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- [00:01]
A
Welcome to Real Talk Real Estate, the show where we cover how to build wealth in real estate with no fluff, no bs, and no sales pitches. I'm David Green, and I've been doing this for over 10 years. I've seen the ups, the downs, and everything in between. This is the show where we pull back the curtain and show it to you, too. So if you want to build wealth through real estate or you just love learning about it, you found your home. What's up, everybody? And welcome to the David Green Show, Real Talk Real Estate, the show where we pull back the curtain and show you what goes on behind the scenes of real estate investing. That includes the good, that includes the bad, and it includes the ugly. Sharing with you the things that you're not going to hear on the other podcast. That's right, we're not basic. This is special. Today I'm joined by Tanner Litchfield, who's got a deal that, frankly, blew my mind when he told me about what went on with it, especially because it's coming through a strategy that many people have heard is the safest way to invest in real estate. So buckle your seatbelt, get ready for an amazing show, because you're going to learn some things that you've never heard before. Tanner, welcome to the show.
- [01:07]
B
Thanks for having me.
- [01:07]
A
Thank you, first off, for having the courage to come in and talk about $180,000 that was lost. Nobody wants to do that. Everybody always wants to share their wins. They even probably gloss up their wins to make them look better than they really are. And the result is we have an entire. I don't know if community is the right wor, but we have an entire ecosystem of real estate investing where everyone thinks that everyone else is doing better than they really are. That leads to everyone feeling bad about themselves. It's kind of like before it was commonly known that magazines have airbrush models. And I'd have to hear my mom and my aunts and everyone like, oh, these women are all so gorgeous. And I'm over here looking bad, and I had a really pretty mom. There's no reason for her to look bad. But when everyone else is edited to look better than they are, you start to feel like there's something wrong with you. And what we're trying to do in this series is help people realize that there's nothing wrong with them, that there's everything wrong with the way the deals are presented and wins are presented. So thanks for being a part of it.
- [02:02]
B
Of course, brother.
- [02:03]
A
All right, so let's start Off. Tell me about how you found the deal, where you were when you found it, what about it called out to you? What emotions were you feeling when you saw it?
- [02:12]
B
Yeah. And I'll put one point out like, I appreciate what you're doing, David. I think the sentiment in social media is that everything's better than it is. That's exactly what I try and do. And my social media is scream more about my losses than I do my wins for this exact reason. So I applaud you for that. I think it's super helpful. This deal came about. It was probably 18 months ago. I was born and raised in the Seattle area, and that's where I started my real estate career. And to keep a long story short, I was growing my portfolio, my career out in Seattle. And then my wife wanted to get closer to family. She won the battle. That's the long story made short, of course. And we brought our way out to Utah and we sold a live in Flip in the Seattle area. Kirkland. More specifically that. Oh, yeah, we did. Yeah.
- [03:15]
A
Shout out to Michael Green, my cousin who works in Kirkland. They're from Bellingham and they moved out that way. So that's pretty cool. You might have ran into him at some point anyways. Completely irrelevant. But, yeah, I know where Kirkland is.
- [03:27]
B
Yeah, Kirkland's beautiful. I freaking loved it. I loved the house. So I still have some attachment there, but we sold that house. Did really well on it. It was in the middle of COVID so less on me as a skilled investor more than market propelling me. I had this lump sum of money that I was excited to get to work. In my mind, when I have money set aside, especially in that larger quantity, I get anxious about it. I need to put it to work because I feel like it's gonna lose money and I want to get ahead. Right. So that was kind of the background on where my head was at. And I came to a brand new market in Utah, starting over, trying to deploy this capital in Utah. And so this was right around 2022 or the beginning of 2023, when rates had skyrocketed. And now you're starting to hear creative finances thrown in your face all over. And I had done brrr previously. Because rates were low, I could refinance. And it made sense. Now that no longer made sense. So I felt like I was starting over, fresh as an investor. And social media, Facebook groups. The new buzzword was creative finance. Now, I didn't know much in general about what creative finance entailed. I didn't know that creative finance was an umbrella of several different strategies. All I knew was I could get a low interest rate and I could cash flow in appreciating markets. And so that kind of hooked me. And so, long story short, again, because we could talk for days on this, I was introduced to a wholesaler. We went to lunch. There was portrayed this image of this guy that he was extremely successful, was doing these multi, multi, multi, multi million dollar deals in Hawaii. And so for whatever reason, I trusted him more than I should have. And he said, hey, listen, I got this deal. I haven't blasted it out to anyone. I enjoy getting to know you at this lunch. I'll give you first dibs. And so turns out is a 3% interest rate. Seemed too good to be true, right? $450,000 purchase, 3% interest rate. The biggest thing now looking back is $110,000 down, which I wouldn't do in today's world. But so I asked him all my questions. The guy selling my deal, which is a mistake that I wouldn't make today, I asked him all these questions, like, why aren't you taking this down? You're a successful dude, you have the capital. And I took it down. And yeah, I, I don't want to ruin all the story now, David, if.
