchase price, low interest rate, 30 year term, like everything's like, great, right? They didn't want money up front, all these things. But I would say that's not as common as them wanting more money up front. Right. And so the cool thing is, and this is where this strategy comes into play. Instead of looking at seller finance, not seller finance, they're like, oh no, they want too much down. Now we can kind of blend this other form of financing in there where we can, we do it the right way, leverage them paying the down and, and then take the bank's money or a private note or a hard money loan and combine the two to be able to get the best terms and use none of our, our own money out of pocket. Okay, so that's kind of like a brief overview. We're going to dive in deeper. Luke, anything to add to that right off the bat? And then I want to jump into your deal specifically because I know that's going to teach us a lot. And I have some questions for you on that deal.
- [04:01]
Luke
Yeah, I think one thing to add to what you just said too is it really comes down to understanding what that person's doing with the money. So if they're selling it, what's their game plan next? What, are they going to buy another house? Are they going to. If they're an investor, are they reinvesting it? Because a lot of times, you know, they have all this equity, they're like, oh sweet, I'm gonna get 100 grand on this sale. They only need 30 grand to do whatever the next step is for them. And so then they're like, what do I do with this other 70 I'm just gonna put in the bank. And we all know bank's not paying a great rate, so you really are solving a problem. For them as well. Like, let me park your money here for another year, three years or 10 years, whatever it is, you know, and you're solving their problems when they're more willing to like, wow, you're helping me, or, I'm not going to pay taxes now, because we're going to work this into the deal somehow, you know, so you're really just adding value to them. And then in turn, they wanted you to take the money. They're like, here, please take it. I don't want it.
- [04:48]
Brody Fossett
100. Yeah. No. I'm so glad you brought that up. And I know that's something we're going to circle back on, I'm sure, because it's everything, right? It's all about, like, it's a creating a win, win, win. We talk about that all the time. Like, everybody involved has to. Has to win. And it's very, very hard to negotiate if we don't know what the other person wants or what's important to them. And I loved. I think it was on our finding call this month, Jaden talked about he bought a guy a truck. I think it was like 15 or 20 grand, but it was like, that was that important to the guy. He bought him a truck, and it was his biggest wholesale deal that he closed on ever. And so he was cool doing that. And that probably meant more to him than, like, getting a bunch of cash, you know, because he valued that way more. But you never know that unless you're asking and having those conversations. And so all of a sudden you do that and it's like, oh, this is. This is valuable to me. And it's not you giving up anything at extra that you weren't willing to give up. It's just doing it in a way that they actually understand that, right? So.
- [05:52]
Luke
And it comes out authentically, too. I mean, you're not going into the conversation of, like, what do you need so I can solve this problem for you. It's just like, hey, what are you doing next? Like, what's your game plan? Like, I'm curious where you're going after this. And then they're. They just start spilling their guts to you, and you're like, oh, I can solve this. Like, here, Let me help.
- [06:08]
Brody Fossett
Yes. 100. You know, I think. I think a lot of that, like, comes down to not coming in and, like, viewing it as them doing you this huge favor, right? I think a lot of times, especially when we think of, like, seller financing, that's how we look at it. Like, oh, yeah, like, please, if you do this. And so it comes across almost like desperate. And it's like, okay, what's the catch? Is what they're thinking whether instead. Well, you said, hey, how do we create a win win if it's not a win win? I totally get it. It has to be a win for you and obviously has to be one for me as well. And so let's see if there's not somewhere to kind of like collide. We like do like the Venn diagram, you know, I'm like, very visual. But like, you know, you have the two circles where this is a win for you, this is a win for them, where they meet in the middle. You got to figure out what that is because there is that middle ground a lot of times. And if there is, that's where the deal can kind of happen. But if you're both in your own sides and don't understand each other, then it doesn't happen. And then the other thing I think, Luke, with that, that's, that's important also is everyone's different, right? Like you said, like, what makes you tick and what you would do with money might be different than what somebody else would do with money. How much money you have in the bank is going to be different than how much somebody else has in the bank. And so we don't ever want to like, assume our point of view on somebody else or our situation on somebody else. And I have to remind myself of this all of the time, you know.
- [07:36]
Luke
Yeah, no, I totally agree. Especially in the Midwest where I'm located in Iowa, it tends to be a smaller mindset in a lot of ways. And so people, you know, around our parts, like, if you come into a hundred thousand dollars, like, that's life changing money and like substantial life changing money to a lot of people. And so you got to keep that in the back of your mind too, of like, if they're getting 10 grand or 20 grand or 100 grand, like, know where that's kind of relative to their lifestyle. And so, you know, if somebody came up to me today and said, hey, or any of us on this call and like, let me give you 100 million bucks, we're all going to probably smile pretty big and be like, yeah, I can spend that all day and do whatever, you know, it's going to change all of our lives. But ten grand can save, you know, can change a lot of people's lives and just reality of like where they're at, their car broke down, their, their mom just passed away, they need to sell a house, like 10 grand is literally life changing money to them. And so we just got to keep that in reference. Like no matter where you're at. 10 grand might be a lot to you today, it might not be a lot to you today, but it's all relative to the person you're talking to.
