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Real Estate Investing School Podcast
250. REAL DEAL: Co-Sign Your Way Into Real Estate
00:17:05
Welcome back to the Real Estate Investing School Podcast! In this episode, host Brody Fausett explores a unique strategy for real estate investing through co-signing and owner-occupying, termed the "POP method" (Power of Primary). The core of the...
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Brody Fossett
Do you have a little brother? Do you have a little sister? An older brother, an older sister, a family member, a cousin, whatever. Where you could go structure something like this and set something like this up, that creates a win win scenario. What's up, guys? Welcome back to the Real Estate Investing School podcast. This is your host, Brody Fossett. This is a real deal series where in this show we talk about one real estate investing deal and just dive into the ins and outs of it so that you can learn, you can replicate it and go create it for yourself and build some passive income. One of the best ways I feel like I learned real estate investing is from hearing other people talk about deals they did and just asking questions, you know, how did you do that? How did you fund that? How does that work? What happens if this were to happen? How did you get approved for this much? How are you charging that much in rent, right? What's your payment on that? All these different things that come to mind when you're talking about these deals and when you're learning about them, it's so cool because you learn so much and that goes in your tool belt. And guess what? Next time you see a deal or you have a project, you have all of these tools and you have a highest chance of getting the job done because it's all at your disposal. So that's why we have this show. We try to keep it short and sweet, to the point, really. Just talking about how the deal was found, how it was funded, and then how it was forced, which is my favorite part, talking about how to go force a deal. It's really cool and it's really special because you learn different ways to look at deals. And we talked about this on a couple podcasts ago, but this concept of the property that I bought, this was a guest saying that it had been on the MLS for a while, had been on the market for a while. And I found it and I bought it and it cash flows really, really well. And it's like, well, how did that happen? Because you have so many people that are over here saying, hey, I can't find any good cash flowing deals right now because interest rates are so high or because it's so competitive, or because of this, that, that, that, that. But then on the other hand, somebody goes and finds a deal that's been sitting on the market for months and they buy it as is, they pay the same price, right? And then it cash flows and it's this amazing deal. And ultimately a lot of that comes down to the deal Right. How they got creative, how they saw it with a different angle or a different lens than most people are looking at the deal. And so the only way to do that and kind of develop that superpower or develop those extra pair of glasses or those ways of looking at deals differently is to learn about as many deals as you can. And so the more you learn about all these different deals, the more you can start to look at a random deal that someone's going to pass up. And you can say, wait a second, I learned about this, or I heard about this, or I know a guy that did this, this, and this, or a girl that did this, this, and this. I wonder if I could do that here. And it would turn it into a really good deal. So that's why we talk about this. That's why we have this show, even from the funding standpoint. Right. And financing, like, that's another strategy that's fun to dive into because there's so many different ways to finance a property. And a lot of times, the way you finance the property makes all the difference when it comes to making it a good deal or not. And a lot of times the forcing and the funding, they go hand in hand. Because if you're paying a lot less for a property, if you're paying, you know, a lot less of a down payment, chances are you're going to cash flow a lot more money. It sounds counterintuitive because you're like, oh, if I put less money down, it's not going to be the same. Because what's going to happen is I'm financing more money, so my mortgage is going to be a lot higher. My payment's going to be a lot higher. So I won't cash flow as well? Well, actually, it's the opposite, right? Yes. Your payment might be higher every single month, but because you're into it less cash, you're getting a higher cash on cash return, you're making that money back quicker, and now you can go redeploy in another deal. So that's my going off on a tangent before we even start this show. Thank you for being here. This episode is going to be a little bit different. Today. I am going to talk about. This actually isn't even a deal. It could be a deal that I've done. And I'll tell you what I mean by that. But most importantly, this is a strategy that I wanted to bring up and tell you guys about because more people need to be doing this. And as you know, like, anytime there's a good strategy or something that's going to allow you to get a high cash on cash return. It's going to allow you to build a massive amount of passive income and get you ahead in life to where you can start to trade that passive income for that active income and buy back more of your time. That's what we're all about, right? And that's why you're here. And those are the things that you're here to learn. So don't forget that, like when real estate investing gets tough, when it gets tough to find a deal, when it feels like it's this lonely path, don't forget the reason you started, right? Don't forget that it's all worth it. As you kind of build this up and time goes by fast, things happen so fast. Like literally fast