- [06:24]
A
You have any questions now, I can tell you've talked about it before. And so once you get down that rut, you go. So kudos to you for recognizing you were about to keep going with that. All right, so one thing that you mentioned that I want to highlight here is you had a little feeling in your gut, like, this just doesn't make sense. Why would you not be taking it down? So you asked him. You also highlighted you're getting it from a wholesaler. Wholesalers, in my experience, when I listen to YouTube channels or podcasts, their name has become synonymous with good deal. Like, they get you a better deal than a real estate agent. They get you a better deal, you go to them for the deal. You go to the real estate agent. If you don't know what you're doing, which isn't wrong, they can get good deals. It just isn't the whole story. Oftentimes, wholesalers are way shadier than the most incompetent real estate agent you could ever find. They are actually motivated to, to hide things from you. They are not licensed if people did not know that. So there is no oversight, regulation, or consequences if they do not disclose something to you. They're actually, I would say, motivated to not disclose Something to you, as opposed to a real estate agent that is in big trouble if they don't do that. And they're trying to shine up a deal to make it look as good as they can to get you to buy it. And then sometimes we're probably going to get into this later. Wholesalers will try to wholesale somebody else's deal who is trying to wholesale someone else's deal. So you start to get layers of shadiness that get involved where someone gets a deal on the hook, they can't sell it, they go to someone else who has a network of buyers and they go, hey, if anybody wants to buy this deal, it's this much money. They just tack on a percentage to what they're going to get paid. Someone else sees it, they have a better network, they bring it in there and it just gets so complicated. This would never happen in a regulated environment. But in the world of wholesaling, that's the Wild west, there's no way of knowing where you're getting. It almost turns into like the drug scene in Oakland where you can be buying cocaine that's been stepped on from someone. Ketamine's been added to it, baking soda has been added. So you have no idea what you're actually getting when you're just buying it from some rando drug dealer on the street. So I don't want to assume that was happening with this wholesaler. But can you at least acknowledge that you do see similar architecture in deals that are purchased off market from wholesalers?
- [08:36]
B
100%. But what I will say on top of that, David, is I think wholesale can be done in an ethical manner. I do believe there are good wholesalers that are upfront about things. Just on the real estate agent side, I firmly believe that wholesalers should have a license. As someone that wholesales here and there. I have a license as a realtor that I have to disclose certain things where. That's where my beef is probably similar with you, David, is when it's the wild, wild west and there's no regulations, there's a lot that can go wrong because they're not held to any standards whatsoever. So that's my 2 cents there. I don't think wholesale is a bad thing. I don't think all of them are terrible, But I do 100% agree that there's not enough regulation there. And you need to be cautious when you're dealing with wholesale deals.
- [09:33]
A
The strategies or the structures themselves are really bad. The way they are presented to the public is usually where the Danger comes from, and that's the point of this podcast, is not to say they're bad, they're good. I'm not sitting here as the judge of all things real estate, but I do want to show people the whole story, which I appreciate you doing today. All right, so you find this, this deal is in Hawaii then? Because that's where the wholesaler is.
- [09:55]
B
No, he was doing deals in Hawaii out of state. He is from Utah. This deal was in Utah.
- [10:01]
A
Okay, all right, I got confused by our Kirkland connection there, but this is a Utah deal. Was this like a short term rental or an apartment complex? What type of property is it?
- [10:09]
B
So it was a single family residence. 2014 was the year built and it had an ADU play. So I put 110 down 70 grand finishing out the basement. So I was all in for 180.
- [10:24]
A
All right. Now is this just like a straight up rental, just long term rental that you're looking to buy? Yeah, I'm very boring and that seems safe in most cases. Boring is good. Right? If I'm going to assume now if this is something you're buying, sub to, what that means, just in layman's terms, is you're buying it subject to the existing mortgage, which means you're not going to get a loan to buy the property and give the seller the money, who then pays off the money that they owe. You take over the payments that the seller has been making, which usually happens when the seller has a lower interest rate than you would have if you went to go get a loan. That's why the strategy has become very popular as interest rates have gone up because cash flow went away. So sub 2 gets marketed as well. If you buy a property with a lower interest rate, you're going to get better cash flow. You solve the problem. The downside is that you have to make up the difference between what you're paying for the house and what they owe on their current mortgage. So you had to pay $110,000 to make up the difference. Then you still had to pay your remodel or your rehab of $70,000 to fin finish a basement, which kudos to you. That's one of the strategies that I like the most. I call that forcing cash flow because you probably created another unit that could be rented out as an ADU separate from the main house. Is that right?