- [08:33]
Brody Fossett
Yeah, yeah. So good, dude. So good. That's awesome. Points to keep in mind, especially as we jump into this one. So let's, let's kick it off. Just tell us about this deal really quick and I got lots of questions for you, but go for it, Take it away. Just kind of start at the top. And this one's one of your, I think. Is this your first investment property you bought or properties? Because it was a portfolio of properties.
- [08:59]
Luke
Yes, it was my first transaction. Yeah, first thing, first time going through it all. So we actually found the deal on Craigslist. That was my deal source at the time. Way back in, eight years ago, I guess. So I met the seller.
- [09:12]
Brody Fossett
That's a gold nugget. I'm just, sorry, I'm just throwing, throwing. I think, I think some of it cruise over some stuff so fast. But it's like, that's huge, right? Found on Craigslist because that like tells me you don't, you don't. Like a realtor doesn't send you something off of Craigslist. Right. They don't like you have to be hustling, you have to be putting in the work. And so I love that.
- [09:33]
Luke
Yeah, we were actually going through like a, one of the rich dad programs, the training programs back then. So at that time, you know, Craigslist was kind of like the popular spot still before it, I Facebook kind of took over, I think marketplace for that kind of a resale, if you will. But yeah, it was a package deal from the seller. Never met the guy before, but it was a duplex and a fourplex that he was looking to get rid of. The seller was a local investor. I think he had like 60 to 70 doors roughly in the market before that. I think he's getting, he's not older. I mean he's probably older now and starting to like retire out, but just kind of, you know, transitioning money. It seemed like I didn't really understand at the time. I see where he's at today, you know, and like he's held these properties for a few years. He made some money on them. They appreciate it. He's trying to cash in to go reinvest, which is always kind of cool. Like I keep that in the Back of my head now, too, as I come across these investors that have been doing it 5, 10, 15 years, I'm like, they're ready to cash out. Not completely, but they're just like, recycling that cash. And so there's opportunity, like, every five to 10 years, there's a cycle there. And like, I see even in my own portfolio, like, I'm recycling my money back out and reinvesting it in different ways because we all learn different things, we get interested in different things as well. But side note there, but yeah, it was a package deal. We actually looked at a different set of properties he had off Craigslist and didn't like the property. It just didn't work for me. But then I just asked him, like, yeah, this isn't the one. But like, hey, if you got something in the future, like, just keep me in mind, you know, I've kind of honestly assumed I would never hear from him again. Just, you know, is it kind of a flipping comment? And just here, we'll see what happens. And he called me up, he's like, hey, I got these properties. Like, I like you, let's do something on them. So we kind of took it from there to start.
- [11:15]
Brody Fossett
Cool. Yeah, it's awesome. It's, it's funny, like, how much of that is, like. So I, I first off, what you said about everyone's in, like a different season, you know, and I thought, same thing. And everybody usually asked that, like, why would someone sell or finance this house to you? Like, that doesn't make sounds like you got the upside and they got all the downside. And that just goes like back to what we were talking about, about, about understanding what they want and creating like, these win, win wins. And then also understanding, like, yeah, things shift. Like, I, I selling a property right now under contract last week, and it's seller finance. Like, I'm seller financing. I, I didn't think that, you know, I would ever be seller financing properties because I'm usually on the other end of it, like, getting people to sell or finance their stuff to me. And so it just goes to show there's a win in, like, every scenario. And, and for me, this one totally makes sense that I'm willing to do it right. But it's under the right circumstance that makes the most sense for me. And then the other thing that, that you were saying just, with what was the last piece? You were just saying.
- [12:25]
Luke
I'm drawing a blank too now. Yeah, just, you know, kind of commenting like, hey, keep me in mind maybe is that where you're going, keep me in mind.