forward a few years, like three years, right? Not that much is probably going to change from your day to day lifestyle. Like you probably have the same job three years from now. Like maybe you've added another kid in the mix, I don't know. But for the most part, most people, they're probably living in the same house, they're probably doing the same daily routine, right? All these things, not much changes. But if you set this goal and you're like, hey, I'm gonna go buy creatively, like one deal a year for the next three years or two deals a year, and maybe you don't even have the extra income to be able to do that. And so you, you set this other goal of saying like, I'm gonna go creatively finance these deals with no and low money down, and I'm gonna do one a year, two a year, three a year for the next three years. Or I'm going to build up $1,000 a month of passive income, you know, every year for the next three, five years, that time is going to pass. And when it does, you're sitting in such a better spot because you mentally made that decision. So what I'm getting at is now is the time to do that. Now is the time to make that decision and yourself three, five years from now will look back and be like, thank you, thank you, thank you for making that decision. Because you are like, you set us up. We're living such a better life and we have so much more breathing than we did before. So with that being said, the strategy I want to talk about today is actually a mixture of co signing and owner occupying a home or the POP method. The POP method is the power of primary, right, the power of a primary residence and what's so powerful about this POP method, which could be house hacking? It could be. You know, it could be a secondary home loan, right? Like all these different things, but ultimately, pop, like the power of primary. Being able to go live in this home as your primary residence home, allows you to get way better terms when it comes to financing, okay? And that's why we do it. That's why we talk about house hacking, all these other things. Now here's the spin on it, okay? Co signing. So this goes both ways. And what actually made me think of this is having my little brother on. And we were talking about his first deal that he's. That he did. And we started talking about how before he did that, like, he didn't have the. He didn't have the credit. He had some money saved up, but not enough. And so this idea came up of like, hey, well, why don't we partner on something? For me, right? What I'm bringing to the table as Brody, is the expertise is maybe the credit, right? If I'm the one signing on the loan and then maybe even a little bit of the money, right? That could be everything I'm bringing to the table. Even though I probably wouldn't need to bring the money to the table if I'm bringing the expertise and I'm. And I'm the one co signing on the loan, right? And I'm bringing the credit. Now what is he bringing to the table, right? This could just be the money. But this is the most important one, is he is bringing that pop, that power of the primary. He's willing to go live in the property, whatever property we buy. He's willing to go owner occupy that. So why is that important? And why would I want to partner with somebody like that? Because I already have the experience, I have the cash, I have the credit to qualify for a loan. Well, this is why it's important, is because he's willing to live there now, it qualifies for a completely different down payment, completely different terms, better interest rates, all these different things. And so I can now co sign for him and we can develop this partnership and he can go live in that property. And then what we can do is split the cash flow. We can split the equity, right? You can divide it up however you want, obviously consult your attorney with all that stuff, making sure that you develop a good partnership that's legal and that it works, and talk to your lender and all that good stuff. But ultimately, I wanted to bring this strategy up because when I think back, this is actually How I bought my first house, in a sense, right? I was hungry. I wanted to learn more about real estate. And that kind of came actually after I bought my first property. But my parents co signed for me. I didn't have like a very steady job. I had some money saved up because I was working construction in the summertime and I knew how to work really hard, but I didn't have credit, I didn't have consistent income. I'm a, I'm a college kid, right, getting ready to go to school. And I had no idea how anything worked with lending or with buying a house. And so ultimately, like, my parents co signed for me. Later on, as I started to make more money, I refinanced and got them off of the loan, right? And you guys have probably heard that story, me talk about that. But the reason I bring that up is because if my parents could go back, they would probably change now the way that they structured that partnership with me, instead of just saying, hey, we're going to help you and co sign for you to get into your, your first house. Instead they might say, hey, we're going to co sign for you to get you into this house. But here are the stipulations. You're going to come up with half the down payment, we'll come up with the other half and we're going to split everything 50, 50. And for me, right, that like that house cash flowed, you know, $1,500 plus every single month after all the expenses for years and years and years, right? So that's a lot of money that they could have picked up on. The value of it increased by hundreds of thousands of dollars. They could have owned half of all of that, right? And so I'm not saying this from a standpoint of like, hey, if you're a parent, like, make sure you, you be greedy and you structure something to benefit you a little bit more. That's not the purpose of me bringing this up at all. The purpose is just to understand there's