- [11:40]
B
Exactly.
- [11:41]
A
Okay, cool. So you put $110,000 of your hard earned, hard saved money into this thing, then you spend another $70,000 on the rehab. Did anything go Wrong with the contractor or the remodel of the basement? That seems like about what I'd expect someone.
- [11:52]
B
It's funny that you brought that up, because this is never part of the story, but because you brought it up. The contractor was the wholesaler's family. It was his construction company with his sons doing the job. They quoted me 50 and ended up being 70. 70, I feel like, is around what I would have paid for.
- [12:17]
A
Don't you, love, bro, I'm sorry to cut you off.
- [12:19]
B
You're good.
- [12:20]
A
Is there another profession anywhere that can tell you it's going to be X to do the job you're hiring me for and just add to it indiscriminately? But they never say, you know what? We got it done faster and easier. It's only going to be 40. Like, can you think of anything else? Where you go somewhere and they say, hey, I'll sell you this car for $15,000. And then the minute you're signing the check, they're like, actually, it's going to be $22,000. The tires were a little bit more expensive. Just contractors routinely get away with it, and it only goes in one direction. And there's not a lot of oversight there either. So did they tell you what led to this $20,000 difference in what you had to pay?
- [13:01]
B
No, and this was a big mistake on my end is they said, we expect it to be this. We're going to go hourly. You pay for materials, we'll go hourly. Especially. I'm not going to be there checking hours the entire time.
- [13:16]
A
Right.
- [13:17]
B
So it just got out of hand. It kept going. There is more excuses, more excuses. So, yeah, that's what happened.
- [13:23]
A
All right, so 40% increase in your construction costs right off the bat, they conveniently are able to offload the risk from themselves to you by going hourly. So now if they work too slow, if they take long lunch breaks, if they make a mistake and they have to go back and fix that mistake, it doesn't come out of their end. They just charge you more. They're actually incentivized to make mistakes. And I've heard contractors do this, and they always rationalize it, saying, hey, David, I'm not in the business of losing money. Like, well, if I suck at my job, I'm usually going to lose money at it. Like, you didn't get to offload the risk of this $180,000 to anybody else. But contractors will do that. So my advice is do not fall for the offer of, we work hourly. You tell Me what it will cost you to do this job. You are responsible for doing your own due diligence like all the rest of us have to to figure this thing out. Do not pay them 100 of what they're owed or even 50% of what they're owed. Give them small draws as they go so if they f this thing up, you can cut your losses pretty quick and hopefully have got the work done that you paid them for and keep them on the hook to stay honest with these mistakes that they're making. Little public service announcement there. So going back to this deal, what were you thinking? It was going to cash flow. What was your cash on cash return going to be? Was there an equity gain here? Like, tell me what you thought the deal was going to look like.
- [14:38]
B
Yeah, so I can't remember what I thought it would be, but the numbers after Resolve stabilized were actually great. Like at the end of the day, I felt like there was 50 grand in equity built. Not great, especially in the traditional brrrr model. And for how much? I'm throwing capital at it, but the cash flow was great. It was, I think around $1400 in cash flow. And this was two years ago. If it's plus or minus 100, 200, I can't remember exactly, but when I add up cash flow, I'm very conservative. And so that's including vacancy, capital expenditures, property tax, everything. Right. So it's around 1400. I remember it being like a 14% cash on cash. So if people are doing backwards math and if it's off a little bit, I do remember it was a 14% cash on cash. So whatever I put into it, that's around where I was at.
- [15:35]
A
Okay, cool. So you're expecting fourteen hundred dollars a month in cash on cash. And did you mention how much equity you thought that you would be adding to the deal?
- [15:42]
B
50 grand was my total equity after what I put in.
- [15:45]
A
Okay, so you thought, hey, I'm going to force equity of about $50,000. I'm going to get cash flow 1400 after I force cash flow by developing this basement. This looks like a deal that most people would jump on that I would say, yeah, that sounds good. Assuming it's in a good neighborhood. And do they have bad neighborhoods in Utah?
- [16:02]
B
Some.
- [16:03]
A
Okay, so. But it probably wasn't.
- [16:05]
B
This is not a terrible neighborhood. It's up and coming. So.
- [16:10]
A
Okay, now where did things start to unravel? What was the first thing that went wrong?
- [16:14]
B
Yeah. So for the sake of this call and to kind of jog my Memory on timelines. This was May 10, 2023. So over a year, year and a half almost. There was a letter posted on my tenant's door. So I'm not receiving this letter. I'm getting a picture of this letter from my tenant who has been in there for two months. So I was stabilized for literally two months. And the letter was a notice of trustee sale. So I'm reading it. This is getting foreclosed on. It's not me listed, it's the seller, but still.