- [12:34]
Brody Fossett
Thank you. Yes, that's exactly where I was going. So like, probably like one of the best deals I've ever done came from that same thing. Like, like literally those same, those same lines. And I went and looked at a property that it was a, like a 13 unit, awesome deal. I thought he was like, to sell it to me. I thought we were on the same page and, and then he tells me like he's selling to somebody else. And I was like, oh. And I was kind of like mad because I'm like, whoa. Like you were talking to me like, like it was a done deal. And anyhow. But I was like, well, do you have anything else? You know? And he's like, yeah, I, I got something else that I, I'd be willing to do, you know. And anyhow, awesome, awesome opportunity. Seller financed it, walked right into a couple hundred thousand dollars later, got a line of credit on that property, leverage it to buy another property. Just amazing terms. Like it's, it's cash flowing, couple thousand dollars a month, like probably 100% cash on cash return just from the cash flow year one. And so it all like one of the best deals and it all came from asking that question. I wonder like if you didn't ask that so that he wouldn't want to sell those properties, maybe same with the guy that I, that I bought him from. But it doesn't stay on the forefront of their mind. Right? You don't come to mind, like, you don't, they don't even maybe think about it until you put those, those words in their mouth a little bit. So yeah, I just wanted to touch on that.
- [14:01]
Luke
No, Yeah, I think part of it too is, you know, this, this seller in particular, he was a seasoned investor and so he kind of, he liked my story. Just like, oh, you're trying to get into it, you know, maybe a lot of people on this call to the same spot, like you're at that starting point. And so he liked that, he liked me. And so I think part of it was he wanted to see like if I would put in that effort a little bit. So just that little bit of follow up he was in my head, I'm, I'm thinking that partially sold it as well. Just like I, I took that extra step that most people might have been like, all right, well we'll see you. I'll never talk to you again.
- [14:31]
Brody Fossett
Yeah, I love that. That's awesome. Okay, so, so then what happened? How did you find out that about this strategy Maybe touch on that a little bit. So that's how you found it on Craigslist. You. You kind of started talking to the guys. So essentially, was it listed on the market originally or do you just have it?
- [14:54]
Luke
It was off market the whole time on Craigslist. To give everybody a little context, too. So before we did this deal, I had just quit my W2 in, like, February because we were buying a manual, a chemical manufacturing business. And so, you know, it's five years into my W2 wanted to do something different, quit my W2. We had this business under contract. And then while we were in escrow for that, I was really still trying to get into real estate. So I found this deal. And so I was like, oh, sweet. Let's just, you know, take a little more risk over at it and just add some more things to go. You know, I need some income. And so going into the conversation, I never told the seller that, hey, I really don't have any money. Because we were buying this business with, again, we sell or finance that as well. A different story. But I didn't have any money, but I didn't want to tell him that. And so through the conversation, I just. I didn't lie to him and say I had money, but I didn't ever talk about it. I just let him assume, like, oh, you must have the bank figured out. You must have all this stuff figured out, when in reality, I had, like, literally no money, like less than a thousand bucks type of thing. And so we just went down that road. But he's done seller finance before, so he brought it up actually, and was like, hey, I can maybe help you out a little bit, depending on where you're at and what the scenario, you know, terms look like and all that. And so then that sparked the idea in my head of like, all right, well, I have a bank lined up already. They're willing to do 80%. I need that 20%. So, like, how many get there? And then, yeah, we just basically in conversation with the seller, talk through, like, what if you gave me this much, you know, you know, towards the down payment, and then we strike some terms on it and put a balloon on it for a couple years out. And yeah, he was open to it because in his mind, too, going back to what I said earlier, like, he knew where he was going, and so that 80 that we would get the bank loan for that was going to give him enough capital to do whatever the next deal was that he was going for. So he didn't really care about that. Last 20, it was kind of the crumbs behind everything else. And if you had to wait two years, so be it.
- [16:46]
Brody Fossett
Yeah. And he, and he might, and he might, like, that's one of the reasons like I was more motivated to, to do this deal recently on this property that I'm selling is because I'm like, well, even if I don't get the seller finance payout, which I obviously plan on getting it, but even if I don't, like, I've still doubled my money on this deal, you know, and now I'm going to quadruple it if I get the rest, which I will in forms of like payments with, with a good interest rate on it. Right. But that's the other thing too. I think that goes back to understanding that. And like you said, you don't know what he got. I mean maybe you do, but like he could have bought the property for, you know, a fifth of what he's selling it to you for. So it's not that big of a deal. He's looking at it as I'm getting a crazy return. Sure. I'm fine, you know, covering this down payment or seller financing this with a carry back.
- [17:35]
Luke
So yes, I mean I think that was a big piece of it. And we also knew that our bank, we had previous, I was telling you last night, like we've talked to our bank before, we had that relationship established to do this to a deal in general. But then talking through like the bank knew I was broke. So they were like, I don't know how you're going to do this, but I guess we'll cross that bridge when we get to it. But they were open to being creative with me. And so I, I kind of had all these things floating through my head. Like these are scenarios that potentially could work. Like let's just put all the pieces on paper and like try to massage it into place essentially.
- [18:07]
Brody Fossett
Yeah. Cool. Which I want to, I want to dive into a little bit. One of the questions I had down to, to ask you is just um, like what was the, what was the motivation or like driving factor behind doing deals with, with no money out of pocket. But it sounds, it sounds more obvious it was no money. Like that was the driving factor.