different ways to structure these partnerships. And we can look at it saying like, what do I bring to the table and what does this other person bring to the table and how do we create like this win win scenario? And I wanted to bring this up because there's certain things that come with this, right, Like a lot of times and this is where you, you know, you consult like a really good lender. But a lot of times, like you have to be related in order to co sign. Not all the time. Sometimes it's not a requirement it works out that way, but a lot of times you have to be related in order to co sign for them. But looking at this, it changes everything, right? Because even if you do have the money, like for me, like okay, I had the money to put 20 or 25% down and go do an investment loan, okay, why would I want to partner with my little brother then? Well instead now we can put, you know, 5% down or less, still get into the exact same asset he that's his. Since he's not using his credit or he doesn't have the credit, he's willing to put down 100% of that 5%, right? So he brings that to the table and he's willing to live in one of the units, so. Or one of the bedrooms if he's single and we rent out the other rooms. Or maybe it's a fourplex and he lives in one of the units and we rent out the other three units. Or maybe it's a duplex or a triplex. Same thing, right? All about how you can go create this win win and structure this thing. So hopefully this got your wheels turning and it's making you think about something a little bit differently. Do you have a little brother? Do you have a little sister, an older brother, an older sister, a family member, a cousin, whatever. Where you could go structure something like this and set something like this up that creates a win win scenario. And the cool thing is if you can show 12 months of them paying the bill, like it comes out of their bank account right to the mortgage. The cool thing is when you go to qualify for another property, it's not going to show up on your debt to income ratio. Like you can show that like I co signed for my little brother for my little sister and they've been able to make those payments, right? The other cool thing is if you wanted to get off the loan a lot of times and once again talk to your lender about all this stuff, but a lot of times you're able to get off that loan fairly easy because you can show and they can show, hey, I've made the payments from my bank account for a year now, like I'm good, things are steady, they're not going anywhere and this allows you to go and recycle or go do it again and just free up some, some space for you on your debt to income, but maybe still own the asset and still capitalize on the cash flow. Eventually they move out right of the unit of the bedroom, whatever it is, and you get somebody else in there and now it's cash flowing even more because maybe they were living in there for free. And that was part of your agreement. Whatever it is, you can structure it however you want. But I wanted to touch on this. Hopefully your wheels are turning. If you are somebody who doesn't have the credit yet, or maybe you don't have the capital yet, and you're listening to this, who can you go partner with that does, right? Who can you go partner with? Because maybe you're the one that's willing to go live in that unit and take advantage of the pop, the power of the primary. You're the one that's gonna move in. And this is such a cool strategy because you can do this on very large scale properties. You know, like, like something came up the other day and it was a couple million dollars, but the property, the way that it was set up, like they had a casita in the back and they Airbnb the casita there was an entire level below the house. And that loan was like 5,000 square feet. And that was rented out separately. It had a pool, a putting green, a huge detached garage, and they rented out spaces in the garage. And the point I'm making here is like, you can go house hack, slash partner this multimillion dollar place and you own half of it and maybe you've, you got it at a good deal and you go to your parents, or maybe it's somebody else or a business partner and you're like, hey, if you, if you can co sign for me on this because I don't have the income, whatever, whatever, I'm willing to actually go and live in here. And maybe it's a larger loan and a larger down payment, but maybe they're willing to pay that because it's 10% down or 5% down as opposed to 20 or 25% down. So they're saving a lot more cash, right, which is going to help them get a higher return, even though they only have half of the equity in the property. So different ways to skin the cat. And obviously, the more you understand, the more you learn about these things, you're able to take that ammunition and you're like, I can take all these things that I learned and now I can go plug it in here. Does this work here? I can plug it in here. Maybe I could talk to somebody about this or about this or about that. So I just want to get on here. Even though it wasn't specifically talking about, hey, this is the actual deal that I did. This is the actual real deal that I did. This is an amazing strategy that so many people are doing kind of by accident, but they're not taking full advantage of it. So go take advantage of it. Whether you're on the side of you're actually the one co signing because you have the credit, or you're on the other side of it, or you want to get into real estate, but you might not have the credit. Either way, there's a way for you to go structure it and find that perfect partner that creates that win win scenario where you guys both benefit from it. So thanks for tuning in today. Go take this. Go apply this. Go follow us on Instagram ealestateinvestingschoolst. Go follow us on YouTube and all the other good spaces. Make sure you're subscribed. Show us the friend and we'll catch you guys on the next one.