- [16:57]
A
Right.
- [16:57]
B
I have 180 grand invested in this and it's going to.
- [17:01]
A
Okay, so to clarify this, you took over the seller's mortgage as part of the sub two deal and you've made the mortgage payments that you were supposed to make for them. So you weren't giving the money to the seller and trusting they made the payments. Right. Okay, you're making the payments yourself. So you can't understand why the lender would be foreclosing on this. If you've made the payments, go ahead and jump back in.
- [17:25]
B
Exactly. Like, I'm, I'm confused. I've been making my payments as a very young to creative finance or inexperienced beginner. I'm going to the people that I have experience with in this endeavor, which is the wholesaler, sadly, and eventually attorneys. Right. And so the first call was the wholesaler. I'm like, what the freak is going on? I was kind of in panic mode and he said, this is nothing to worry about. We've dealt with this before, blah, blah, blah, let us deal with it. So I let him deal with it. And then a couple weeks go by, I'm following up and it doesn't seem like there's a solution. And so I said, okay, what are next steps? Like how are we going to save this? And keep in mind, like after asking him all these questions before, I had zero clue what I was getting myself into. Zero clue. And that's on me. Like I understand that now when I've done a lot more creative finance deals in general and gained some experience in this industry, is that that's on me for trusting this guy and not doing my own due diligence. But the next step for the solution was to convert this to a contract for deeds. And David, I can expand a little bit more on what a contract for deed is if, if you'd like. But that that was their next step in the solution.
- [18:59]
A
Well, yeah, contract for deed to basically be. It's kind of a compromise. Like we are going to foreclose on you and the Foreclosure process is the act that the lender has to take to take title back from the person who they gave the loan to. And they're claiming that this person defaulted on the terms of their loan, which is usually you didn't make the payment. Other things can trigger a foreclos treasure. But they're saying, hey, instead of making us spend all this money to go to court and foreclose and take the property back, if you just give us the title without making us get a judge to issue it to us, and every state has a different process for that, we'll give you some kind of benefit, which is usually it won't go against your credit as seven years. I'm sure that there's some kind of penalty. You're gonna have maybe like a three year credit hit. But they're, they're working with you if you'll work with them. But you're sitting here like, I don't want you to take it back at all. I'm making your effing payments like, what the hell's going on? So you're scared that they're offering you a contract for D situation. Sometimes they'll call it a like title and lie or something like that. Who? And you talked to the wholesaler. Did the wholesaler know? I would think they wouldn't have any clue.
- [20:04]
B
Yeah, so the wholesaler is actually communicating. This gets like further into the weeds. But the listing agent, this was on market at one point is the seller's brother. And so the listing agent is working with the wholesaler. The wholesaler had it under contract with the listing agent. And so when I say contract for deed, they wanted me to convert this to a contract for deed with the seller. And so it would throw title back to the original seller's name. And so they would be, they would have ownership. Right. And then because they have ownership and I no longer in the title holder, then supposedly the bank is going to allow us to keep making the payments because it's in their name. And so that was the solution that was presented to me. And so I did it. I'm like, if I want to save $180,000 of my cash that I've thrown into this, then I want to do whatever I can. And so if I have to throw title back in their name for a time being and I still have equitable interest is what my attorney stated, then that was the best shot.
- [21:19]
A
Okay, so what you're saying is the bank realized title transferred to you, but the loan is being paid by you but they didn't give the loan to you, and basically that triggered their due on sale clause. So they said, hey, we don't know who you are, Tanner, but we never underwrote you for this loan. We underwrote the person that you bought the property from. We don't feel comfortable taking payments from you. So if you're going to do that, we're going to foreclose on you. And if you want to avoid that, give title back to the person that we gave the loan to. Is that right?
- [21:51]
B
So, not quite so. Because this, the bank wasn't involved in this discussion yet. It was only me, the wholesaler, the listing agent, trying to find solutions without involving the bank yet. So. And I can answer your question, David, because that's where my head was going. I'm like, why is this getting foreclosed on? I still had no clue. Like, payments were updated. I had paid arrears of 20 grand, which was included in my $110,000 down payment. So I thought things were updated.
- [22:19]
A
Meaning you had caught them up to speed because they had fallen behind on their mortgage, which is why they're selling it to you in the first place. Okay.