- [18:25]
Luke
Driving factors. I wanted to do real estate and I was dead broke. I mean like we bought the business. It was actually a failing business. And I have a, at the time we had I think two kids, a wife and two kids. And like we lived off 12 grand for multiple months, like just barely like poverty status basically. To, like, make this happen. And so it was. Yeah, I mean, it was like desperation. Honestly, knowing what I know now, I took a lot of risk and didn't even necessarily realize it at the time, but, I mean, obviously, I'm glad I did.
- [18:54]
Brody Fossett
Yeah. Yeah. Especially because it seems like that got the ball going, got you some momentum right out the gate. So what. What. Not to dive too deep down this path, but, like, what. What got you to the point where you're motivated to get into real estate, where you're like, oh, I want to go figure this out. Was it the rich dad, poor dad course thing, or.
- [19:15]
Luke
Yeah, I mean, reading Rich Dad, Poor dad, one of my friends gave it to me when I worked my W2. I traveled almost every week. I'd fly somewhere Monday and fly home Friday. And so I really only worked three days a week, but I had those travel days. I could do whatever I wanted. So I just read. Read books and listen to podcasts, you know, listen to audiobooks, and just like, I started with rich dad, poor dad, and you just kind of go down that rabbit hole, which I'm sure most people have gone down of this book, returns into that book and these people, and you start following different things. And. Yeah, I mean, just. I got to the point where after, like, six months, I was like, this is great. I'm going all in. So then we did, like, the rich dad courses. We bought into some of those things and just. Yeah, you learn things, and, like, the further you go down that trail, the harder it was to show up to my W2 every day of, like, what am I doing here? Like, I can make this salary in a year, you know, working 80 hours a week, or I can, like, do my own thing and maybe do it in one deal.
- [20:05]
Brody Fossett
Yeah, 100%. Yeah. I love that. It's interesting. I was. I was talking. I know Julie's on this call. Just. Sorry. But we were talking last night because they're out in Maui as well, and they came to the conference, and we're just talking about it and how it was for them, and I was like, man, it's. It's more of a sack. People don't realize it's more of a sacrifice for you guys making it out there, because you got a day of travel and a. And a day back of travel pretty much, where some people, they just. They drive around the corner. They drive a couple hours, and. And Mike. Mike's like, yeah, but on the flip side, like, we have to get our value out of it. So, like, we go into it you know, with that, and it's like, we have to make it worth it. Right? And I think that kind of what you were saying, just with you start going down that rabbit hole, I feel like you're, like, invested in it at a certain point where you're like, all right, now, like, I gotta make this thing go and work. And. And hopefully you guys feel that a little bit with, like, real estate investing school, where you're like, hey, I'm. I'm here. I'm showing up. I'm putting the time, like. Like, I'm. I'm a person who, when I put in the time and I commit to something, I get a return. Right. And so you have this mentality where you're like, I'm gonna go make it happen. I'm gonna go figure this thing out. And the content can be amazing, but if you don't do anything with it, it's not really gonna do anything for you. So I like that point. Okay, cool. Next question for you. Can I keep going?
- [21:28]
Luke
Yeah.
- [21:30]
Brody Fossett
So the bank is something. It's interesting, and it's important to bring up. When you guys that are listing or trying to go out and replicate the same thing, there are certain things you have to watch out for and be careful of. One of those is. Is obviously like a lender a lot of times, especially if it's a traditional loan, they're underwriting this and they want. Right. To take as much risk out of it as possible. That's why you get a credit check. That's why, like a traditional route, you know, that's why they have a down payment required. Usually. They want to make sure you have some skin in the game. And they also want to go through the thousand steps a lot of times of making sure that it falls back on you if for some reason it doesn't perform before it falls back on them. Right. And so part of that, like, when you now are talking about borrowing money from somebody else for the down payment, which is essentially what it is, right? You can run into some. Some different hiccups with that, and some lenders won't allow it. Some will, but you need to, you know, disclose that. And. And there's different ways to. To do that and not to do that. But, Luke, can you kind of walk us through that piece of it? And I think. I think this is an interesting part because some people are more experienced on here, some people are newer, but either way, kind of what you've done with your bank early on and even now. So, like, I know all the other Deals that you've done with them. And anyhow, maybe touch on that and just touch on the power of that.