- [22:24]
B
Exactly. Right. Yep. So I'm confused. Like, I have no idea why this is being foreclosed on. So this contract for deed happened. I threw title back in their name, and then a month later, whenever it was, we get another notice that it's still going to auction after. I thought this was going to be the solution. So now talking with my attorney, the attorney says, yeah, they know everything that's going on. You need to stop trying to hide from the bank and just see if there's any sort of solution with the bank. So now I'm like, great. Like, this is still going downhill fast. They have a date for the auction and everything, which was quickly approaching. So I get on the phone with the attorney that's selling or foreclosing on this property. And what they told me is what shocked me the most is that, hey, listen, there's several reasons why we can foreclose on this property. And this lady was super nice. She's like, I'm not allowed to say a ton of detail because you're not the. Your name is not on this loan. And so I like, she was trying to help me out, but she's like, for some reason, the 20,000 was lost. The wire never went from title to. To pay off their rears. So whether the seller got that 20.
- [23:50]
A
Grand and just chose not to pay it back. Yeah. So you're Trusting that in that 110, 90 goes to them, 20 goes to pay what owed. You gave them the full 110 because that was part of the deal. Maybe they just said, well, it's his problem now. I don't want to deal with this. I'm going to keep that 20.
- [24:06]
B
Exactly.
- [24:06]
A
Okay.
- [24:07]
B
And so this is one of the main learning lessons is have a title company that you trust specifically that's representing your side. Because I don't think this would have happened if I had that. But anyway, so the 20,000 was nowhere to be found. So I'm yelling at the wholesaler, the listing agent, telling them to figure that part out. Obviously, my patience is gone. And they said, yeah, we're figuring it out. It sounds like the wiring instructions were off a little bit. They're tracking it down, blah, blah, blah. And so. But then what the attorney said is that, hey, listen, Even if that $20,000 gets paid, we're still foreclosing on this. And here's why. Because, no, only the owner occupant can live here. This was a low income assistance program, which was the loan that I took over. And I had no idea. Again, this is on me for not reading all the contract work. I trusted this guy. It's a loan.
- [25:06]
A
It does, man. I know it's easy to say that. Everyone's going to jump out and say, you should have looked at it. If you had seen that, would you even have known what that meant? I don't think I would have. Like, that's just the. The seller being shady and you having no real representation. I'm sorry I cut you off there, and I appreciate you taking ownership of it, but that's why we're making this show, because it's too easy to point the finger and say, you should have known, you shouldn't have done this, and then all the people that conspired to rip you off get off the hook because you're the only one that takes any responsibility. So I see what you're saying here that, like, that part of the conditions of that loan was that only that person can live in that house. They're not able to assign it sub two.
- [25:49]
B
Yeah. And there's pages and pages of legal jargon, right? So I. I should have done more due diligence. And my thought on that, David, is like, there's a lot of fingers to be pointed here. But if me personally, like, me being selfish, if I want to improve on this and if I want to, like, limit myself from making these same mistakes, I have to have 100% accountability or else, like it's going to be a victim game and I'm going to be running from my problems all over again. So that's my. I know there's several people that could have prevented this from me, myself. But in order for me to have the right mind space to keep going, like that's what I tell myself. So whether it helps or not.
- [26:35]
A
Yeah, right. And they're claiming that you're in default on the loan because the person they gave the loan to is not living in the house because that person took low income assistance and then stopped making their payments. So you are now in the position where you're thinking, all right, if I give title back to them, the bank will stop this foreclosure process, but are you then going to lease the property from them? And how do you get your money back? Like, how do you unwind all this?
- [27:01]
B
Yeah. So when I figured that out, I knew that I couldn't fix this is what me and my attorneys came to. That was the end solution. Right. Is not even a solution. But the end result was that I couldn't fix the current financing that was in place. So now my next step in my head is damage control. So if I don't want to lose 180 grand, I have a little bit of equity in here. I have a big down payment that I put in 70 grand of rehab. So I need to get this thing paid off with hard money and then just sell it, just get it off my books. Because after a 7% interest rate in there, it's, it's no longer a deal. I'm just going to cut my losses, move on with it. And that's where things got really bad because I wanted this solution, this is where I was heading, but I needed a loan pay off authorization. So again, I don't want to go down another rabbit hole if you have.
- [27:59]
A
Questions or no, that makes sense here. So you've got to figure out like, you can't just get a loan to buy it because the deal only made sense because you got locked in at this three, three and a half percent interest rate. So that's not an option. You can't really. I guess you could sell it, but you probably didn't buy it at a discounted rate because you were getting the sub 2. Right. So all of your traditional exit strategies are kind of gone because the whole point of sub 2 is that you just buy and hold. But that's all you need to do because you're getting the lower rate. And when you talk to the wholesaler and all the other people, they really have nothing to offer.
- [28:36]
B
Exactly. So. And I couldn't even sell it. Like, the traditional exit of selling and recouping some of my losses, I couldn't do because I didn't have title. I was. It was a contract for deed. And the loan assumption, like, in order to sell this property, I needed a payoff, an authorization from the bank to even wipe them clean. So as I. So I was told.
- [29:01]
A
So that the bank may have said to you, we won't take your money because you're not the person that owns this property.
- [29:07]
B
Exactly.
- [29:08]
A
Now, you said you didn't have title. Can you explain that part to me? Because I thought that when you bought the property, you came, you got the mortgage, but you also got the title to the home.
- [29:17]
B
Yeah. So In a normal sub 2 deal, the loan stays in their name, title goes to me. And so that's how I purchased this deal. I had title. But then on the contract for deed, when we were trying to save this deal, I could. I reverted the title back to their name.
- [29:37]
A
I'm sorry, Tanner. I thought that was like a solution. I didn't realize you did it. So you said, all right, stop the foreclosure process. You can have it back. We have this situation. So now you can't sell. Oh, my God. So now the owner of this home has all the money and control of the property, and you're just terrified because they could do anything they want.
- [29:54]
B
Exactly. My hands are tied.
- [29:56]
A
They could go sell the house to somebody else and get money from that person. And you're left without. Do you mean you have any recourse there?
- [30:02]
B
I didn't know all the ins and outs to it. What I was, like, focused on is I need to get a payoff so that I can sell this. Because my attorney said when I have a. This deal in a contract for deed, I have equitable interest, so I still have rights to sell it. So that's. That's what I was told. But I couldn't sell it without the payoff authorization from the bank, which I needed a signature from the seller, who is now an alcoholic, nowhere to be found. I'm calling his aunts, uncles, cousins, skip tracing everyone. The listing agent, which was again, his brother was. Had a restraining order against him, which no idea how that comes about. So he was no help. So I'm just like wild west, knocking on doors, trying to get this signature in. Long story short, what are you.
- [30:55]
A
What are you feeling when you're in this position? Like, honestly, dude, I mean, like, we.
- [31:01]
B
Highlighted this a little bit before the show is that I'm attached to money, and that's by, like, by nature. That brings me so much anxiety, the thought of losing money.
- [31:10]
A
But this isn't just money, bro. This is 180,000. Everybody's attached to $180,000. Like, yeah. Are you los Sleep at night? Is it hard to connect with your wife? Because you just feel like, I can't think of anything else until I figure this out.
- [31:23]
B
100%. Yeah. Like, I. I was a zombie. Like, I had one. Yeah.
- [31:27]
A
And then not only is this one thing you got to fix, but this thing has, like, 17 moving parts that you have no experience in, and no one else does either. How many people can you even talk to about how do I fix this? They don't know.
- [31:38]
B
I. I talked to so many attorneys, so when comments come in, like, well, you should have just done this and that. Like, if I'm not communicating it, like, the exact way, like, I talked to the top attorneys in Utah from what I was aware of. And so it's not like I was just going blind at this. Like, if I'm not telling the story exactly how my attorney said it, then there's probably some fault there. But, like, I was going to the exact limits.
- [32:08]
A
How much did you spend in attorney fees?
- [32:10]
B
I think it was around, like, 15 grand.
- [32:13]
A
This is, like, $200,000 now.
- [32:15]
B
Yeah.
- [32:16]
A
That's nuts. Okay. And do you have tenants in the house at this point that are renting from you?
- [32:21]
B
Yeah. Yeah. And they're also trying to sue me, of course. I kid you not. And, like, I can't blame them either. Like, they're trying to sue me because they moved you into a property. And what. What does a tenant think when I try and explain this situation? Like, hey, they're saying I don't own the house, and so they're foreclosing on it, even though I put $180,000 down. Like, that doesn't make sense to the common person, let alone, like, even a lot of investors don't understand that. So, yeah, they were coming after me, too. So a lot being thrown.
- [32:55]
A
And how many deals had you bought before this one?
- [32:58]
B
I think I had, like, 12 properties at this time.
- [33:02]
A
And this just blindsides you, dude. So your pride's getting hit, your pocketbooks getting hit. You probably feel like you're alone. Like, no. Even the attorneys you're talking to don't know what the hell they're supposed to do. I mean, I can't tell you how many times I've talked to an attorney because we always say, oh, are you stuck? Do you need backup? Go get an attorney. Attorneys can be idiots. They, they usually just want to know, what's the path that I've walked a million times before. How can I get $400 an hour from you to walk a path that I've already walked as slow as I can walk it, and milk you for as much as you possibly can? They present themselves like your advocates, but they're not trying to save you money. They're trying to get as much money as they can from you. And they're not looking to do anything that they haven't done before. So I would imagine every attorney you talked to had to ask a million questions to try to get up to speed on this, did not have confidence to tell you that they know what to do. And we're like, hey, it's going to be a $10,000 retainer for me to go do a bunch of research to figure out, and then maybe I'll be able to help you. Not fun.