- [23:02]
Luke
Yeah, I mean, I think when I started with my bank, so again, like, I think part of it was because I was reading all the books and listening to podcasts. Like, you. You're all taking these different baby steps to get there to the end goal of, like, buying a property or buying portfolios. But it takes some people. It takes a week to get there. Some people takes years or they never get there type of thing. I was kind of in that. In between, like, probably took me a solid year and a half to, like, go from reading rich dad, poor dad to, like, let's actually make that. You know, do that step and, like, buy a property. But, like, in that year and a half, year to year and a half, somewhere in there, I started building that relationship with my banker. And so I met him at, like, one of the networking events, you know, your local, like, chamber or whatever it was, and just, like, started talking to them and just really befriended them. Not, like, because I knew. I mean, I knew down the road I would do business with them. But it wasn't necessarily, like, I'm gonna befriend you tonight because tomorrow I'm gonna make this ask for a loan. It was really just like, hey, Adam, I'm new to this. I'm trying to do something here. Like, my bigger picture is. Is more than just one loan. Like, I'm looking 10 years, 20 years out in the future. Like, let's set myself up. Like, let me take your knowledge and your resources and, like, pair it with what I'm learning and see if we can make something happen. And so we just leaned into that with him together, and, like, he helped me underwrite a ton of deals. Like, before we bought our first one, I would send him the numbers and be like, I think this is a good one. Then he'd just redline and be like, you're an idiot. This is not even close. And then we'd go through that again. But I was learning that iteration. But doing that, I built that rapport with him to where he trusts. Like, you did the work, you put in the homework. So, like, now when you bring me an actual legit deal, and maybe it's a lot closer, he could kind of coach me in and be like, hey, this is how we're going to get it done. Let's bring it to the finish line this way. And so he let me. Like, our. My local bank's fine with that, knowing that I'M doing seconds with the seller or I'm borrowing private money type of thing. Even today, like, a lot of times he'll be like, oh, where are you getting this money from to buy this deal? And I'm like, I don't know. I'll borrow it from somebody, I guess. And he's like, okay, yeah, just make sure it's here by closing day. Like, okay, I'll figure it out. But I mean, you don't get there day one. Like, there's a track record. Obviously, I've had to get to that point. But yeah, I mean, I think the biggest thing was just working that through with him. And one thing my banker really helped me with was I started. I built a spreadsheet of, like, how to anal analyze a deal. And then he took it internally and we actually sat down. I remember one day in his office, like, we sat down, went through my spreadsheet compared to what the bank would use to underwrite, and we just basically, like, line by line. He tweaked my spreadsheet. He was like, oh, your calc's off here a little bit. You need to tweak this. You know, allocate this percent instead of this percent. And just, like, coached me through it. But then, because we did that, now we had trust. Like, the next time I send you numbers, it's exactly what I'm going to underwrite at anyways. So, like, I can pretty much assume what you have is going to be what I'm going to get and we can do things a little bit quicker. But yeah, I think just building that relationship, but also that experience there with them.
- [25:59]
Brody Fossett
Yeah, too. Yeah, I'm your mouse. I don't know, a month ago or so, A couple months ago. And. And we were talking about it because I think. I can't remember how fast it was. I want to say it was like one or two weeks. But you're like, oh, I need funding for this, for this deal. And he just, like, got it done.
- [26:17]
Luke
Yeah, I mean, where I'm at today with them, it's pretty much a text message of like, hey, I'm gonna need a couple hundred grand. Like, we're starting a new construction house next week. And like, two weeks ago, I was like, oh, crap, we're gonna start this in, like, two weeks. I need funding. I don't have money for the foundation to go in. Like, it literally just sprung my mind. So I text him like, hey, I'm starting this house. I forgot about this. I need funding. He's like, oh, okay, we Signed the loan last week.
- [26:42]
Brody Fossett
Awesome.
- [26:43]
Luke
I mean, you can get there, I think, with most banks. I mean, the. Obviously the national banks are probably never going to get to that point, but I, I'm a huge proponent of. Use your local banks, your local credit unions, you know, those local contacts, they want to see money reinvested in your local market or whatever market you're going to. So, I mean, they, they wanted. Their job is to get money in the market, right? I mean, they want to bet on good people as well on good deals, but their job is to get money out.