- [33:58]
B
I was even talking to, like, the top foreclosure attorney in Utah. Like, I was like, this guy's got to have answers. There's a lot that was happening. There's one more part that is just like, it's hard to make this up. It feels like everything that could possibly go wrong went wrong. But I. So, yeah, now with that 15 grand attorney fees, now I'm paying my tenants like, hey, listen, I'm super sorry. I'm going to pay your move out costs because I genuinely did feel bad. And so I paid for their move out costs to find a new place, also to avoid another lawsuit. So it like trying to avoid more problems there. But then it went to auction after I couldn't get the payoff and there was excess funds, so it sold for more than they sold it for. And so now my attorney I'm working with is like, there's 40 grand excess funds. I go through like a month thinking that I'm going to get 40 grand back. And then the cherry on top of this deal, David, they say, oh, sorry, because you reverted title back to the other seller. You're not getting that 40 grand. The seller is getting that 40 grand.
- [35:12]
A
You're just like funding this alcoholics absolute shitstorm of a life, right? Like, they already fell 20,000 behind on their house. Someone, some wholesaler sends them a letter, they call that wholesaler the whole. So like, look, bro, I'll fix this for you. We're going to sell it sub 2, you don't understand what that means. You just keep drinking. Basically, someone's going to pay your mortgage for you and I'm going to get you 110,000, they say, sounds good to me. I get a lot of king Cobra with $110,000. You do this and now that person doesn't pay off the 20,000, triggers this stupid situation. And now because you tried to fix it and gave them the title back, they're now keeping the $40,000. And where was that going to come from?
- [35:56]
B
The excess funds from the sale, the foreclosure.
- [35:59]
A
Okay, so, but they're the, they're officially the owner of it. So now they get $40,000. And now someone like you that has worked this hard to save up money and been diligent with your money and a good steward of it is now basically funding the alcoholic lifestyle of this person that did terrible. And I can't help but say this, this never happens. If you take the traditional route of buying a house from the MLS with the real estate agent, where you have lots of protections, you have lots of contracts, you have errors and omissions insurance that can cover your agents if they make mistakes and they can cover you. There's like a whole fund for people that get screwed over in real estate deals that the usually their state association of realtors will cover. You're just out there like with no bulletproof vests when these things are flying. And you didn't think you're gonna end up in a war zone.
- [36:47]
B
Exactly.
- [36:48]
A
Okay, so where we were, you were thinking about selling the property to just get out from underneath it. But were you told if you do that you won't get any of your money back?
- [36:57]
B
Yeah, I was told that I couldn't. I was told because I don't have the payoff authorization signature that I couldn't.
- [37:04]
A
Okay, so what do you do now?
- [37:06]
B
I. Yeah, I mean I, I hit the wall in with these discussions with the attorneys. I just realized I couldn't. And so it went to auction and it sold to someone else. The excess funds went to the seller and that's the end of the story. So.
- [37:24]
A
Oh, there's no happy ending here. You.
- [37:26]
B
Oh no.
- [37:27]
A
Literally lost everything you put into that thing.
- [37:30]
B
Every dime.
- [37:31]
A
And your attorney fees and the move out fees you paid to your tenants and the quality of life from just hating yourself. Like, is this. Did you get into therapy at this point? I have to ask. That has to be so bad.
- [37:47]
B
It was so bad. Yes, of course. I'm talking to Counselor, I'm talking to anyone who will listen to me at this point, but you're going to the.
- [37:54]
A
Local bar and you're sharing your story with someone drinking next to you, and it turns out it's the homeowner who's there. Let me tell you about my troubles. I thought things were bad for me and $40,000 just hit my account out of nowhere.
- [38:07]
B
Yeah, exactly. Yeah. What was a blessing to them was a curse to me. But so. And yeah, at the end of it, it was. Honestly, it took two weeks where I was like, just straight depressed, still like a zombie. And then I had a good discussion with my wife who was like, hey. Like, obviously her first interaction was like, what the hell did you just do? But, like, after some of these discussions, she's like, hey, I support you. I believe you're going to come out of it. And that's all I needed. So, luckily, the moping around only lasted two weeks after this was officially wrapped up, and then I got back after it, and things have been good since.
- [38:50]
A
So, okay, since there's no silver lining to this cloud here, how did this change the way that you look at sub two investing? The way you look at wholesalers, the way you look at creative structuring of deals in real estate in general?
- [39:07]
B
Yeah. So the biggest thing I'd say, like, the lessons I learned from this deal, specifically when it comes to sub two, is, number one, like, have a title company that represents you and yourself. That's one of the biggest things. They have a lot less incentive to close a deal if they have your best interest in mind. Number two is make sure you're doing your due diligence on your own. Don't trust random wholesalers. Like, honestly, I'll even expand beyond that is don't trust anyone selling you a deal. Do your own due diligence. And then number three is watch the loan products that you're taking over. If you do plan on doing a sub two, like, please, please watch the loan products that you're taking over. But yeah, I'm still very much involved in the creative finance space, but I do things completely different. If a client of mine wants to get into this, I am telling them the story. I'm sending them links. I am, like, communicating this risk from the rooftops. Because if I want to be in this industry for 20 years, I don't want someone coming back to me with how angry I was if they're not aware of these risks. There's risks everywhere, but, like, it's my job to communicate those and to do the best job that I can.