- [27:11]
Brody Fossett
Yeah. 100. Yeah. I think that piece is so important. I had a conversation with a. A lender yesterday, and he was literally like, like, normally wouldn't do this, but like, like, yeah, like, I'm willing to make an exception for you guys, you know, and like, little stuff like that where it was just like taking the extra, extra time to, like, establish more of a relationship. And I think I've said this before, but there was even a, a time when this is a couple years ago, but we're doing a deal with, uh, a local bank and, and they take it to their board, right, to like, underwrite it, evaluate it and everything. And same thing is like, this is an area that, you know, like, we got burned in during 08. Which I'm like, okay, like, pretty much every area got burned in 08. But. But he's like. But like, the response from like, the board was like, oh, yeah, we know Brody and his wife and they're great people in the community. And just like that. That went such a long ways. And then he remembered that even though he, like, I didn't know him as well that I was working with, but just the fact that other people had good things to say that were on the board, he was like, oh, yeah, like, we're. We're happy to do more deals. So kind of going back to this one, I think that. Well, I guess. I guess on the financing piece, just, just touching on that as well is like the more traditional you go, there's probably going to be a little bit more difficult to get something like that approved, right? If it's just like your normal, you know, like FHA loan, for example, right? There's like seasoning periods. Sometimes you have to have money in your bank for so long, they'll track it back, like, where it came from, because they want to make sure that, you know, they're not getting in over their heads funding your project. But. But there's so many other ways where, like, a lot of Times, for example, like a hard money lender, right. They'll charge, you know, 10% down to 15% down a lot of times. Well, guess what? Do they really care where that 10 or 15% down is coming from? They don't. They don't care. Right? They don't care. They're looking at the deal. They're underwriting the deal based on the ARV and based on the potential that it has. Like, they don't care where the money's coming from. They're not going to go like sort they'll fund in as little as 24 hours sometimes they're not going to go and check and make sure there's a seasoning period on your, in your bank account. So that's just one, one example of the way to do certain things with this. And don't. I just want to make sure people don't get in this like, fixed mindset of like, oh, this is really difficult to get approved for the bank because they want to see all my, my capital sitting in my bank. Like, don't. There's so many ways to do it. So. And that's just one example.
- [29:59]
Luke
Yeah, I got two things to add to there, Brody. One, like my seller finance side, the note that he gave me, it wasn't even necessarily like we didn't file a second mortgage on the recorder site. It was just a promissory note. So there was nothing like sketchy about it that I wasn't disclosing the bank, but the bank was. They always want to be in first position. Right. And so the promissory note, it accomplished what the seller needed for security, personally guaranteed by myself. But I didn't have to record that mortgage. So like I had a deal with this guy separately. Be no different if I borrowed money from anybody on this call, we have a conversation, I send you a document through DocuSign. Whatever I do with that money afterwards, like you have security based on the promissory note and so I can go put it in a deal. The bank has no clue. But like I'm not lying to them saying if they ask me where I got the money, I would tell them. But you don't necessarily have to always file a second mortgage. There's ways around it. And then the other thing, I'm a huge. Since day one, I've only ever used like commercial financing. And so like a lot of people want to go to the FHA route or like just personal loans and stuff to buy the first couple, which might work for them. But for my scenario, I was Self employed from day one. So I, I was never, I. Even today I can't qualify for like a home loan. Like I don't make, I don't make enough money type of scenario. And, but that's the beauty of like the commercial. There's so much flexibility there. You basically write your own rules. Like we use credits all the time. If I'm a little short on cash, we'll increase the purchase price with credits back in order to buy the property. And so it's like you're fabricating down payment money out of thin air. But the bank doesn't care. It's commercial loan, it checks all the boxes. And so there's, there's so many ways to like force that down payment to come out of thin air. That's why I'm a big person.
- [31:40]
Brody Fossett
A little stuff. Yeah, I'm glad you brought that up. Like one, like the second, like that's important just to touch on. So people that have never heard that or they're aware. Right. Like, like you said, banks, a lot of times they want to be in. Well it depends. I mean like you'll go, a bank will do a second secondary mortgage all day long if there's enough equity in it. Right. If you have a two million dollar piece of property and you owe one million dollars on it, you can go get a bank to, instead of refinancing that million dollar debt, so you have a good rate on it, you're happy with all that, you can go get a secondary mortgage for $500,000. Right. Your LTV still there. The bank feels good about that. And so a lot of times it's first or second position. And if you even talk to like hard money lenders or private money lenders, if they're going to loan on a deal, a lot of times, same thing, they want to make sure they're, you know, towards the top. If you're in fifth, sixth, seventh position, that means if something happens and the property defaults, it goes all the way down the line before you get, before you get paid. Right. And so that's why obviously they're mitigating as much risk as possible. But with that being said, when it comes to, you know, the seller financing part of it, when he's talking about filing a second, does that, that make sense? Everybody, everyone catch that is the difference in having a promissory note, which essentially is, you know, could even be like a personal loan if you look at it that way. Right. And you're guaranteeing that loan versus that loan being backed by the property and a second second mortgage filed. So a lot of reasons that's cool is because one, it shows that you have a lot more equity in that property than you probably like technically do. Right. Which is good for a lot of reasons for, for getting better rates, for, you know, getting lines of credit, all, all sorts of things. So cool. Glad we touched on that. Yeah, this could be a financing, a financing deep dive for sure, dude. Okay. Anything else with this deal that you want to touch on? Like, I think, I think the, the important things is you cash flowed on this from day one. Right. I know it wasn't like insane, but when you're no money into something and it cash flows and I know later you sold it for more money than you bought it for, that's a good deal. But anything, anything with those pieces of it or kind of finishing it up that you want to touch on.