- [40:24]
A
So what do you think about the way that some of these alternative industries are marketed? The wholesaling, the sub? 2, they're obviously not evil inherently, but I think you and I could probably both agree that the way that many online influencers will talk about some of these gray areas only presents the wins, doesn't present the dangers for people that are listening to this, that are maybe new to hearing about it, or they've recently been connected with wholesalers or got into creative financing opportunities, or they found themselves in a, like a, a Facebook group where they're specializing in creative financing and they're looking for these deals where you could take over somebody else's mortgage. What do you think they need to know to just operate safely?
- [41:06]
B
Yeah, well, what I'd say, number one, like marketing is marketing and should be seen as such. Real estate in and of itself is a risky business, especially on the investment side. And so YouTube in general is marketing, Instagram in general is marketing. Like, don't let that funnel what you do with all your money. That's my opinion. Because with a lot of these strategies, the risks are not communicated clearly, especially in a 30 second reel, especially in a 10 minute YouTube video. Like it's not possible. So, um, that's one thing I'd say. Um, repeat the second part of that, that question, David, because I wanted to answer it, but my ADD brain.
- [41:55]
A
Yeah, just when people are hearing about this, what are some things you think they need to know about it so that they don't get afraid to look into it? We don't want people to run away from wholesalers like they're lepers. But they need to understand that's not your friend, that's not your fiduciary. They very well could be a shady person themselves who interested in making money in real estate has no money. Someone said go wholesale. They just go knock on some Rand door. And that person's like, yeah, you could sell my house, I need to buy some more Coors Light. And that is what is being presented to you in this shady package, this email that you get with all this information.
- [42:30]
B
Yeah, I love it. Okay, so two parts to that. Number one, I think this is the importance of networking in general. If you have a band around you that has your best interest in mind, throwing deals in front of these people, throwing ideas, being able to bounce ideas back and forth is crucial, in my opinion. And so getting involved in events in Facebook groups that are like unbiased, not a specific strategy Facebook group, but maybe Like a Utah investment community, more general sense. That's my two senses. Like, make sure you're networking so you have different people to bounce ideas back off of. And then number two for sub two, specifically, I think the conclusion that I've drawn, like, I still will do sub 2 deals here and there, very, very different than I've seen them before. And 9 out of 10 deals that I see from the sub 2 perspective, whether it's a wholesaler, someone talking about their own deal, I think are terrible. Like, I have no idea why they would get into that deal. Probably because the buzzword. Right. But my $0.02 on sub 2 today is that it's not for new investors that are not well capitalized. If you don't have clear exit strategies. If the note does get called due, like, it's terrible. So, like seeing, seeing these brand new investors, like, even the situation I was in, it didn't pan out well for me. But, like, I don't feel comfortable selling a sub 2 deal to anyone that's not well capitalized or an experienced investor to where they can exercise different exit strategies that a new investor couldn't.
- [44:19]
A
There we go. That's super, super helpful. Well, Tanner, really appreciate you coming on here and sharing this story. Really sorry to hear that this happened to you, but I am rooting for you to get all that back and more. Making good decisions. If people want to reach out to you, ask more questions, follow you, where can they do so?
- [44:37]
B
Yeah, I'm on Instagram, the investor, Tanner. It's kind of loud behind me as well on that decal, but. And then YouTube, the investor tenure as well. Those are my. The two biggest platforms that I focus on today, so.
- [44:50]
A
All right, man. Anything you want to ask me or anything you want to say before I let you go?
- [44:54]
B
No, I'll just reiterate that I appreciate the series and what you're doing because a lot of people need to see this. And that's why I was excited to jump on, because this is what I'm trying to preach. Like, things don't go well in real estate and people need to understand that. So don't trust everything the gurus say.
- [45:11]
A
Thanks for that, man. You'll be in my prayers. Great story. Great resilience. Stick with it.
- [45:16]
B
Thanks, brother.
- [45:17]
A
Thanks for listening to Real Talk Real Estate. If you would like to be featured on the podcast, I'd love to have you visit davidgreen24.com Ask and submit your question there. Also, please do me a huge favor and share the show with someone that you love that you think would benefit from his message and make sure you're subscribed. Subscribe to get notified for future episodes. If you want to reach out directly, you can also DM me on Instagram or social media and check out davidgreen24.com.