- [34:07]
Luke
Yeah, I mean, I think the biggest thing. So I did cash flow positive, you know, for the majority of the time I held them type of thing. I think the, the cool part was like we had these properties, they were older, they had deferred maintenance. Like we had to put money back into them, but I didn't have any cash obviously, like we talked about. So I was just using the cash flow to fix them up. But like if I would have put down that down payment, how many more years delayed would have been type of thing. So even if you have some money, like using this type of strategy, preserve your cash for the, you know, the upgrades or just like the what if scenarios, you know, like these two properties, we had two fires the first year, one at each property. Just like stupid kitchen fires from grease and stuff that like I honestly didn't have the money. Like I don't even know where we got the money to pay for it, these repairs. But like the cash flow helped a little bit and we just made it through. But there's, you know, there's risk there as well. I mean if you don't have like literally any money, you can't weather some storms. So I mean, just keep that in mind. You probably want to have a little bit of safety net or at least a source of cash that you could pull from that's somewhat liquid. But I mean at the end of the day it, I mean, you guys have all heard it, I'm sure too, like you're not going to be upset. You bought real estate in five years. So like the time is now to do it no matter what the rates are. The other thing too, when I was looking Back at my records for these properties, my seller finance Note was at 6% at the time, that felt like it was super, super, super high. And so I'm like, oh, mean 6%. I, I would do that deal all day. So it's all relative. I mean back then it works today it could still work. We just bought a seller finance warehouse couple probably a month or two ago, 100% seller finance. You know, it still works in this market. We just, you tweak the strategy a little bit.
- [35:47]
Brody Fossett
Yeah, it's so good. I love that you touched on that. And then I, that resonates so well with like what we teach and focus on. I'm glad it does or else I'd have to be like, sorry, dude, I don't think so. No, but, but just like now is the time. But then also understanding the, the way the world works and even like chat, GPT, Google, like what it's going to naturally tell you is you need to put more money down because it eliminates risk and it allows you to cash flow. Right. And 99% of the time, if you're putting in more money so that you can cash flow, you're not getting as good of a return. Right. And so I think it just not only that eliminates you from doing other deals in the future, it eliminates you from having that safety net to be able to fall back on. It eliminates you for another opportunity that might, you know, come from out of, out of the side. You never know. And so I think that just want to focus on that and, and highlight what you said because a lot of people don't think that, and that's obviously what we want to help you guys do, is like think differently and think about things differently. Not the same way like your parents think about it. Right. Like to me, and we've talked on this a lot, but like, just because you can go pay cash for a house, it doesn't necessarily mean that that's, that that's less risky than having that money in the bank and getting a mortgage on that $250,000 house that costs you, you know, $1500 a month. And now you have $250,000 sitting in the bank. Right. Like, to me that's way more safe and secure than, and giving you setting yourself up for a bigger, better opportunity than it is on the other side where people like crying that interest rates are 6 or 7% and you have to put that down or else you're not going to cash flow unless you pay cash for the property.
- [37:47]
Luke
Yeah, I Mean, a prime example of that too, Brody, is like right now we have, so we're in the escrow to sell our house that we have in Florida. And we had to put in over 100 grand on through the purchase and some repairs that came up. And then just, we kept shoveling cash into this deal. And so like we're selling it probably a forty thousand dollar loss, but the market swung. Like just all the variables in the market, the rates are high, like all these things, we're just taking that loss to kind of cut our losses and move forward. Whereas like there was so much risk in that deal that I'm like, man, we really screwed that one up. But this first deal I did like I had no money in. So if like the fire happened, like I said, I didn't have any money. I don't know where I even got it. But like I just got scrappy. And you can get scrappy and make a thousand bucks here, $2,000 there, but when the market's changing stuff and like the bigger economy, it's just wiping out tens of thousands of dollars. Like you have very little control on that. It just happens to you. Versus if I don't have money in this deal, I can go get scrappy and make it work and just ride it out and get through it and in three years sell it off or whatever you need to do.
- [38:48]
Brody Fossett
Yeah, yeah. Cool. The only last kind of thought is I, I had on this one. I, I know these properties, they weren't crazy expensive and I don't know what, what class they were or anything, but a couple hundred grand, right, that you got it all for. The crazy thing is this works for millions of dollars of real estate, not just a couple hundred thousand dollars. And this is where it can like absolutely be eye opening and just blow your mind because you can go, you can do the exact same thing. On the flip side, maybe you have a seller that's willing to sell or finance 60 of the property and you go and raise 40% of the cash that needs to be for the down payment. And they're, you know what it's worth or, right? You get good terms on it. You go maximize the property, then you have the bank refinance all of that. You pay off your investors, right? So it's just a mix and match. It's just a big like puzzle game of figuring out what works. But I love it because you're not capped at just like imagine if you would have put a few zeros behind, behind this deal. You, it has no effect on if you're able to get it with no and low money down, you know, like still the same principles apply. That same seller would have still seller finance that portion to you. Right? Because it's the same exact math, just on a larger scale.
- [40:07]
Luke
In today's market too, it's probably one of the best times to go back towards seller financing. Like when the market was riding up the last four or five years, people didn't necessarily need to sell their finance. They're like, I'll just put a for sale, fine, it'll sell for, you know, 50% more or whatever than I paid for it. Whereas now it's the tougher market. So now they're people that need to sell because they're in trouble or whatever is going on in their life. Like now they're like, these are my options. This is an actual real option. I'll entertain and I can make some money or defer my loss for a few years. Like, sweet, let's give it a shot.
- [40:38]
Brody Fossett
Yeah, yeah, I love that. And like, obviously it worked for you in that situation, right, that you were in, especially with the seller being an investor, etc. Like, what other types of properties or sellers or situations do you think that, that this approach is best suited for?
- [40:55]
Luke
I mean, I think you can work honestly in any purchase in general. I mean, like you just said with the zeros and stuff, you could really turn into a million dollar property. But I mean, I think it's probably best suited honestly for almost the bigger deals and the, the bigger it's really geared towards like investors selling off stuff because they're savvy, they understand rates, they understand margin, they understand their tax liabilities. And so those are the people I would probably lean into more. Like the average homeowner probably doesn't understand some of these variables as well. But like an investor selling stuff, like when I sold different properties, I've actually done the same thing the seller did for me. I've done to get rid of properties because they weren't super desirable properties. But like I needed to move some equity around 1031 and into different properties. And so like I have a couple seller finance notes out there right now that I'm the seller on them. And it's the same thing. I was like, sweet, I can get 80% of my money and get out of here. Like, that's, that's what I need to do. And the payments will come in whenever they come in. But yeah, I mean, I think in today's world, if you can find somebody in distress at all or you can even smell that distress on them a little bit. And like, especially in the investor world, proposing an idea like this is almost like music to their ears because they're like, sweet. I get really the best of both worlds. I get most of my money up front and I'll. I'll wait for that small check on the back end.
- [42:12]
Brody Fossett
Cool. Yeah, I love it. So good. Yeah. Luke, anything you want to leave us with, dude?
- [42:20]
Luke
Yeah. Buy a deal today. Get it done.
- [42:23]
Brody Fossett
Get it done. Go buy a deal today. At least submit an offer. That's not that. That's. No.
- [42:31]
Luke
I mean, I think honestly, like, I've talked to so many people in our local market and stuff that are just sitting on the sidelines and like, I'm super excited. Like, this is like the best time. I mean, it's like goes to the quotes of like Warren Buffett and stuff. When people are greedy and scared or whatever, like, now's the time to buy, I think. I mean, there's deals out there. I just looked at a 2.5 million dollar deal in our market that like, it doesn't really cash fall that well, but like, I can get creative and do some cool stuff with this gym. But it also comes with an acreage in the center of town that I can build probably between 40 and 50 units and maybe I just sit on it for a year or five years, who knows, you know, and build something. There's. Even if it doesn't work today because of rates, like, there's still. You're setting yourself up like there's a foundation you're laying now in these tougher times and like reducing, you know, your expenses, like through our mastermind. We're in. Brody. Like, one of my goals this year is just like reduce overhead, just kind of streamline stuff. If we're not able to buy a bunch of deals, then let's work on the business itself and like, let's hone everything in so that when we're ready and the deals present, like, we're just the best we could possibly be to get something done.
- [43:38]
Brody Fossett
Yeah, I love that. I love that, dude. That's so good. And we'll, we'll throw like your Instagram handle and different ways people can, can kind of connect with you as well so that they can loop back around. But dude, this has been super good. Thanks so much, man. Just for, for. Yeah, giving us your time, dude, and just, just going through this. It's so, so valuable, man. So valuable. And I think that those you guys are listening are going to take this and run with it like you're going to be able to go do something special. If not and if it's just kind of like oh cool, like learn some stuff today, yada yada, then that's what you're going to get out of it. So go implement it. Like the best way to do this strategy, especially going off of Luke's story is like just go through it. You know, you work way through it. You don't understand it perfectly. Like you're going to figure out a lot of stuff along the way and that's why like your first deal is sometimes so powerful, right? Because you figure out what you don't know and it gives you momentum to, to keep on going. So whether it's your first deal or your your 10th deal, it doesn't matter. See if you can implement something like this.
- [44:43]
Luke
So I appreciate you having me on. Thanks everybody.
- [44:46]
Brody Fossett
All right, much love, guys. Take care. Thanks Luke.